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10.30.2009

First the McDonald's Burgers, Now Jeans - Never Ending(?) Price Reductions

It has now become a staple to be able to buy something at McDonald's in Japan for 100 yen - be it a burger or an ice cream, small shake, small drink, hot apple pie or whatever the latest promotion. And as an economist, I remember how an attempt was once made to use the price of the McDonald's hamburger as a global measurement criteria for the relative value of things. Then "Makudo" as they are called here, went on this donward spiral of price reductions that just made their burgers cost less than a bag of chips in a convenient store.

Now, it seems to be happening with jeans here.
Fast Retailing launched g.u. jeans at 990 yen to cannibalize UNIQLO's 2,990 yen jeans.
Honey's responded with their 990yen jeans and Aeon joined in with 880 yen jeans. Seiyu, of course, had to have an 850 yen jean, and Don Quijote reportely sold all 30,000 pairs of their 690 yen jeans since its launch on the 14th in 5 days.

The domestic jeans market is said to be around 80 million units per annum, and 70% to 80% of that is imported. However, in the medium to upper market segment, Japanese denim still plays a significant role. Even UNIQLO retails their Made in Japan jeans at 7,900 yen-more than double their entry price range.

Denim is in fact, one of the few fabrics that Japan continues to export and enjoys an edge over other production centres for its quality. Last year, exports of Japanese denim averaged 4.5 million sqm per month, but thanks to the global recession and competition from other countries, that is now said to be down to around 3 million sqm.

Kurabo closed its Okayama plant in June and has migrated production to China. Nisshinbo has commenced technology transfer for their dyeing techniques to Indonesia. Such strategic directions taken by Japan's No.2 and No.3 denim producers show a stark contrast to No.1 Kaihara, who continues to enhance efforts in Japan. And Kaihara seems to be walking a lonely road. Levi's Japan has also announced that they will move everything offshore except for some key products that can only be made in Japan.

Will Kaihara's efforts pay off or are they missing the boat?

As a retailer, one has to wonder who in the world buys all those low priced jeans - basic jeans! And why?
Does buying cheaper jeans free up some cash for the same consumer to buy a T shirt or another garment that he/she had not intended to buy, making the promotion worthwhile? Or do the consumers just come in for the jeans and not buy anything else?
When the latter happens, where does that leave the retailer?

Even before the crisis, the government's household spending survey indicated that household spending on clothing and shoes came down to 12,339 yen in 2008 from 15,891 yen in 2000.
This does not give one much confidence that lower priced staples like the 5,000yen suit is going to boost overall spending by encouraging consumers to buy more items.

And are 680 yen jeans something that consumers _really_ want?

No doubt someone will soon come out with a "one coin" jean or a 500 yen jean. But to what end?

A Senken columnist commented that visiting these retailers selling items at "incredibly low prices" meant that one is shown a very loud and busy retail scene, but there was none of the flair and fantasy that shopping for fashion should be offering.

It is not hard to imagine. What is there to be excited about purchasing such garments with no soul? I would much rather spend 1,000 yen on a good book or a decent cup of coffee!
And yes, I am still on the waiting list of the SAMURAI SP003JP Yamato jeans at 29,800 yen a pair. SAMURAI Jeans grew the cotton themselves here in Japan and the new Yamato is a tight fitting, straight leg jean with a new hip stitch - one of a pair of seagulls - a child and a parent; symbolizing the brand's wishes for a better future for our children. I am happy to buy into that story despite my 200+ pair collection of jeans (mostly basic jeans). But a 680 yen pair of jeans? What would I do with that?

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