The Real Cost of Japan’s Destruction on Retail

If Miriam Webster defines globalization as “the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets”, the recent devastating earthquake and tsunami in the northeastern region of Japan has strained or completely shut the free flow of anything except water and nuclear radiation. Honestly, the idea of a nuclear nightmare of this magnitude is so “24“, only the sobering images of the destruction bring home that this in fact, did happen.  The lasting effects of this natural disaster are impossible to quantify at this point, but consider the following facts when trying to give dimension to how far reaching the consequences are:

  • The cost of shutting down Japan’s automotive industry for even one day is equivalent to six billion yen ($73.3-million).  Oh, that is just for Toyota.  It’s another two billion yen for Honda.
  • In 2009, Japan was responsible for 13% of global vehicle production and the U.S.  is the number one importer with 1.2 million vehicles.  That is a lot of Toyota Prius’ and Camry’s, not to mention the “number one selling sedan” Honda Accord. Gonna guess those numbers are most likely to decline in 2011.
  • Although only about 8% of North-American built vehicles use Japanese manufactured parts, supply chains are so lean and global (so we as consumers can all pay less!), U.S. factories will face forced shutdowns by week’s end.  What does this mean? It may be kosher to say, but heck if there is a silver lining besides not having to hear about Charlie Sheen 24/7 is the opportunity for American automotive brands to get a leg up on foreign competition that generally wins the price/quality war given their lower labor costs and government subsidies (China anyone?).  So, if you are in the market for a new Honda or Toyota, expect to sit down while you wait because they aren’t coming anytime soon.  Or, take a look at the Ford Taurus or Chevy Impala.  Heck, the Cadillac STS is looking pretty good right now.

However, the automotive industry isn’t the only victim. In fact, the aftershocks have reached the deep pockets of luxury retailers.

Over the past decade, Tiffany & Co. has expanded into the Japanese market in search of additional revenue streams and brand growth.  Well, they did a great job as Japan now represents close to 20% of global retail sales.  Although it is true that the entire country was not physically affected by the earthquake/tsunami and only a small portion of Tiffany stores had to be closed, what is certain is that a devastation of this scale will likely dampen desire for luxury.  Who can think about a four carat cushion cut diamond when there isn’t adequate food or shelter?  However, lets be frank here, Tiffany & Co. is pretty likely to survive this down tick in revenue, but what about already struggling retailers like The Gap and American Apparel?

The Gap’s recent poor performance prompted CEO Glenn Murphy to go on record about his plans to helm a major turnaround for the juggernaut retailer. Well, a terrible first step is the fact that The Gap had to close at least 7 of the 131 namesake stores operating in Japan due to physical damage.    Without concrete information as to the percentage of sales derived from these shuttered stores, it is difficult to determine the scale of lost revenue.   But, if you thought you were going to see higher prices on denim come July given the high cost of cotton, that price tag just went up another $5.00. After all, someone has to pay for the lost income!

Then there is American Apparel.  Thank God I have a sense of humor because the problems plaguing this retailer are severe but so absurd its almost enjoyable.

Left to right: Irene Morales and  American Apparel CEO, Dov Charney.    Photos courtesy of American Apparel

Within the industry, the rumors of Charney sexually harassing and demanding sexual acts from his employees  are long-standing.  In fact, more than one lawsuit has been filed against him, but none have been proven in court (shocking, I know).  Well, add another shrimp to the barbie as it were because ex-employee Irene Morales filed charges this week against Charney to the tune of $250 million for enduring “years of sexual harassment and being forced to perform sexual acts for many months”. Classy Dov, Classy. Whether these claims are founded or not, I just think a guy who has confirmed he refers to the women in his office as “whores and sluts”  because, “some people like sluts”, deserves some sort of punishment. Don’t you agree?  And if not for that, how about for creating these fugly fashions?

Saraliously? What is up with the long pleated poly/rayon skirts?  Fugly, ugly, gross.

One retailer everyone is watching but not for the reason you would think is Japanese apparel behemoth, Uniqlo.

REUTERS/Yuriko Nakao

Although Uniqlo has only one retail store in the U.S. (right here in good old NYC), it is the Japanese equivalent to H&M or Zara and the CEO of its parent company, Fast Retailing, Tadashi Yanai has VERY deep pockets.  Despite the inevitable production delays the retailer will face as it deals with major disruptions in its supply chain, Yanai donated 1 billion yen from his own coffers to the relief efforts of northeastern Japan and another 400 million yen directly from the retailer. Now Dov, learn from Mr. Yanai.  To the best of my recollection, American Apparel didn’t make any donation to New York in 2001 when retail got slammed after our own disaster (albeit not natural).

So, the takeaways:  Don’t plan on buying an already in demand Toyota or Honda vehicle anytime soon, unless you are willing to take what is sitting in inventory.  Also, already escalating apparel prices are going to increase as supply chains are truly global and if a local hiccup becomes pneumonia on an international scale, imagine what an earthquake, tsunami and nuclear radiation can do.  Finally, when disaster strikes good people show up to support those who need it so everyone, go eat sushi and donate where you can.  Oh, and Dov Charney is a total jackass.

One response to “The Real Cost of Japan’s Destruction on Retail

  1. Pingback: Will Unrest in the Middle East and Japan Kill Luxury? | Up My Ali

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