TopShop: another British retail disaster in Japan?

Mar 15

Large British fashion retailers haven’t had a great time of it in Japan, and last month the record got even worse after TopShop’s franchise partner suddenly closed all of its stores with little notice. TopShop is reported to be looking for a new partner, but when competitors have shown the merits of direct investment it still begs the question why.

UK fashion retailer TopShop, TopMan closed all its Japanese stores at the end of January. It had just five shops, this after almost a decade in Japan. TopShop will continue to sell in Japan, but only through Zozotown, and is reportedly looking for a new partner.

TopShop was operated through a franchise company called T’s, owned jointly by Mori Ryutsu System (a subsidiary of Mori Building), and an investment fund, JBF Partners – the latter owned a majority stake of 65%. However, late last year both Mori and JBF pulled their capital out of the operating company.

Back in 2010 after four years and just three stores, the partners announced a major expansion plan, expecting to build a chain of 10 to 15 stores within three years, and larger ones to boot, with forecast sales of ¥15 billion. But after opening just two more stores, further efforts to find new stores simply stopped.

The question is why the sudden departure. In the UK, TopShop is the third largest apparel retailer after Primark and Next, with more than 300 stores and another 140 around the world. In Europe it is regarded as the third major player in the fast fashion market after Zara and H&M, with a successful positioning as a young, street fashion chain, a positioning that should have gone down well in Japan. Its peers, Zara and H&M, have both been phenomenal success stories here, proving that foreign fashion chains can have a strong and loyal following, if implemented well.

One problem was poor store performance. Sales at TopShop were not nearly as high as hoped, reaching a reported ¥3.5 billion from the five stores and online in FY2013. The 1,000 sqm Shinjuku store alone was forecast to generate sales of ¥2 billion a year but last year reportedly managed just ¥1billion.

It was after the poor results came in and the Yen began to weaken further that the local partners pulled their capital. And this was the key weakness in Top Shop’s Japanese operation: the partner.

As reported at the time of the deal, the original choice of partner seemed to have been made simply because TopShop already knew Mori through its direct operation of a single store in La Foret Harajuku, a fashion building managed by Mori. Neither Mori nor JBF had any understanding or knowhow in fashion retailing – and it seems they didn’t gain much in the interim.

Not surprisingly, Arcadia Group, which owns TopShop, hopes to relaunch soon with a new partner, but given the disastrous record of joint ventures including its own, and the obvious success of its competitors through direct operations, it remains a mystery why the UK firm does not commit its own resources here.

Either way, the choice of a partner with little understanding of fashion retailing and marketing, nor a willingness to hire it in, meant TopShop in Japan had big problems from the start. One of the reasons for the success of TopShop at its Oxford Street flagship for example, is the high octane street fashion presentation, mixing own branded lines with hot new indie designers, collaborations, used clothing, funky accessories, and cosmetics.

In Japan, space limitations may have made this hard to replicate, but even then most stores were flat and uninspired. Prices were also at a high ratio to home country prices, a risky move given the extent of competition in Japan. The higher pricing works fine when the retailer can offer something different and exciting, but with Japanese stores failing to inspire, the perceived cost performance was poor.

Choosing to go with a franchisee meant thinner margins for both franchisor and franchisee alike, but these were then exacerbated by the collapse of the Yen against the Pound. The low Yen has hit all importers and retailers, not just TopShop, but most are finding ways to handle this and, above all, are thinking long-term – retailers with direct operations in particular have a better chance of navigating the storm given the wriggle room of higher margins.

For all these reasons, plus the need to have direct contact with consumers, and to learn to adapt to Japanese tastes and marketing needs and so on, it is clear that Arcadia would have been much better off setting up its own direct subsidiary in the first place. This should have been obvious at the start given its own poor history attempting to tie with Japanese partners in the 10 years previously – not least, the long and fruitless negotiations with the likes of Aeon and Itochu Shoji.

And even more obvious still given the atrocious record of British fashion retailing in Japan since the 1990s. Almost all the major British chains, such as Warehouse, Next, Oasis, French Connection and so on, tried the Japanese market, and all through curious and sometimes desperate, not to say disastrous, choices of local partner – the only chain to try a direct route is Ted Baker, still just two stores but hanging in there despite the lack of committed investment. Having signed a partner, UK firms made matters worse by largely ignoring them, expecting the partners to make a success of the business alone.

The only UK apparel chains still in Japan are Accessorize, just recently taken on by Itochu Shoji after another failed venture, Next through a franchise with Xebio, and Laura Ashley through Aeon. After 19 years in Japan, Next has just 15 stores, of which many are in odd locations and far too small to do the brand and its vast merchandise ranges justice – Next has 500 stores in the UK and 200 overseas.

The record speaks for itself. Until a British retailer makes the necessary, long-term commitment to Japan through direct investment, there will be no British fashion chain to match the success of its Swedish, American and Spanish peers. It is a shame as, of any British retailer, TopShop was the one with significant potential in Japan.

E-Land exits Japan

TopShop is not the only foreign retailer to quit Japan this year. E-Land, the large Korean retail concern, announced it will close all the Japanese stores for its Mixxo chain this month. E-land owns chains such as Spao and Mixxo and operates around 10,000 stores worldwide. In March 2013 it opened the first Japanese store for Mixxo within Sogo Yokohama followed by a second within another Seven & I property shortly after, and then three stores for its Spao chain. Last May it began closing them due to poor sales. Spao in particular looked like having potential in Japan if only as a source of clothes for those with Uniqlo ennui. E-Land says it is currently discussing internally its future plans for Japan.