In the final installment of the series (Parts One, Two, Three, Four), we look at the export possibilities for Japanese culture when the “most popular” goods and works are increasingly being made by and for marginal subcultures without obvious analogs overseas.

Part Five: The Difficulty of Exporting Marginal Subcultures

Marketing guru Kawaguchi Morinosuke’s recent book Geeky Girly Innovation: A Japanese Subculturist’s Guide to Technology and Design posits that corporate Japan needs to take more guidance from otaku and gyaru. There is an important point to this — these are now the most influential and powerful groups in Japanese pop culture and should not be ignored out of snobbery. And maybe their obsessive spirit has applicable lessons for industry management. Yet we should not be naive about this either in a wider context: the products actually made within these subcultures are increasingly losing their resonance overseas.

Until now, you could divide Japan’s successful consumer exports into three groups:

(1) technological/industrial goods like cars and electronics
(2) kids’ products like video games, toys, comic books, and pens/stationary
(3) sophisticated cultural goods like fashion brands, indie music, and literature.

Other than automobiles, Japan has lost its edge on high-tech goods. Korean rival Samsung has almost singlehandedly taken over the space once monopolized by Sony, Toshiba, Panasonic, and Sharp. And with the decreasing number of children, greater competition from the U.S. on video games, and a general move away from gadget culture, Japan is also struggling to export kids’ products. Meanwhile most of Japan’s successful cutting-edge culture exports — Pizzicato Five, Cornelius, Yellow Magic Orchestra, Shonen Knife, The Boredoms A Bathing Ape, Comme des Garçons, Hiromix, Murakami Takashi — came from a scene that has ceased to be high-profile in Japan.

This last category, while minor in terms of actual sales, did a lot of the legwork for boosting the Japan “brand” in the 1990s, especially among the cultural elite in the U.S. and Europe. The reason is simple: the artistic works spoke the language of upper middle-class aesthetes overseas. Furthermore these artists made an easy match with the West because they played with iterations of ideas originally created in The West: avant-garde art and fashion, street culture as defined by US/UK, punk rock, lounge music, etc. In general, the successful products and artistic works had something “universal” (i.e., “Western”) at their core, which made them more easily exportable. Overall Japanese culture found warm reception where the consuming groups in the West were similar to the Japanese creators in class position and values. We take for granted that Miyamoto Shigeru’s art-school tastes appealed subconsciously to the richer American youth who bought up the NES in droves during the mid-1980s.

What we have not seen, however, are good consumer comparisons overseas to the psychologically tortured Japanese subcultures like contemporary otaku or the yankii/gyaru. Mass market anime like Naruto and Gundam are relatively easy to export as they were built for “normal” youth. That cannot be said about moe titles that are meant to satisfy older men obsessed with two-dimensional elementary school girls. Similarly, no gyaru clothing brand has more retail stores overseas than the avant-garde Comme des Garçons, despite gyaru clothing’s huge business in Japan and CDG’s highly-limited audience. At least from what we have seen from the big subcultural moments in the last decade, the culture of Japan’s marginal pluralities is almost unexportable.

Let’s look again at AKB48 on YouTube — a global site where anyone can watch videos from anywhere else around the world. Based on the public viewership data for “Heavy Rotation” and other AKB48 videos, the vast majority of views for AKB48 come from the group’s domestic fan base. In other words, no other country than Japan contributes to AKB48’s multi-million view count despite the fact that the videos are available worldwide and AKB48 is the overwhelmingly dominant group in Japanese pop at the moment. AKB48’s seemingly-massive popularity in Japan make them the number one favorite for J-Pop exportation. Yet no one non-Japanese is watching their videos — even in light of a “Japan Cool” wave and the popularity of YouTube all around the world. Compare AKB48’s videos to the insight map for “The Boys” by Girls Generation (SNSD) in Korea, who have had massive success in Japan and whose YouTube stats show a very wide global audience.

In most countries with growing economies, educated upper-middle class consumers still spearhead the consumer market. They have the most disposable income and the most interest in cultural exchange. And those consumers, whether it’s Taiwan or the U.K., are the ones most likely to be willing to follow and purchase foreign cultural items.

Currently, however, the most conspicuous Japanese culture of otaku and yankii represents value sets with little connection to affluent consumers elsewhere. Most men around the world are not wracked by such deep status insecurity that they want to live in a world where chesty two-dimensional 12 year-old girls grovel at their feet and call them big brother. The average university student in Paris is likely to read Murakami Haruki and may listen to a Japanese DJ but not wear silky long cocktail dresses or fake eyelashes from a brand created by a 23 year-old former divorcee hostess with two kids. Overseas consumers remain affluent, educated, and open to Japanese culture, but Japan’s pop culture complex — by increasingly catering to marginal groups (or ignoring global tastes, which is another problem altogether) — is less likely to create products relevant for them.

This is not to say that the emergence of otaku and yankii culture is insignificant for Japan. This wave has finally given material and cultural expression to pockets of society that had a hard time voicing their experience in the past. The rich Tokyo elite enjoyed a disproportionately high influence over national culture for decades, and now the two marginal groups have taken the elite’s place in dominating the direction of pop. When it comes to “fairness” and democracy, this is the least elitist that Japanese culture has ever been. But we have replaced one kind of distortion with another, and we still should not confuse these subcultures’ tastes with being truly “mainstream.”

One of Harvard Business School professor Michael Porter’s teachings is that companies that are competitive overseas come from domestic markets where they have local competition and must learn to please demanding local consumers. The more advanced the consumers, the more advantage a company has in eventually exporting its products when other consumers catch up. Apple’s success with the iPod came from the product’s direct targeting of tech-savvy American college students and former college students who had massive libraries of mp3s stuck on computers and wanted to take them out on the streets. Girls Generation worked to best other idol groups in Korea through highly skilled dancing, singing, and a song library purchased from European producers.

Japan’s consumer market meanwhile is becoming increasingly dominated by technological and cultural laggards. The peak “Japan Cool” came at a time in the 1990s when the average Japanese was intentionally or inadvertently consuming highly sophisticated culture, and the pressures to please them gave Japanese companies the training to be globally competitive. Cultural producers tried to one-up each other in coolness.

Japanese companies now face a true crisis: Appealing to the most powerful consumers in Japan will lead them away from tastes and values that can be easily exported overseas. AKB48 may be opening vanity branches in Taiwan and Jakarta, but will the world inherently be interested in an idol group meant to please a small group of men’s reactionary attitudes towards women and desire for songs that ignore the last twenty years of musical change? And as we’ve seen with the success of K-Pop in Japan, companies cannot automatically protect the domestic market against invasion. When the mainstream consumers do see something they like, that reflects their values in a way that otaku and gyaru content does not, they pounce. But until they reawaken as a consistent consumer force or rebuild cultural online to be less centered around product purchase, we are likely to stay within the current situation — where marginal subcultures rule the school.

Last time we saw that the tastes of upper and middle-class “mainstream” consumers dominated Japanese pop culture from the post-war to the end of the 1990s. This time we will explore the most important cultural change of the last decade: the greater proportional power for marginal subcultures. Mainstream consumers, for the economic and demographic reasons given in Part One and Part Two, have ceased to consume with the same force as before and thus have lost their “voting power” within pop culture.

Part Four: The Rise of Marginal Subcultures

The drop in cultural markets has been almost perfectly pegged to the decline in incomes. Middle class consumers are buying less, and when they buy, now go for cheaper or risk-free products. Within this environment, we could expect marginal subcultures to also have curbed consumption. Yet they did not! And their steady buying into their own cultural niches has made huge changes in the tenor of Japanese pop culture.

Yankii and otaku: Consumption as pathology

The yankii and otaku have never traditionally been blessed with high incomes nor high future earning potential, and in pure homo economicus terms, should be cutting back even more than middle-class consumers. We must understand, however, that for the otaku, yankii, and gyaru, shopping is not merely a form of leisure nor has it even been an attempt to buy into a larger society-wide consumerist message. These groups use consumerism as a therapeutic solution to their psychological and social problems.

The otaku spend their time as avaricious collectors of goods and trading information with other otaku. In shunning away from mainstream standards of sociability, sexuality, and career success, the act of maniacal consumption becomes their raison d’être. They cannot relate with other people if not commenting upon these cultural goods. Culture — most of which must be purchased and enjoyed as object (even when it is just physical media holding content) — is the great satisfier of their deepest desires.

The gyaru, in comparison, put a high premium on social networks and romance. Yet there is a certain pain at the heart of gyaru culture. In his book Keitai Shosetsu-teki (“Cell Phone Novel-esque”), author Hayamizu Kenrou calls the basic aesthetic mode of gyaru literature — cell phone novels, Hamasaki Ayumi lyrics — “trauma-kei” due to its emphasis on overcoming personal tragedy. When I interviewed Nakajo Hisako, the editor-in-chief of Koakuma Ageha, in 2009 I asked, “Why do gyaru spend so much time on their clothing, hair, and makeup?” She answered, “Because we are not cute. If we were cute, we would just wear a white T-shirt. We have to work hard to look good.” There is an obvious logic to this: The gyaru’s transformation into golden curly hair and heavily painted faces is an escape from their normal selves.

Like Nakajo suggests, gyaru culture looks as it does precisely because they are not “blessed” girls (Nakajo’s words). And this means gyaru must spend on clothing, hair treatments, and makeup in order to achieve the desired self-image. Beyond this desire to look like someone else (and basically like everyone else in their peer group), there is also the social demand to show allegiance to a wider gyaru subculture by donning its uniform. To be a gyaru means dressing like a gyaru — no exceptions.

Marginal groups’ up their voting power in the consumer vacuum

The end result is that the otaku and yankii have an almost inelastic demand for their favorite goods. They must consume, no matter the economic or personal financial situation. They may move to cheaper goods, but they will always be buying something. Otherwise they lose their identity. While normal consumers curb consumption in the light of falling wages, the marginal otaku and yankii keep buying. And that means the markets built around these subcultures are relatively stable in size.

So as the total market shrinks, the marginal groups — in their stability — are no longer minor segments but now form a respectable plurality in the market. In other words, if otaku or yankii all throw their support through a specific cultural item, that item will end up being the most supported within the wider market.

The clearest example of this is AKB48. With the letters AKB in their name, this group of girls was unequivocally marketed towards older males based in the Akihabara otaku culture. Compared to past mass market groups such as Speed, the girls are intentionally chosen and styled to look like elementary schoolgirls and lyrically address older men with direct sexual references. (See the “cat-eared brothel” video for “Heavy Rotation” and the unambiguous “love knows no age” lyrics for “Seifuku ga jama wo suru.”)

The mass idol group regularly has an “election” (sousenkyo) where fans try to vote their favorite girl to Number One. Buying certain AKB48 CD singles gives the fan a vote in the AKB48 election, which thus incentivizes otaku to buy multiple copies of the CD to increase their “political” power. The CD is thus no longer a means of listening to music but a way to influence the future of AKB48. This has created a legion of fans who buy dozens and hundreds of the same AKB48 CD or even 5500 copies. There are now doubts about that story’s authenticity but it basically was an exaggeration of an existing principle. Regardless, the marketing strategy of AKB48 does encourage the purchase of multiple goods, thus amplifying the buying power of nerds beyond their small numbers. This means as a consumer bloc, the AKB48 otaku fans can rival the non-otaku consumer base.

This otaku bloc strength, as well as other niche’s dedicated buying, can be seen through the music charts. In 2010 only three artists made the Oricon best-selling singles market — AKB48 and a Johnny’s Jimusho group Arashi. (At this stage, you can almost argue that music fans of Johnny’s groups are themselves a conspicuous cult rather than a mass market phenomenon.) Only two artists taking the entire singles market is unprecedented in Japanese musical history. In the previous decade, the average number of artists in the top ten was 8.2. The best explanation is that mainstream consumers stopped buying music, even single song downloads, so the favorite acts of marginal subcultures now appear to be the most popular.

Otaku and gyaru: winners by default

This principle demonstrates how AKB48 became an unlikely “mainstream” phenomenon. Despite AKB48 being so clearly marketed towards a niche audience, their success in a declining market has made them perceived to be the most popular in the entire market. Therefore 2010 and 2011 saw AKB48, with backing from advertising monolith Dentsu, doing advertisements for mainstream brands and chains such as 7/11. (Lawson’s has now countered with a nerd-drooling K-On! campaign.) With no major competition from more mainstream-oriented idols and groups, they became the obvious spokespeople and magazine cover girls — thus amplifying their fame more.

In the case of gyaru, there are larger numbers of gyaru than otaku, meaning that the gyaru can just consume their standard number of items and still dominate the market. Before I mentioned that the extremely “normal girl” fashion magazine non•no once sold close to a million copies per issue in 1996 at the peak of the publishing market, which was once far above the 310,000 copies for hardcore yankii/gyaru magazine Popteen at the same time. Around 2009, however, non•no dropped to a mere 180,000 copies a month while Popteen was still hovering around 310,000. Gyaru are still consuming fashion, and therefore need fashion guides to tell them how to do so. “Normal” girls have generally lost interest in clothing and do not need fashion guides as much. So in this collapse of the mass market, a magazine representing a marginal taste has become one of the best-selling.

With the yankii and otaku culture being so proportionally conspicuous in the market and mainstream and avant-garde styles being so minor and invisible, the once marginal looks have a greater legitimacy for less engaged consumers who mostly just desire socially-acceptable styles. As a result, gyaru and yankii fashion have had a strong moment over the last five years, leading to large-scale booms in things once unfathomable such as “hostess fashion.” University students at elite schools like Keio are likely to have hairstyles reminiscent of yankii hosts. Films and books with obvious yankii narratives, such as Rookies and cell phone novel Koizora, became huge national hits in 2009. Gyaru singer Nishino Kana is one of the few well-selling artists on Sony (formerly known for alternative musicians Supercar, Puffy, and Denki Groove). And even former “arty” magazines like CUTiE have moved towards the gyaru style, and the fiercely indie girl mag Zipper put gyaru icon Tsubasa Masuwaka on the cover. There is no popular female style that does not see a little influence from the yankii side of gyaru culture.

Not truly “the most popular”

While otaku and yankii cultures are enjoying a new cultural influence in their deep commitment to consumption, we should not forget that these groups do not make up any kind of actual societal consensus. The masses may be consuming parts of their culture, but these groups are at best pluralities rather than majorities — dominant in the market but nowhere near 50% of tastes.

For example, if you look at the sales numbers for the #1 single of 2010 — “Beginner” by AKB48 at 954,283 copies — this would not have been enough copies to make the top ten from the years 1991 to 2000, when the wider public bought CDs in droves. In 2001, it would have ranked in at #10 — a successful hit for a niche, but not the symbol of J-Pop for the era. The population of Japan in the last ten years has not dropped enough to make this smaller number of sales proportionally relevant — just less people are purchasing music.

AKB48’s narrow popularity becomes very clear when the group appears on television — a medium that continues to have a mass audience (although disproportionally elderly viewers.) Maeda Atsuko had been repeatedly voted the #1 member of AKB48, and yet her recent drama Hanazakari no Kimitachi e (Ikemen Paradise)saw extremely low ratings (episodes around 6%). AKB48 variety show “Naruhodo High School” has drawna dismal 4.5%.

AKB48 have also been extremely popular on YouTube, which skews towards a tech-savvy male audience in Japan. And yet a song like “Heavy Rotation”— at over 50 million views — has nearly one-third “thumbs down” votes. This is an extremely high amount level of dislikes compared to other music videos on the site.

So AKB48 are the most conspicuous music group in Japan at the moment with the highest record sales and highest number of appearances, but they should necessarily be considered a “mass” phenomenon with widespread fans across multiple segments. The group has captured the strongest plurality in the market, and companies have mobilized around them in desperation. If Dentsu could sponsor a different hit idol group with an even broader fan base, they would. But ironically, no one other than AKB48 or Johnny’s Jimusho groups have the sales or market legitimacy to work in the context of mass market advertising. Marginal groups are now feeding and over-influencing the remnants of the mass market just as counter-consumer once did.

Next time, we look at whether marginal subcultures can produce goods that are easily exportable.

In Part One and Part Two, we looked at how decreasing incomes, a declining birth rate, increased spending on phone bills, and the lack of cultural relevancy for the Internet have all led to shrinking markets for cultural goods like fashion, music, books, magazines, manga, and TV. In this installment, we examine how these changes affect the makeup of consumers within the cultural markets — a shift from mainstream consumers to mostly marginal subcultures.

Part Three: Mainstream Consumers vs. Marginal Subcultures

The collapse of spending on popular culture in Japan makes the country an important laboratory for understanding how a “cultural ecosystem” of consumers, producers, distributors, media, trend-spotters, and advertisers operates when market activity decreases. In this context, we must first look at the degree to which middle class consumers made up and then retreated from markets for cultural goods.

The rise of middle class consumers

After World War II, Japan’s entire economy was in shambles and spending focused exclusively on the basics for survival. By the late 1950s and through the late 1960s, however, a buoyant consumer culture emerged for upper middle class salaryman and business owning families. In the mid-1970s, the Japanese economy had undergone its “miracle” and now a broader Japanese middle class finally had enough income for discretionary spending on culture. As Japan entered the 1980s, most everyone in the country was consuming products related to music, fashion, and manga to an active degree — especially normal middle-class teenagers with “standard” Japanese tastes and conventional life paths.

Cultural producers and advertisers needed to target social segments with the largest possible size and the highest amount of discretionary income. At first this meant Tokyo’s upper and upper middle-class, and for obvious reasons, these groups had pioneered consumer culture in the immediate post-war. Even in the 1970s and 1980s, the affluent still had disproportionate buying power, so the first fully consumer magazines for young people like JJ and Popeye built those lifestyle expectations into their message. Middle middle class consumers likely read those magazines at first as aspirational, but theygrew rich enough in the bubble era to become the most dominant and lucrative segment of the market. As a result, manufacturers went for both the giant middle class mass, and the resulting mainstream culture ended up reflecting the values — or what were perceived to be the values — of standard middle-class consumers.

The market responds to the tastes of those actively buying goods, so consumer culture can feel akin to a political election. Consumers “vote” for their favorite products/creation through the act of purchase. Producers in turn continue the creation of popular items, stop making unpopular ones, and make new products based on the templates of previous hits. Unpopular manufacturers and producers disappear or adapt to winning formulas.

Thus at the height of the cultural market in Japan, normal, middle-class consumers had the most “voting power.” Whatever they liked, the market took most seriously. In the peak of the publishing industry in 1996, for example, issues of a mainstream “good girl” fashion magazine like non•no sold nearly a million copies — vastly more than any niche title like Popteen. Big apparel companies then made brands that fit within the non•no style. At the same time, styles and items with mass consumption like those seen in non•no or JJ enjoyed social legitimacy. In other words, whatever everyone was buying was the “right” thing to buy. Hence non•no had greater influence over the social norms of fashion than smaller titles thanks to huge sales and an industry structure built around it. This principle carried across most major cultural fields: mainstream consumers outnumbered niche consumers, and the markets overwhelmingly created products for mainstream tastes.

The rise and fall of “counter-consumers”

While mainstream culture mostly spoke to mass consumers, the 1990s saw disproportionate dominance on Japanese culture from a group of sophisticated, educated Tokyo-based consumers, who are best described as “counter-consumers.”

Japan had a strong political and artistic counter-culture in the 1960s, but as it shed its political aspects after 1972, this “underground” community gradually shifted their attention on creating physical goods sold to small niche audiences built upon tastes in opposition to the mainstream. For example, Kawakubo Rei aimed to push fashion into avant-garde directions through her line Comme des Garçons, which before its Paris debut had only a fractional audience in Japan. The members of this millieu then mostly participated and supported their community through the act of consumption — rather than politics or true Bohemian drop out culture. They were “counter-consumerists” — demonstrating personal allegiance to a deep niche through buying goods counter to mass culture.

They had likely expected their world to stay small, but as Japanese economy started its exceptional rise in the 1980s, the number of media and shopping buildings increased, and the well-informed types who curated content for these institutions moved to introduce more and more leading-edge culture to their increasingly sophisticated consumers. The PARCO Theatre in Shibuya, for example, opened with a performance from avant-garde dramatist Terayama Shuji. The end result was a twenty year “culture bubble” where Japan’s college and art-school students made up a powerful consumer bloc, supporting cutting-edge creators within Japan and buying products from all over the world with similar values. In this era, art magazines like Studio Voice sold over 100,000 copies, and unreadable post-modern works like Asada Akira’s Structure and Power became best-sellers.

This small group of Tokyo elite continued to stake out a huge claim on Japanese culture in the mid-1990s through magazines like Olive and relax. The street fashion style Ura-Harajuku — led by Fujiwara Hiroshi, who had started out in the underground London Nite scene — became the most popular look for men around 1997, and like Shibuya-kei musical artists like Pizzicato Five and Cornelius had certified chart hits. Members of this taste culture saw their values reflected in Tsutsumi Seiji’s Saison Group retail chains Parco, Muji, Wave, and Loft. Furthermore the small counter-consumerist minority ended up working themselves in the increasingly lucrative cultural industries, thus propagating this set of tastes and values to a new generation.

At the turn of the century, however, the counter-consumerist wave started crashing. As fewer and fewer middle-class consumers bought goods, they stopped experimenting on “weirder” products. Cultural producers could thus no longer justify making goods that worked as branding projects but had no financial return. Furthermore the new millennial youth generation could not understand the values of either the superficial Bubble kids or the cultural elite obsessed with Western art, music, and fashion. Magazines like Studio Voice and relax folded, while famed Shibuya record stores Maximum Joy and Zest closed their doors. Even HMV — the birthplace of Shibuya-kei as a mass-market genre — disappeared and was replaced with a Forever 21. Avant-garde brands returned to having tiny audiences. Comme des Garçons started up myriad new low-priced, logo-based lines that would appeal to younger and less daring customers.

The culture bubble had popped, and counter-consumerists went back underground.

Marginal subcultures on the fringes

From the 1960s to the end of the 1990s, the upper-middle class and middle-class controlled Japanese pop culture, yet there had always been a few important marginal youth consumer groups outside of the Japanese mainstream. The most solid subcultural voting blocs since the late 1970s have been the otaku — anti-social “nerds” interested in science fiction, comic books, video games, and sexualized little girls (lolicon) — and the yankii — “delinquent” non-urban working class youth with low levels of education and a blue-collar destiny. (The gyaru subculture — originally upper middle-class — should now be seen as the female manifestation of yankii values.)

These marginal groups are true minorities when compared to the mainstream market, but their size is not what makes them marginal. The use of “marginal” here measures the distance from the subcultural consumer segment to both middle-class social norms as well as from the tastemakers, gatekeepers, and workers within the large companies that produce pop culture. The counter-consumers, for example, were never large in number, but they had their hands on the reigns of the culture industry. Otaku may likely work at independent game publishers who make erotic titles, and ex-yankii run yankii magazines, but Japan’s largest and most hallowed culture companies such as Magazine House, Nintendo, Sony, and Uniqlo mostly hire graduates from Waseda, Keio, and other top universities. Otaku and yankii had strong outcast communities, but they essentially had to live on the fringes of pop culture. Yankii and otaku spent their formative years as true social outcasts — blamed as juvenile delinquents and sociopaths.

In times of a substantial and profitable mainstream consumer market, large companies were justified in ignoring the yankii and otaku segments as potential customers. Moreover the culture industry had a great risk in indulging too conspicuously in these subcultures, lest they offend their core of middle-class consumers. Fashion magazine non•no could not have shown a yankii or ganguro girl as a style icon — the editors’ curated style is not just different from the yankii style but fully premised on being a style that is not yankii. Accordingly the major consumer magazine publishers — Magazine House, Takarajima, Shueisha, and Kodansha — never made titles directly appealing to yankii youth. This was left to smaller fringe publishers like Kasakura and Million. Large advertisers — magazines’ true consumers — also demanded that media material be in “good taste” for the very same reasons. They wanted to connect with aspirational upper middle-class culture rather than despised outcast culture.

So until very recently, Japan’s culture industry — dominated by educated upper-middle class counter-consumers — worked hard to appeal to Japan’s large middle class. Tokyo’s powerful consumer base and Tokyo as industry center of cultural production made the wider culture gravitate towards the specific tastes of Tokyo upper middle-class youth. This, however, has drastically changed in the last decade with the fall of middle class consumerism. Next time we will look how the otaku and yankii have taken over the vacuum left by the middle-classes as they exit markets.

Last time we looked at the decline in Japanese wages, increased demand for inferior goods, and decreased demand for luxury brands. This time we look at the effects of lower incomes on markets for explicitly cultural goods.

Part Two: The Implosion of Cultural Markets

Within Japan almost every single market for cultural goods has seen prolonged decreases in sales since the late 1990s or has headed into troubled waters.

• Music: The music market exploded in the 1990s thanks to karaoke, mini-CDs, TV tie-ups, and female-oriented J-Pop but that growth has been completely wiped out and now sales returning to late 1980s levels, even with increased digital downloads.
• Publishing: Revenues in the book and publishing industry decline yearly, and the manga and anime industries are in crisis. Manga magazine sales are collapsing, and even relatively stable single-title comic collections have started to drop. Consumer magazines are going under faster than new titles can be created; just in recent years, we’ve said goodbye to Esquire, Pinky, Studio Voice, and PS. Discount chain Book Off is increasingly unable to sell its cheap used books, CDs, and games. And of course, the Internet has also ravaged porn magazine sales, which kept many publishers in Japan able to support its other non-porn magazines.
• TV: TV viewership is down — with the main broadcast channels routinely getting less than 10% shares weekday prime time — despite no serious competition from cable or satellite TV. 13.5% of young men say they watch no TV. TV sales were down 73% in October 2011, and 75% of 3D TV owners were “disatified” with the technology.
• Clothing: Clothing sales have declined 30% since their peak in 1991, with the men’s suit market essentially halving in size since 1997. Sales are also shifting away from premium goods and onto fast fashion and low priced brands like Forever 21, Uniqlo, and Shimamura. Meanwhile “select shops” — once the main site of sales for small boutique import brands — have shifted their inventory to their own cheaper Chinese-made lines.
• Gaming: Games sales did very well over the last decade, but the once-dominant Japanese game industry has been faltering on the global stage, and even stalwart Nintendo — who hugely expanded the audience for gaming through the Wii and DS — is beginning to see major declines. Sony now makes most of its income from its insurance business rather than its consumer electronics or gaming. Meanwhile working class hobby pachinko is also bleeding money.
• Cars: Although automobiles are not strictly cultural goods, there has been a great decline in Japanese auto sales and part of that stems from young consumers no longer buying cars as part of a “driving” hobby.

One exception is films: 2010 was a banner year for motion pictures at ¥220 billion in ticket sales. The film market, however, is increasingly aggregating around mega-hits rather than supporting a wide diversity of titles. Some key art-house theaters, like Ebisu Garden Cinema, closed after 17 years.

Why the decline?

There are a variety of factors to blame for the declines in these markets. As suggested in Part One, lower salaries have decreased consumers’ discretionary income with which they buy cultural goods. Young workers in particular are having trouble finding work, and when they do, have very low salaries and no clear track for salary increases. Uncertainty about future earnings also means a higher saving rate, which further decreases discretionary spending in the present. Among the marketing community, Japanese millennials are known as the “generation who doesn’t consume.”

Demographics have also played a big part in hurting the cultural industries: An anemic birthrate has evaporated the youth consumer base. In 1964 — at the height of the “baby boom” — 18.6% of the top population was between 15 and 23 (18.03 million). During the Bubble Era, the Dankai Jr. generation made up a relatively high 14.1% of the population (17.47 million). Although statistics are not immediately available for the last nine years, we can assume that the number of youth is already lower than the meager 11.1% of 2000 (14.13 million) — which was already the lowest recorded since 1920. (Statistics from here.) This means that 3-4 million consumers have disappeared from the zone that in the past has been responsible for most cultural expenditure. Smart companies are thus shifting their product lines to appeal to the larger demographic swaths of older, richer consumers.

Moreover young people are increasingly entertaining themselves with free to low-priced content on mobile phones and the web, and to a certain extent (although less than the West), much material is available online in pirated form. Spending has also shifted towards paying off phone bills rather than being spent on CDs and clothing directly like in the past. Phone companies are capturing much more of consumers’ money and then distributing it to content providers themselves.

Isn’t the Internet making up for all of this cultural decline?

Of course, most countries have also seen an implosion of “analog” content in the face of a digitizing world, and Japan is no exception to this trend. Despite high Internet penetration, however, web culture has yet to establish itself as a legitimate pillar of content in Japan. Most offline cultural producers, like newspapers and weekly magazines, do not put a significant amount of material online. There are no start-up sites with the influence of Boing Boing, or the political importance of Huffington Post, Talking Points Memo, and the Drudge Report. There have been few D.I.Y. bloggers who rival offline cultural influencers; no 14 year-old bloggers invited to haute couture fashion shows in the vein of Tavi Gevinson. In fact, the Internet in Japan still retains a “techy” or “nerd” image, and an impenetrable otaku site like 2ch is still the central heart of Internet meme creation.

Magazines in Japan usually directed consumers towards the “proper” goods to buy and how to use them, and there have been almost no websites — at least for traditional mainstream genres like fashion — that have taken over this role from print. Magazines get the latest information and bestow a legitimacy upon their advice. An anonymous kid with a blog just doesn’t have the same effect over the market.

There have been cultural and structural barriers towards moving offline content online and creating new web content businesses (see “The Fear… of the Internet”), and the overall result is that the Internet in Japan is not picking up the slack of the traditional culture markets as they shrink. Most importantly web use in Japan is relatively passive and anonymous, and this only further questions the culture created upon it.

This means that cultural institutions still have to look at analog markets — like the number of CDs or magazines sold — as a way to gauge success and popularity. Our best understanding of a “hit song” in Japan remains a “number one” on the Oricon charts. A “hit” TV show pulls numbers that were once understood to be a “failure.”

The total effect is that as Japan’s economy declines, Japanese popular culture is not just dropping in terms of sales but also in terms of total participation as well as “visible” participation. Consumers were once engaged with pop culture most actively through the act of consumption — buying a CD, book, or video game — but not only have they ceased buying goods, they are increasingly not even participating passively when media is virtually free, like in the case of TV. And they are not building significant new cultural spaces online with the same power, influence, and legitimacy as their precedents. There are almost no barriers to creating and distributing content, and yet the amount of legitimate content with engaged consumers is decreasing.

The U.S., in particular, has seen an explosion of content from cable TV proliferation and new Internet businesses in the last decade, which has made everyone assume the universality of the Long Tail theory. Japan shows the opposite: a decrease in the amount of culture in the market, as well as the number of participants in pop culture. There may not be any parallel to this phenomenon in any other major country.

Next time we look at how the market once made its products for the middle-classes and leading-edge consumers and why it’s no longer profitable to do so.

In five parts, how marginal subcultures took over a Japanese pop culture with no central core nor leading-edge.

Whether or not the country truly suffered something as dire as “lost decades” for the last twenty years, Japan has certainly seen a dramatic change in its social fabric since the bursting of the bubble economy in the early 1990s. Japanese incomes have plummeted since their peak in 1997. Meanwhile companies are shifting more and more job openings to “non-regular” and temporary positions, meaning fewer young workers can even get their foot in the door to future middle-class earnings. Few are confident about their future economic security.

Back when the Japanese economy was strong in the 1980s and even the mid-1990s, Japan arguably had the world’s most vibrant consumer culture. Now in the face of unemployment uncertainty and declining wages, consumers are cutting back, and in response, the marketplace has rapidly shifted from premium goods and services to supplying cheaper substitutes.

So what has this meant for Japanese pop culture? Consumer spending on culture has declined almost parallel to wage decreases, and most markets — music, publishing, fashion — started to slowly implode even before the Internet decelerated demand for analog goods.

The shrinking of cultural markets does not just mean less culture in Japan, however. The hollowing out process has had a distorting effect on the content of the actual culture being produced and distributed. As regular consumers exit the market and leading-edge consumers are forced back underground, “marginal segments” with highly concentrated buying power — particularly, the otaku, yankii, and gyaru — have taken a leadership position in setting tastes and trends. Over the course of this five-part series, we explain this process and also demonstrate the degree to which Japanese pop culture now caters to specific niche audiences rather than reflecting a “mainstream” set of values. Japan may have become the world’s first consumer market without a mass core — and this has significant implications for the future of its cultural exports.

• Part One: Incomes and Consumer Expenditures in Decline
• Part Two: The Implosion of Cultural Markets
• Part Three: Mainstream Consumers vs. Marginal Subcultures
• Part Four: The Rise of Marginal Subcultures
• Part Five: The Difficulty of Exporting Marginal Subcultures

Part One: Incomes and Consumer Expenditures in Decline

Lower incomes, lower allowances

Average Japanese incomes have taken a huge hit over the last 13 years. This chart shows the degree to which salaried employees’ incomes dropped since their peak in 1997. The most significant declines came after 2008’s so-called “Lehman shock,” and even with the slight uptick in 2010 and expected for 2011, wages are still not back to 2008 levels. As Shukan Bunshun calculated, the end result is a loss of ¥220 trillion in lost or declining salaries in the last 12 years (Japan Times). Not all Japanese employees are salaried, of course, but these measures best demonstrate the state of Japan’s middle and upper-middle classes.

Meanwhile the size of the middle class is likely shrinking due to a shift of corporate positions from “regular workers” to “non-regular workers.” Non-regular workers are not guaranteed steady income increases, and therefore, often make 40% of a regular worker salary doing essentially the same job. In 1990, the share of non-regular workers was 20%; in 2007, it was 34% (ref). This has especially affected younger Japanese moving into the workforce for the first time.

Furthermore things have been difficult in the last decade for lower and working class families in Japan, especially the elderly. The number of families receiving government welfare benefits has skyrocketed in the last decade, returning to levels last seen in the early 1960s, before Japan’s “economic miracle.”

Lower incomes mean less discretionary spending. Japanese wives traditionally control the family budget, and in these tenuous times, they are giving less to their husbands as “allowances.” A survey recently found that these allowances are at their lowest point in three decades — ¥76,000 in 1989, now at ¥36,500. Accordingly, men are going out after work less and spending less when they go out. We could assume that parents and grandparents are subsequently giving less to their children in allowances and gift money, although the data suggests that these allowances have not fallen particularly hard. This may be balanced out by the fact that grandparents and parents are able to concentrate smaller payments on fewer children in light of steeply declining birthrate.

Lower expenditures and more inferior goods

With lower incomes and low confidence about future earnings, Japanese consumers have been demanding less expensive products. Many enterprising companies such as clothing brand Uniqlo, beef bowl purveyor Sukiya, and fast food chain McDonalds have reorganized their businesses to provide consumers with the cheapest possible goods. These companies have either taken dominant positions in the market — Uniqlo’s so-called hitorigachi “winner takes all” — or seen record profits like McDonalds.

The proliferation of discount retail and restaurants does not necessarily mean that Japanese people are living worse lives. Deflation has finally brought once sky-high Japanese prices for everyday items in line with Europe and the United States. For example, Uniqlo — which is “extremely cheap” in the eyes of most Japanese — sells relatively high-quality garments at the price American customers expect to pay at a mid-range brand like The Gap. In many ways, deflation has empowered Japanese consumers to get more for their dwindling yen.

What is troubling, however, is the market’s move towards meeting consumer demand with inferior goods. Inferior goods, economically-speaking, are goods that see demand increase as incomes fall. In these instances, consumers choose poor-quality, substitutes for a preferred item. Instead of buying a normal good like fresh deli ham, consumers go for a cheaper, less satisfying product like Potted Meat Food Product. If given limitless choice, the consumer would obviously choose the normal good over the inferior one.

In the case of Japan over the last decade, we have seen a significant rise in popularity of inferior goods and a decrease in demand for premium goods. Japan’s most notable inferior good of the moment is “third-category beer” — a beer-like beverage with nearly zero malt content that sells for slightly less than real beer. Japanese consumers facing no economic constraint would choose Japan’s most iconic (and not particularly expensive) mass market beers such as Asahi Super Dry or Kirin Ichiban Shibori over third-category beer. So what does it say about the consumer market when Japan will soon have a majority “fake beer” market for malt-flavored beverages? Even with falling demand for beer-like drinks, third category beer is seeing growth. This is a sign that the consumer living standard considered normal just a decade ago has fallen dramatically into a new “basket of goods” that would once have be seen as only appropriate for the relatively destitute.

This income-driven demand for cheaper goods is thus changing how companies prioritize production and marketing. Suntory — with a product line that ranges from cheap hooch Tory’s to global award-winning Yamazaki single-malts — has ceased to promote its mid-range whiskeys such as Suntory Old and focuses its mass media campaigns almost exclusively on the cheapest products that can be mixed in low-price highballs. Until recently, Tory’s was a post-war relic that had generally disappeared as the country grew rich, but now Suntory buys extensive train advertisements for this whiskey, which costs only ¥1080 for a 700ml bottle. The company has also invested heavily into entire TV campaigns around the slightly higher-grade but still cheap Suntory Kakubin with stars Koyuki and Kanno Miho.

On the other end of the spectrum, luxury sales in Japan have essentially collapsed. Middle-class Japanese shoppers — buying in Japan and abroad — once made up the single largest global market for European luxury goods. Now China is set to overtake Japan in terms of luxury demand. Although the market for import apparel and accessories peaked in the mid-1990s and department stores — one of the main sites for luxury consumption — have suffered a structural and steady decline since that time as well, the top global brands such as Louis Vuitton, Gucci, and Prada managed to achieve strong prolonged growth within a nominally shrinking market.

Since 2008, however, most of the luxury brands have seen serious drops in sales. And even with luxury’s bounce-back around the rest of the world, Japan experienced a continued decline in sales until a slight uptick very recently. Louis Vuitton and Gucci bags were once the mainstream standard for middle-class (and even lower middle-class) women, but judging from the streets of Tokyo, young women now prefer furoku canvas bags that come for free inside of a magazine. There have been signs of slight luxury business recovery in recent months, but this can mostly be explained as Japan’s upper class going out to shop again and Chinese consumers visiting Tokyo. Luxury goods will likely never again be a part of the middle-class “standard.”

Japan, of course, was always an exception here: Young clerical workers with low incomes generally do not put themselves in debt to buy handbags intended for the very rich. Still, this is another example of how Japanese consumers have completely changed their lifestyle expectations regarding consumption over the last decade. In the next part of the series, we will see how lower incomes and reduced expenditures have directly impacted markets for cultural goods.

Next time: How markets for cultural goods have imploded in the last decade.

Last updated November 30

On October 14, 2011, Japanese camera maker Olympus (オリンパス) fired its top executive Michael Woodford after a mere eight-months as President and two weeks as CEO. Woodford, through a series of interviews with the foreign press, revealed that the dispute arose over his investigations into the company’s use of $1.3 billion USD on two mysterious sets of corporate deals. These controversies set off a massive decline in Olympus stock price, the formation of an independent investigation from the company’s top institutional shareholders, plus reports of investigations from government bodies around the world such as the FBI.

On November 8, Olympus admitted at a press conference that the mysterious payments were a way to “hide losses” without revealing further details. Two mysteries remain: First is the $687 million in fees paid to financial advisors AXAM Investments Inc. and Axes America LLC. Second is the over-payment in acquiring three minor companies — Altis, Humalabo, and News Chef — that have little to do with Olympus’ core business. We still do not know how this $1.3 billion was spent and allocated, we thought it would be helpful to keep tabs here on what we know about the mystery companies in question.

As new details emerge, we will update this page. Please feel free to offer any further details or corrections.

The Financial Advisors: AXAM Investments and Axes America

Olympus has confirmed its paid $687 million USD in “financial advisory fees” to two companies AXAM Investments Inc. and Axes America LLC for assistance with its $2 billion acquisition of British medical company Gyrus Group Plc (Business Week). With standard M&A fees at 1-2%, AXAM and Axes’ haul ended up being the largest financial advisory fee paid in history (Reuters). According to Reuters, Olympus paid AXAM and Axes $177 million in preferred shares, but the companies asked Olympus to buy them back in March 2010 — at the price of $620 million.

Who is AXAM Investments, Ltd.?
There is almost no public information about AXAM Investments Ltd. other than its registration in the Cayman Islands. The company, however, was stricken from the Cayman Islands’ local registry in June 2010, and there are no materials on the Internet revealing further information about its existence.

The PricewaterhouseCoopers (PwC) report on the deal suggests that Hajime Sagawa of Axes America LLC represented AXAM as a director in the negotiations with Olympus (Reuters). The New York Times reported on October 24 that Axes “assigned” its Gyrus shares to AXAM after it closed in March 2008. Sagawa’s wife, however, denies Sagawa’s involvement with AXAM (Reuters). While not proof of a connection, there are, however, records available on the Internet showing Hajime Sagawa shipping personal affects from/to a Seven Mile Beach location on the Cayman Islands to/from his Boca Raton home in 2006 (waybill).

Who is Axes America, LLC?
Axes America LLC is nearly as obscure as AXAM, but there are traces of the “dormant” company on the Internet. The firm was first established on February 13, 1997, and according to FINRA records, dropped its “broker-dealer registrations” in 2008, three months after the Olympus deal closed (Axes website, Fortune). The company originally had $160,000 USD in paid-in capital (ref).

Axes America was once based in office suites at 420 Lexington Ave Rm 2009, New York (Biz Find), but Reuters found a security guard who said the office had been closed for a few years (Reuters). Earlier, the company had two addresses in Connecticut. One at 220 Fox Ridge Rd, Stamford, which is a normal house rather than an office complex (reference). The 2001 website for Axes (Japan) Securities meanwhile lists the address 70 Seaview Avenue, Stamford, CT 06902 (office building images).

Axes America’s President and CEO for many years was the aforementioned 64 year-old Hajime “Jim” Sagawa (in kanji, 佐川肇). A graduate of Keio University, he worked in late 1970s and 1980s for Nomura Securities, and then later, for the now bankrupt investment firm Drexel Burnham Lambert (the one time home to “junk bond king” Michael Milken). He then later headed up M&A at Sanyo Securities America and was a managing partner at stock brockerage PaineWebber (now part of UBS AG) (Reuters, Fortune). Reuters traced Sagawa to a “resort home” in Boca Raton, Florida (Reuters). Sagawa in recent years has been associated with companies Sagawa Capital (registered to his Boca Raton home, closed in December 2010), Sagawa & Company (registered in NY, home jurisdiction in Delaware), and Sagawa International Services (Pompano Beach, Florida).

Reuters reported on November 8 that Sagawa had divorced his wife the week before, citing “irreconcilable differences.” The settlement oddly gave a vast majority of his assets — $9.9 million, including the house — to his wife.

In 2001, Axes’ Japanese website identified the shareholders of Axes America LLC as three employees Akio Nakagawa, Masayuki Hamada, and Hajime Sagawa. Other key personnel of Axes America include Takahashi Yoshinori (高橋芳徳) (originally hired as a “Technical Translator” in his H1B visa application) who has been CEO (c. 2002-2006) and Executive VP (ref).

The New York Times reported that Nakagawa and Sagawa first worked together in 1988 at Drexel Burnham Lambert. Nakagawa had also worked at Merrill Lynch. Both left Drexel in 1990 and moved to PaineWebber, from which Sagawa was laid off in 1996. (The Times article provides the best biographical detail on Sagawa.) Reuters found an anonymous Paine co-worker at the time who claimed that Sagawa and Nakagawa worked with Olympus in the 1990s to create funds in Bermuda via Olympia Capital that would help the company hide losses.

According to the New York Times, an unnamed official at Olympus approached Axes about assisting with M&A deals.

Axes America LLC eventually shut down on March 5, 2008 — one month after the Gyrus deal closed (New York Times) — and gave its rights to AXAM for $24 million (New York Times).

Who is Axes (Japan) Investments?
Axes America LLC was part of a larger “Axes Group” together with Japanese firm Axes (Japan) Securities Co, Ltd. (アクシーズ・ジャパン証券株式会社) and Axes Investment Management Co., Ltd. (アクシーズ投資顧問株式会社). A wayback machine search reveals that Axes (Japan) Securities was founded on January 5, 1998 (a year after Axes America LLC) and was located at the Toyo Keizai Building 7F, Nihonbashi Honkokucho 1-2-1, Chuo-ku, Tokyo (東京都中央区日本橋本石町1丁目2番1号 東洋経済ビル7F). The company had ¥325 million in paid-in capital in 2001 (ref). The company’s current webpage states that the Axes Japan ceased its business in financial transactions on November 30, 2010.

Axes Japan’s shareholders include Nakagawa Akio (中川 昭夫), who acted as the firm’s CEO for its first years, and Axes America’s Hajime Sagawa, who acted as Treasurer. By 2007, however, Sagawa was no longer listed on the Axes Japan webpage, replaced as a shareholder by Director Ichimura Takuya (市村 拓也). Other Axes Japan directors include Hamada Masayuki (濱田 雅行), Hayashi Masayuki (林 雅之), Murata Masami (村田 正已), and Nishimori Hitoshi (西森 仁志).

Investment wing Axes Investment Management Co., Ltd. (www.axesim.co.jp), was founded in 1996 (predating the other companies) but is now defunct. The company, according to this website, was 77.6% owned by Axes and 22.4% owned by unidentified other parties. The CEO in 2001 was Yoshida Minoru (吉田 稔) (Note: 1). The CEO starting in 2002 was Matsumoto Kuniaki (松本 邦昭). The next CEO was Yoshikai Ryuzo (吉海 隆三) a former director, then Sato Hideki (佐藤 英樹). Other directors include Kosaka Kiyoshi (神坂潔, now at J Alternative), Tanabe Souhei/Shouhei( 田辺 荘平), Nishihata Youhei (西畠 庸平), and Axes Securities’ Hayashi Masayuki (林 雅之).

A June 2009 archive of the Axes Securities website shows that Axes America LLC was no longer listed as a part of the Axes group (ref).

For the first two months of the scandal, Nakagawa was unreachable, but Reuters later tracked him down in Hong Kong. Nakagawa had also run a Hong Kong investment firm called Genesis Partners (Asia) Limited that was liquidated in 2010. Genesis was owned by a company called Caribbean Proprietors Ltd., which Sagawa Hajime and Nakagawa Akio were listed as partners for.

What are the initial links between Axes and Olympus?
Axes started working for Olympus around 2004 in an “informal capacity” but were hired formally around 2006 (New York Times). Olympus Executive Vice President Mori Hisashi says he was introduced to Axes through another person, but he refused to name that individual (Ibid.).

One link between the companies is Nobel Prize winning economist Robert Mundell. From June 2005 to June 2008, Mundell served on the Olympus board as an outside director. Before he joined Olympus, Mundell gave three speeches for Axes (Japan) Securities and was referred to by Axes employees as an adviser. (More details at Wall Street Journal).

Three Acquisitions: Altis, Humalabo, News Chef

Between 2006 and 2008, Olympus acquired three companies for total $912 million USD (¥70 billion):

• Altis, plastic medical waste disposal company
• Humalabo, cosmetics and health supplements maker
• News Chef, microwaveable cookware maker

In May 2009, Olympus wrote down the value of the companies by between 68 and 83 per cent (Nikkei). The best article on this part of the story is Financial Times’ “Olympus acquisitions central to claims.”

At the time Olympus first invested in the companies, they had essentially “no operating history” (Wall Street Journal). They have also never turned a profit.

All three companies’ original shareholders were only listed as “special-purpose investment vehicles.” Olympus purchased their largest stakes in Altis and Humalabo from a company called Neo Strategic Venture LP (formed in the Cayman Islands in 2000 and dissolved in September 2008) and purchased a stake in News Chef from New Investments Ltd., another company formed in the Cayman Islands that dissolved in 2009 (Wall Street Journal).

Investment firm Global Company owned a stake in all three acquisitions. In 2000, Global Company invested ¥10 million in Altis, Global Company’s CEO Yokoo Nobumasa had also been CEO of Humalabo’s predecessor company L.E.M. Hanbai, and Yokoo had been a Director at News Chef’s early incarnation News (New York Times). Altis’ former majority shareholder Dynamic Dragons II spc (DDII) was a subsidiary of controversial investment fund J Bridge/Asia Alliance Holdings. (Financial Times).

Olympus first teamed up with Global Company in 2000 to look for M&A opportunities in new fields (FT).

Who is Global Company?
Global Company was a fund led by Yokoo Nobumasa (横尾宣政). Born in 1954, Yokoo attended the Kyoto University Economics Department and then entered Nomura. He worked in corporate finance, moving eventually to Wasserstein Perella & Co. in New York, and then became branch head of Nomura in Takasaki and then in Nomura’s Shinjuku Building office. Yokoo left Nomura in June 1998 and founded Global Company.

Olympus invested ¥30 million into G.C. Venture Capital — a subsidiary of Global Company — in January 2000 (New York Times).

Yokoo Nobumasa owns many patents, including a rice cooking system for a microwave oven and other microwave-related things (which appears to be related to the Human Chef business) and a patent for a “system to stop unauthorized use of cards.” (More on the patent issue at Reuters.)

Yokoo has also been the head of “venture and technology fusion” company Techno Mining Ltd. (テクノマイニング社, founded October 2001, 東京都渋谷区広尾5-19-17広尾GTビル4F), which publicly teamed up with Olympus in December 2001 to find venture opportunities in new fields (press release).

Global Company is currently the shareholder for:

• Global Chef (東京都渋谷区広尾5-19-17　広尾ＧＴビル4F) — maker of specialized plastic dishware and microwaveable dishware, founded April 2009. Yokoo Nobumasa is CEO.
• News Chef (東京都港区麻布台1-11-9 CR神谷町ビル5Ｆ) — maker of microwavable plastic dishes, started in August 2003. Chairman is Olympus employee Kawada Hitoshi (川田均) and CEO is Hirata Kiichi (平田貴一)

According to Financial Times, Yokoo Nobumasa approached a private equity manager about investing in News Chef, saying that Olympus would pay a high price to buy the company out.

The New York Times reported that the former Global Company office is empty, leaving in October 2011, and the company has no active telephone number.

Who is Yokoo Akinobu (横尾昭信)?
The older brother of Yokoo Nobumasa is Yokoo Akinobu (横尾昭信). Born in 1948/49 in Saga City, Kyushu, Yokoo graduated from Kobe University in Economics in 1973, after which he started working for Nissho Iwai (now Sojitz) — a trading company. He eventually became head of Sojitz’s Information Industry Business Support Division in 1998 and then became CEO of ITX — originally a subsidiary of Sojitz — in May 2002.

Olympus acquired a strategic stake in ITX in 2000, which increased to 22.34% in January 2003. Olympus later purchased 80.2% of the company, making it a full subsidiary (reference). Olympus worked with both ITX and Global Company on M&A deals from 2000 onwards, but not necessarily together. Reuters quoted Akinobu Yokoo as saying, “I have never conducted business with my younger brother apart from one time, in an agricultural business using an old Olympus factory site” (Reuters).

Yokoo Akinobu became an executive at Olympus in June 2005 (New York Times). He left Olympus in June 2009 and is now CEO of JALUX — an airplane parts supplier — whose primary shareholder is Sojitz.

Are there links between Yokoo Brothers’ Companies and Axes or AXAM?
These links are currently unknown, but Axes did represent a customer from untraceable company Sky Ward Asia Inc. (スカイワードアジアリミテッドカスタマー, addressed at Suite 4730A, Central Plaza, No. 18 Harbour Road, Wanchai, Hong Kong) who happened to be a minority shareholder of ITX (reference). Nakagawa Akio, formerly of Axes, now runs a company called PromoTech Investment Limited, run out of the same building as Sky Ward. The CEO of Sky Ward — Komuro Shigenori — owns 30% of PromoTech. Ichimura Takuya of Axes is also a part owner in PromoTech.

Over the previous three installments (Part 1, Part 2, Part 3) I have attempted to show that artist management companies — known colloquially as “jimusho” — are the dominant power in the Japanese entertainment industry due to their power to exercise labor control over performers, their organization into larger and secretive keiretsu groups, their ownership of master and publishing rights, as well as probable associations with organized crime. The remaining issue is this, what is the effect of the jimushos’ power on the actual content produced in Japan? And how do the particular business needs of the jimusho change the kind of talent they groom and debut?

The Jimusho Control Who is on TV, Therefore Who is Popular

Terrestrial television (地上波) has been, hands down, the most powerful and influential medium in Japan for introducing new entertainers and performers to the wider public. Stars who appear on variety shows on a constant basis are the ones understood as “popular.” In the case of music, TV has been mostly responsible for directly driving sales. In the Recording Industry Association of Japan’s 2004 music media user survey, the top four “information sources leading to purchase” were network TV programs, TV dramas, TV commercial songs, and TV commercials for music, respectively. In the market’s peak of the 1990s, especially, songs repeatedly heard on TV became hits. While the decline of the music market has changed this to a certain degree, jimusho still greatly depend upon TV stations in order to turn unknown talent into profitable stars.

This seems like it would create a symbiotic relationship between television and management companies, but jimusho retain the decision-making power about which performers appear on which TV programs. This mainly goes back to their ability to leverage access to their most popular stars. Use of established artists becomes conditional on TV station support of new and upcoming ones. This gets to the point where there basically is no “open casting” in Japan and top stars such as Kimura Takuya have shows built around them.

In my own Master’s Thesis research on the effect of jimusho collusion with TV music programs on the Japanese music market, I found that the vast majority of stars appearing on network music programs Music Station, Hey Hey Hey Music Champ, and Utaban came from the top jimusho keiretsu. Competition should be fierce for appearance slots (only 4-6 per week) as the shows have traditionally been the number one driver of sales. But since the TV stations need actors, models, and performers to appear on their other programming, the larger jimusho have an upper hand in placement. This gives them the most leverage in demanding appearances. You can see this clearly in the link between music show guests and the program’s hosts. For Hey Hey Hey Music Champ, comedy jimusho Yoshimoto Kogyo — a company that produced no talent directly for the music industry until the launch of the show — secured 125 artist slots from around 2,000 up until 2004. Now with the power to launch musical talent, Yoshimoto created musical talent. This ended up blocking 125 other artist appearances from companies focused specifically on music.

So overall, in the case of Music Station from 1988 to 2004, the top five jimusho keiretsu (in this case, Johnny’s Jimusho, Burning Productions including Avex and Rising, Up Front Agency, Sony Music Artists, and Nagara Production Group including Being) made up around 50% of all appearances (2692 of total 5212 slots). This generally held true for the other shows as well. In other words, over half of TV appearances are doled out semi-automatically to the most dominant players and a great majority are doled out to the top dozen jimusho groups.

When you then compare these appearance numbers with Oricon yearly chart hits, the number of music show appearances almost perfectly correlates with chart hits. Simply put: The more you are on TV, the more you are likely to have a hit record. And with dominant jimusho having a lock on the few artist appearances available, this means they generally can also control who gets a hit and who does not. And even when a jimusho produces no hits in a year they still receive preferable placements on TV shows than smaller companies with hits. Johnny’s Jimusho acts failed to have a single chart hit in the early 1990s yet continued to appear on Music Station week after week.

Of course artists from non-major jimusho do get hits once in a while, but the constancy of major jimusho acts appearing means that independent artists become essentially “short-term successes” rather than long-term ones. In my data set, I found that when a new artist from a large jimusho got a chart hit, the average number of hits for that artist in the next two years was around 3 — compared to only 1 for an artist from a small independent jimusho. This is likely related to the fact that the large jimusho new artist on average got 8 TV appearances in the next two years after his/her hit, compared to only 1.8 for the small jimusho artist.

The data in my research strongly suggested that control over TV appearances helped major jimusho keep a strong position in the Japanese music market. Although I have not done the same kind of data-based research on other fields, anecdotal evidence strongly suggests that this jimusho dominance carries over to fashion magazine covers, variety show appearances, and other core categories of the mass media. So the question is now, if only a few firms control the Japanese entertainment world, what kind of talent are they choosing to create and debut?

What kind of performers do the jimusho create?

The first thing to remember is that the jimusho create idols and talent rather than just manage successful performers. In other words, jimusho scout unknowns and then “debut” them to the public with a intentionally crafted look, personality, and style. Model Marie was positioned as “model from a rich family” like Paris Hilton, while Nishikawa Ayako is the “cosmetic surgeon talento.” For Yoshimoto Kogyo, the company has been debuting a never-ending list of “one-gag” talent who are given a particular persona and a single joke.

Jimusho also play a big role in the determining the kind of talento that are tolerated in the market. Johnny’s Jimusho has been able to effectively stop any other company from producing boy idol groups. With Johnny’s boycott power in effect, even the major jimusho Rising Pro (now Vision Factory) had a hard time making their acts Da Pump and w-inds big players in market.

The jimusho system is a closed world of small firms, most of which have long-standing position within the entertainment world. In fact, most of the senior people working within today’s management companies helped produce enka singers in the 1960s and 1970s. Enka singers, as documented by Christine Yano in Tears of Longing, have also been openly “crafted” singers rather than self-created. The general industrial structure of the jimusho world — especially the fact that new firms have a hard time entering — means that essentially the same people have been responsible for crafting new stars decade after decade. Japanese pop is often criticized for churning out “generic” idols and pretty faces who act in a certain way, and we can assume that the consistency of personnel behind these idols is a strong factor in the industry’s conservatism. Johnny Kitagawa — age 79 — still plays a hands-on role on the output of Johnny’s Jimusho acts. (Needless to say it’s hard to find a parallel to this in the U.S. market.) AKB48 are incredibly close in nature to ’80s idols Onyanko Club, mostly because they have the same creator Akimoto Yasushi. Despite 25 years of cultural change, basically the exact same people have the keys to the J-Pop kingdom.

Regardless, there is a stronger economic logic at work in the industry’s preference for “created idols” rather than managing more independently-minded stars. Most jimusho handle multi-field performers, ones who are likely to put out music, appear in bikinis on the cover of Weekly Playboy or Shonen Jump, banter on talk shows, and act in the occasional TV drama or film. The fees from these activities can add up to a nice source of income, and in the case of music, a million-seller can be extremely lucrative.

Yet none of these particular activities tops the greatest income stream: corporate/product sponsorship and promotion. Appearing in a single ad campaign for Coca-Cola or 7-11 will guarantee an extremely high source of revenue for the jimusho through a relatively small amount of work. Compare this with the hard-to-obtain music hit: promoting singles takes millions of dollars in marketing to the public. An ad sponsorship, meanwhile, only takes buttering up Dentsu and Hakuhodo and a few key corporate executives. The rate of investment for an ad campaign is much higher than other activities.

This has always been true, but in recent years, the crash of the music market and decline of TV viewership means that jimusho have more reason to pursue advertising work over payment for actual “performance.” In most cases, the actual performance work should be understood as promotion for the star to eventually secure advertising deals; acts usually have to prove popular before becoming a viable spokesperson for a consumer brand. AKB48, for example, are finally reaching peak profitability now as they move beyond their Akihabara theatre and record sales into dozens of product sponsorships. As the jimusho makes almost all the money from the star’s total body of work, rather than just a single field of artistic endeavor, the industry as a result moves towards explicitly commercialized pursuits rather than artistic ones. You can argue that a pop song is also “commercial” but at least the vehicle is melody, harmony, and rhythm — and not a placard upon a vending machine. Culture is not just a body of ads. But the jimusho’s true business goal is creating a body of ads for their performers.

If the ultimate economic goal is a strong line-up of promotional deals, what kind of talent do jimusho prefer? The firms have a clear logical reason to push stars who lack any barriers to becoming national spokespeople for firms. This obviously tilts the balance towards “nice” female idols. And when making a decision among which newcomers to push, the jimusho will not particularly value inherent or learned talent — a strong voice, skillful dancing, acting chops — as these are only indirectly related to the most profitable work. When you have a singer who is only a singer, promotional work can get in the way of their reputation. While plenty of talented performers end up doing ads — Shiina Ringo, Southern All-Stars, even Oyamada Keigo — they are much less likely to do every ad the jimusho requests and may get in trouble with advertising clients for exerting too much personal opinion/attitude into their work. Their appeal is also limited to a smaller audience interested in their body of work rather than their fame itself.

But general “talento” are expected to do this kind of promotional work, and it’s most lucrative for the jimusho to focus on performers who are not too specified. And for the music market, the main TV shows spend as much time interviewing the stars and probing their personalities as actually seeing them perform their songs. The end is result is that the jimusho allow big stars to be poor actors, bad singers, and pathetic dancers, but they can certainly not be controversial, unattractive, or otherwise disruptive. Jimusho face major repercussions when their stars get in trouble for personal scandal — first and foremost because companies have invested massively in using their “clean” image to promote their products. This is why “uncontrollable” talent such as Sawajiri Erika become toxic within the industry. (Although the constant advertising deals of Tsuchiya Anna are a true mystery…) Sakai Noriko’s recent drug scandal seemed tame compared to Hollywood foibles but after years of her corporate sponsorships, there was serious industry reputation at stake. Jimusho supply Japanese corporations with promotional vehicles, and Sakai turned out to be highly defective. Best not to push stars who are likely to generate this kind of business risk.

Even when stars do possess levels of talent, jimusho schedule their activities disproportionately towards promotional work rather than the artistic side of their duties. For example, most TV shows are shot in a “one-take” style as performers do not have time to dedicate their full schedule to the show’s taping. As long as there were no major mistakes, dramas take only one cut of every scene. The business logic is solid here — time should be spent on pursuing promotional work for big companies — but the overall “craft” in Japanese entertainment takes a hit.

Conclusion

So economically-speaking, artist management firms in search of profit pursue advertising deals over performance fees within this particular Japanese industry framework. The end result, however, is that these firms (1) promote “created” idols over self-motivated talent (2) emphasize pleasant looks and demeanor over artistic talent (3) invest most time and resources into lucrative advertising deals rather than creating “culture.”

Every pop culture system focuses on commercialized culture — in other words, crafting pop songs with the greatest chance of broad audience and high sales — but I would argue that the Japanese system, due to jimusho business logic of having performers organized inside companies, goes one step further in direct commercialization (advertising) over creative works (the culture itself).

The missing equation in this, however, is the audience. Japanese consumers have every right to reject this model and demand culture that is “cultural.” There have been times in Japanese history where the public rejects “idols” and its related culture for something more “real.” The most famous was the Band Boom of the late 1980s when Music Station and other standard music shows lost their audiences to live houses around the country. While this was ultimately good for the music market, it was not good for the jimusho system as these bands were less suited towards product promotion than idols. The industry, however, adapted towards the more “real” style to win back the audience, and once they had them back at the same media points (Music Station), they slowly moved the audience back to an idol model in the mid-1990s. There are socio-cultural reasons why the Japanese audience prefers “what is popular” over “what is unpopular but well-crafted” and the jimusho’s control of this system means that they have very strong influence on the long-term state of Japanese cultural tastes.

Yet in the 2010s, as the music market implodes, TV viewership becomes marginal, fashion magazine readership declines, and youth-oriented “popular culture” generally loses its influence among the Japanese psyche, the jimusho are likely to face an existential threat. That being said, small firms are most likely to be first to take a major hit. TV stations will cut budgets on shows, but make up for it with more variety programming — which of course need talent from the large jimusho. Most importantly, the idea of sponsoring products with stars is deeply ingrained within corporate culture in Japan, and whatever its cost, few decision-makers are likely to take the risk of trying a different approach. You can’t get fired for doing a campaign with AKB48 but you may get fired for trying something radically new using Popteen dokusha models. This is why you see Perfume advertise for chuhai alcoholic beverages despite the fact that they are not likely stars who appeal to those drinks’ consumer base.

At least for the next decade the jimusho structure is set, and structural inertia will keep the top jimusho afloat.

The following essay originally appeared as the June 22, 2011 entry on fashion consultant Kojima Kensuke’s personal blog “Professor Kojima Kensuke’s All-You-Can-Say.” We have published this translation without the author’s express permission as means to transmit leading Japanese opinions into English for a broader global dialogue.

I Can’t See Shibuya

The Saison Group — which led Shibuya culture in the 1970s and 1980s — no longer exists, and its remaining parts Seibu Department Store and PARCO lack the momentum they once had. The decline of Shibuya PARCO has hurt the entire Koen-doori (Park Street) area and killed off Jinnan Hill’s sprawl of select shops. Shibuya 109 was leading the neighborhood for a while, but even 109 has now seen its influence wane with the rise of fast fashion. It seems like Shibuya’s main avenue has shifted over to Inokashira-doori where all the foreign specialty brands are lined up.

Next Spring, the East Exit of Shibuya Station (in the remains of the Tokyu Bunka Kaikan) will see the opening of multi-purpose complex Shibuya Hikarie. This skyscraper will contain offices and a concert hall for musicals, and Tokyu Department Store will be in charge of the commercial space in the bottom floors. There’s a lot of talk that Hikarie’s commercial facility will become a temporary location for Tokyu’s Toyoko branch while Shibuya Station is closed for renovation, or maybe Tokyu’s flagship atop the hill at Shoto will just relocate there. Whatever the case it’s going to be a tenant-based facility. Ten years from now, after Shibuya Station is rebuilt, I assume ecute and Lumine will also show up.

PARCO is planning a renovation and big comeback, but I don’t think that’s going to bring Koen-doori back to life. And there’s no future for Shibuya’s Seibu Department Store as it stands today. There are always rumors that Tokyu’s flagship will close, and Tokyu Plaza — everyone’s already forgotten about it anyway. (Oh yeah and now that I think of it, there’s also that Shibuya Mark City in the back of the Inokashira Line.) So if nothing stops 109’s decline, Shibuya’s entire core charm will disappear. It’s unclear where Shibuya is headed as a shopping district.

While we are all waiting for the completion of Shibuya Station’s reconstruction and the new station-complex to open, the neighborhood’s shoppers will be lost to Shinjuku, Ikebukuro, or even Futago-Tamagawa and Ebisu. Shibuya is likely to decline rapidly. I, like always, have a hard time suggesting the best areas in Shibuya where companies should place stores. The completely uncoordinated plans of JR, Tokyu, PARCO, and Seibu mean that any revitalization will move at a sluggish pace. Shibuya is almost like a microcosm of contemporary Japan itself.

In Summer 2000 I came back to Tokyo to research the popular Ura-Harajuku street fashion brand A Bathing Ape for my senior thesis. My makeshift mentor was an editor of Hot Dog Press — a men’s lifestyle magazine from Kodansha that ceased publication in 2003 — who had covered the Fujiwara Hiroshi family of brands over the years.

One day he drew a triangle on a piece of paper with the x-axis being number of consumers and the y-axis being brand cachet. He explained, “At the top point here are very cool but low-selling brands. At the bottom of the triangle are all the mass market brands with huge sales but no cachet. The secret to A Bathing Ape and the Ura-Harajuku brands is that they keep themselves right in the middle of the triangle and don’t let themselves slip down. They have a healthy number of consumers but they make sure to never go all the way to the bottom.”

This was the general understanding about A Bathing Ape’s success: They would always use specific marketing techniques to appear underground even when selling to millions of young Japanese across the country. I understood this “brand cachet über alles” strategy to be so integral to their success that I ended my thesis with the prediction, “Once the Ura-Harajuku cultural complex disintegrates, Ape may lose its subcultural base and will be subject to the normal forces of fad market structures. [Founder] Nigo will probably stop producing Ape before this point in order to save the brand’s reputation.”

How wrong I was.

Within a year of writing that overly-confident forecast of Nigo’s future fate, the brand embarked on an extremely conspicuous tie-up campaign with soda maker Pepsi. Bape then quickly dropped all of its previously-important artificial brand barriers to mass market appeal and tried to win over anybody and everybody. When I moved back to Japan in 2003, things looked pretty grim for A Bathing Ape: The Tokyo stores were empty during weekdays, and the only consumers seemed to be the high school kids who came into the big city on weekends.

The brand hit their second wind, however, when Nigo met Pharrell Williams, and for about three years in the mid-2000s, Bape became one of the hottest brands on earth — this time framed as an integral part of the American hip hop scene. Nigo made one of the least plausible yet most accepted visual transformations in recent history, dropping the Cornelius-lookalike routine to slot in gold teeth and wayward baseball caps (or worse, a skull cap).

Despite this international expansion, Bape’s days at the top of the Japanese brand hierarchy were long over. The Ape head had become too ubiquitous, and the brand was spread way too thin. When the U.S. bubble for Bape burst around 2008, parent company Nowhere started heading towards serious financial insolvency. Now we have learned that Nowhere — A Bathing Ape’s parent company — had been suffering massive losses. The Wall Street Journal states that fiscal year 2009 ended with ¥267.4 million and 2010 ended with ¥119 million in the red. Nowhere also has debt in the range of ¥2.6 billion.

In 2001, we believed that A Bathing Ape had mastered the dynamics of the brand life-cycle pyramid so that it would never fall prey to the dangers of becoming too mass market and seeing their consumer base quickly dry up. But with the changes in 2002, the brand went on an expansion spree that could rival Uniqlo. There were Busy Work Shops in every single major and minor regional city from Kyushu to Hokkaido despite declining demand. At some point Nigo established a Bape-themed hair salon, a restaurant, an art gallery, shops for his secondary lines like Bape Kids and Baby Milo. Meanwhile they were so desperate for consumers that Nigo stopped any sort of passing attempt to be cool. Most famously, Nigo made $15 yellow Ape-head T-shirts for Nippon Television’s charity telethon 24 Hour TV in 2007, which could often be seen on the backs of housewives and elementary school kids.

In 2009 Nigo — seemingly bored with his crumbling empire — stepped down as CEO of his own company, giving the reigns to an ex-World executive. (Perhaps not so coincidentally World also bought up former Ura-Harajuku brand Real Mad Hectic.) Nigo lately has been working on not particularly significant side projects such as “Human Made” and suit brand “Mr.Bathing Ape.” Meanwhile things were not looking good for Nowhere post-Nigo: the L.A. store closed in 2010.

Bape did, however, have one remaining ace in the pocket: massive support from consumers in Greater China especially Hong Kong and Taiwan. Hong Kong in particular had always been attracted to the Fujiwara Hiroshi empire of Japanese street brands, and since 1999, HKers had been intimately familiar with A Bathing Ape. That year Nigo teamed up with locals Eric Kot and Jan Lamb to open an Ape boutique on the 17th floor of an office building. The result was the most draconian shopping policy in Ape history. Potential shoppers had to apply to become Busy Work Shop members, which required a Hong Kong passport. This excluded all non-Hong Kong residents from using the shop. Moreover the applications would be sent to Japan for ultimate approval. Once customers were approved as members, they would have to make an appointment before being able to enter the store — no casual walk-ins allowed. The image, however strict, matched perfectly with the super-exclusivity of the original Japanese strategy.

Although the first Busy Work Shop Hong Kong was never a huge phenomenon in itself, the brand’s sudden presence in the Chinese language media put A Bathing Ape in the wider Asian pantheon of hot labels. The Baby Milo shirts in particular were a huge sensation in Hong Kong, making the evening news as a noteworthy youth trend. While Japanese lost interest, the rise of a new youth consumer in East Asia balanced things out for brands. Anecdotally-speaking, most shoppers I have seen inside or near A Bathing Ape in Harajuku have appeared to be from Greater China. Nigo has also directly targeted fans in these locations with a Taipei store in 2005 and an enormous new store in Hong Kong in 2006. Beijing and Shanghai opened in 2010.

So if Nigo’s 18-year old pet ape is being primarily consumed by the Chinese in its old age, it only makes sense that a Hong Kong based company — I.T Ltd. — would buy out the whole thing (including the debt). The depressing detail was the 90% equity purchase only cost the acquirers $2.8 million. Nigo has easily put more than that in his art, toy, and vintage LV trunk collection alone. This sell off of A Bathing Ape is an incredibly dramatic flame out for a company that defined the potential of Japanese independent brands to go abroad and changed the face of global fashion. It’s better than bankruptcy but not exactly a feel good denouement to an otherwise remarkable success story.

But just as Japanese apparel companies like Onward and Renown bought up heritage Anglo brands like J. Press and Aquascutum in the ’80s and ’90s, Chinese companies are likely to be the future bulk purchasers of Japanese brands. The Japanese fashion ecosystem relies more and more on the flow of East Asian cash, and the desperate fire sale of Nowhere is likely the opening paragraph to an entirely new chapter of Japanese cultural history.

Wall Street Journal: Web-Bargain Luxury Comes to Japan (September 6, 2010)

This indeed sounds damning: The Coach Kristin Leather Hobo bag retails for $298 in the U.S. but $711 (¥59,850) in Japan. And this isn’t a rare example. Foreign premium and luxury apparel brands have always charged consumers in Japan a significantly higher price for the same goods. But now with the super-strong yen and the ability of shoppers to casually view global pricing on the Internet, the Japanese population is growing more weary of having to automatically part with their consumer surplus.

So as the WSJ notes, Japanese consumers are becoming accustomed to “discounts” — ironically making prices equivalent to the what everyone else places at standard retail — at outlet malls and online sales. Or in this era of relaxed fashion standards and falling wages, they are just kicking their Euro luxury habits cold turkey.

For years I too have raised many an eyebrow at foreign companies’ eagerness to charge nearly double for their products in Japan. Yet there is a valid logic at work in this behavior that goes beyond mere price gouging. Earlier this year, I was highly skeptical about Abercrombie & Fitch’s overall Japan entry strategy, but A&F CEO Mike Jeffries is correct when he says, “We are premium brands, and we get premium prices in these markets.” And it just happens that “premium prices” are very high in Japan due to the already high level of “standard prices.”

Before we even consider prices of luxury goods, think about the normal prices paid by Japanese consumers for everything else. Even with a relatively low consumption tax, the Japanese normally dish out 13.4% of their incomes just on food, compared to 9.9% in the U.S. (And in terms of calories, the Japanese are eating much less quantity than similarly rich countries.) A 5kg bag of rice — the staple grain of the Japanese diet — is often ¥2000 if not more. Meanwhile in the culture market, CDs are price-protected at ¥3000, which is a bargain compared to the ¥1800 vinyl albums once cost back in the 1970s (about 2.3% of the monthly salary in 1970 compared to ¥3000 being less than 1% now).

High prices in Japan are mostly a direct product of governmental policy. Protectionist tariffs not only increase the costs of imports but keep domestic producers insulated from having to compete on price. The government also protects a large number of uncompetitive, unproductive industries who keep average prices high. And there is often an informal cartel pricing where everyone in a certain industry agrees to generally keep prices at the same level. When it comes to the fashion and accessories market, mass apparel retailers like Beams, Ships, and United Arrows — despite having no central planning — keep their prices for “basics” around the same level, and in the process, set the “standard” price level in many consumers’ heads.

So when foreign brands come into the Japanese market, the most obvious brand positioning has been to go “above” the domestic makers and be “premium.” This almost necessarily means pricing at a higher level than the standard Japanese price, which as we know, was already very high. When Brooks Brothers came to Japan in 1979, for example, they logically needed to set prices above the Japanese copies of their items like oxford cloth button-down shirts and ties. More recently, the standard $25 T-shirt at Supreme in New York was set at around $60 in Japan. Companies generally want to set prices as high as the market allows anyway, and since the Japanese market has always had a structural need to set prices higher, brands were able to indulge. Conversely, when Japanese electronics or automobile brands went to the U.S., they would often charge much lower prices to match the American price level. (This was often criticized as “dumping.”) In both circumstances, Japanese consumers have always had to bear the cross of the global production system on their backs — using more of their (often lower) salaries in order to essentially subsidize lower prices in the rest of the world.

Now this all worked well when Japanese consumers’ incomes grew at a steady rate from the 1960s to the 1990s. Being gouged doesn’t hurt that much when your income keeps getting a big jump. But when incomes peaked in 1998 and started to fall steadily, the idea that Japanese have to pay more than other populations started to become less tenable. This, of course, opened the door for a clothing brand like Uniqlo, who set up a production system based in China that could deliver high-quality goods at the standard Western pricing level seen overseas at the Gap or H&M. Now in the recession, McDonald’s Japan and Sukiya have followed the same model in the food sector, and at least for McDonald’s, their low-price strategy has delivered record profits.

This idea of undercutting the previous Japanese price level has created an entire new rationale for entering the Japanese market. H&M and Forever21 have seen massive revenues thanks to offering product at a much, much lower price than what used to be considered “low.” Nothing has scared Japanese domestic apparel brands more than a challenge to their previous monopoly on controlling the psychological perception of what is the “normal” cost. Select shops Beams and United Arrows, who have weathered the recession relatively well, responded to the “fast fashion boom” by creating their own lines of lower-priced Chinese-made apparel at prices that Japanese consumers in 2010 can actually pay. Even designer brand Comme des Garçons created lines such as the PLAY casual collection and other Chinese-made basics to offer younger consumers (and Asian tourists) something to buy at a realistic price level.

So as the rest of the fashion industry becomes highly competitive on price, this leaves the Western brands in a difficult position. They cannot quickly drop prices because their pricing is an important part of communicating value and importance to customers. (They did, however, use the strengthening yen a few years ago as a stealth way to cut prices in the recession by 5-10%.) Meanwhile, Japanese consumers, who are growing less wealthy, are pessimistic about their economic future, and are accustomed to paying less for everything, no longer understand the 1990s-era logic of saving/going into debt just to buy a single handbag. And thanks to Yahoo Auction, grey market arbitragers, and a giant network of resale shops across Japan, there are much cheaper ways to buy new or near-perfect luxury items than the fancy flagship stores.

Of course, the broad middle-classes aren’t supposed to be buying luxury goods, and it was only a historical fluke that brought us to the strange situation we are in today, where there are multiple places within a half-dozen Tokyo neighborhoods where you can buy Louis Vuitton and Gucci. For those who are desperate to cling on to a consumer culture that made more sense during the heady days of the early 1990s, many have gone towards the alternatives offered by the industry itself: namely outlet malls and sale sites like Gilt and Yoox. The incoming Chinese travelers will help keep the industry a bit buoyant while middle-class Japanese consumers flee the market, but they may not be able to completely allow brands to keep charging artificially high prices in a deflating market.

The question for luxury brands going forward in Japan is whether they can surf on the deflationary swells to slowly readjust their “premium” pricing. In the thrifty yet wealthy U.S., spending $298 on a Coach handbag may seem like a splurge, and since Japanese incomes are falling to a mere fraction of American incomes, it makes sense that that very same price level may actually be perfect for a more impoverished Japan. Maybe the Japanese will not have to be such outliers — and scorned cash cows — any longer.