The big news in apparel retailing this month was H&M's announcement that it intends to open its first store in Japan in autumn, 2008. Reports are that it will be a 1,500 sq. meter shop, located in Harajuku, and that additional locations will be opened in Tokyo and other major Japanese cities thereafter (my guess is that the first shop will reside in the building that's currently under construction behind ZARA on Omotesando).
Unlike most international fashion brands which have found it advantageous to enter the market through joint ventures with established Japanese apparel manufacturers, H&M appears to want to go it alone in Japan and has established a 100%-owned local subsidiary (as a rule, H&M does not do JVs in international markets).
I, for one, will be watching keenly as this story develops. When it comes to fashion, most international brands face several hurdles when entering the Japanese market. Primary amongst these are product quality and channel issues, both of which are more effectively addressed when a local partner is involved.
On the channel front, the big problem is the dearth of available real estate in Japan's best retail areas. Competition is fierce for the very limited space that does become available and this means land prices and rents are sky high. For brands like H&M—whose business models rely on the ability to deliver goods at very low prices—this can be fatal. Careful consideration needs to be paid to profitability over the long run since the cost of initially establishing a presence can be very, very high. Most brands hedge their bets by involving local partners who are both willing to front the huge investment costs and, perhaps just as important, are able to provide key real estate deal connections or better yet, existing facilities that can be converted to launch the new brand's first shops. To go it alone from the start in Japan, international brands are usually either extremely knowledgeable and well funded, or naively overconfident.
The other big issue is product quality.
H&M employs a "Fast Fashion" approach in which it quickly identifies emerging fashion trends, cranks out knock-off designs and variations using 100 in-house designers, and then puts in manufacturing orders with 700 collaborating firms in low-cost markets like Bangladesh. The whole process takes only a few weeks, and H&M's traditional European and North American customers, who are trendy teens and twenty-somethings, are very happy with the results: affordable, up-to-the-minute products of less-than-stellar quality.
But Japanese consumers are a different species.
Manufacturing standards are so uniformly high in Japan that sub-par merchandise stands out like a sore thumb. Japanese consumers are notoriously good at spotting poor stitching, loose buttons and inferior fabrics and they reject products for reasons that would be considered "nit-picking" in most other cultures. Since Japan already has its share of brands that offer high quality, high fashionablity and reasonable prices, the game cannot be won on design and bargain pricing alone. As a result, many international brands have had to develop special approaches for dealing with quality issues. In large measure, H&M's survival in Japan will depend on its ability to follow suit.
Naturally, a number of other hurdles also await. In addition to channel and quality issues, close attention has to be paid to product sizing and merchandise selection. Store environment, visual merchandising, seasonality and customer service are common challenges as well, to say nothing of Japan's special needs when it comes to advertising and PR. If it takes these issues lightly during preparatory stages, H&M may very well find itself putting out fires in Japan instead setting the market ablaze.
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On Friday, December 15 
