Terrie's Take 884 (Tourism Edition) - Moving Beyond Rice Cookers and Hotels for Value in the Travel Sector

Mon Feb 20 00:15:24 JST 2017

* * * * * * * * TERRIE'S (TOURISM) TAKE - BY TERRIE LLOYD * * * * * *
A bi-weekly focused look at the tourism sector in Japan, by Terrie 
Lloyd, a long-term technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

Tourism Sector Edition Sunday, Feb 19, 2017, Issue No. 884

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+++ Moving Beyond Rice Cookers and Hotels for Value in the Travel Sector

Now that we're half way through the first quarter of 2017, the trend for 
inbound tourism to Japan for this year is becoming much clearer. The 
good news is that the sector continues to grow due to increased flows 
from our east Asian neighbors. Although it was the earlier-than-usual 
timing of Chinese New Year this year that drove explosive growth for 
January (2,295,700 people - 24% up on 2016), apparently growth for 
February won't be so bad either, although not the blockbuster January 
was. Our guess is that if traveler numbers hold at this level, then 
Japan will see about 27-28m people visiting the country in 2017, up from 
about 24m who came in 2016.

This is very significant, as inbound travelers continue to outstrip 
outbound Japanese ones by a factor of 3:2, this will force traditional 
Japanese travel agencies to finally pay attention to the inbound market. 
Once these domestic players (there are around 10,000 of them) get their 
game up to speed, the market will become far more competitive and thus 
create a virtuous (and for vendors, vicious) circle that will bring in 
even more visitors wanting to enjoy the bargains.

Spending by tourists also rebounded in January, thanks to visiting 
ethnic Chinese flying in from many countries in the region, not just 
China, and combining a trip with family gift-buying. This spending 
recovery is a welcome respite from the downward spiral of last year, 
where we saw the  frenzied "bakugai" buying phenomenon die out and 
tourists started to become more conservative with their cash.

A lot of retailers, especially ambitious younger store chains selling 
souvenirs and luxury consumer goods, over-estimated what the inbound 
spending growth would be. Essentially they took spending-per-person 
numbers in 2015 and simply extrapolated them to expansion of visitor 
numbers. What they failed to understand is that although the number of 
inbound visitors is indeed growing dramatically, people these days come 
from a much broader cross-section of society than they did 2-3 years 
ago. We have transitioned from high-spending luxury travelers, and 
"once-in-a-lifetime" tourists, to a larger group of lower-value repeat 
visitors with naturally less money to spend on each trip.

[Continued below...]

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Further compounding the contraction in per-person spending is the fact 
that the rich are already bored with Japan and are looking for new 
places to play, and mid-level spenders, mostly well-paid professionals, 
have evolved from being curious first-timers to now becoming savvy 
repeat FIT guests. These people are starting to understand how Japan 
works, and are accessing the same services and prices that local 
Japanese do.

This of course has been bad news for the big-ticket sales chains: 
electrical retailers like Laox, and second-hand luxury goods outlets 
like Nagoya's Komehyo. In fact, Komehyo has just announced that it will 
close 9 stores over the next 6 months, bringing their total down to 32. 
Komehyo's sales to foreign tourists plummeted 40% in the Q1-Q3 period 
last year, meaning that group net profit will also plunge 91% from that 
of last fiscal year. Komehyo blames the falling sales on increased 
customs duties in China and the stronger yen. But as we pointed out 
above, visitor demographics are probably a much bigger factor.

But even as sales are falling for Komehyo, Laox, and others, cosmetics 
and "small luxuries" are doing well. As a result, cosmetic firms and the 
department stores selling their products are still enjoying reasonably 
good results.

So where will market spending go from here?

I think the repeater FIT trend will continue to pick up pace, and soon 
more than 60% of inbound travelers will be people who come to Japan 1-3 
times a year. Their trips will shorten, and they will pack more into 
those fewer days. This isn't a bad thing, because it means that anyone 
within 3-4 hours flying time of Japan will seriously consider popping 
over to Japan for an event or a special interest that they can't get 
back home. This offers tremendous opportunities for regional players to 
set up events and invite large numbers of tourists to attend them. 
Readers will know that I have my eye on those 6.4m Chinese cycling 
holiday makers who would love our roads and clean air.

Events and activities are indeed a huge trend overseas and many big 
travel brands are combining activities with hotel bookings and their 
other primary offerings. For example, TripAdvisor's non-hotel segment, 
which includes attractions and activities, grew 35%, even as its much 
larger hotels business slumped 6%. Likewise, Airbnb announced last year 
it would be starting its Magical Trips service globally, and now you can 
get Tokyo-specific experiences on the company's smartphone app. Expedia 
has also launched its activities service and it has more than 100 
activities listed for Tokyo.

I'm not sure that any of these companies will make much money selling 
these activities, in that the going rate is 10-15% commission for the 
Online Travel Agency (OTA), much less than they get for hotels, and the 
amount of money changing hands with the end-customer is often small, 
usually being less than JPY10,000. But, while the activities may not be 
a cash-cow, these big guys understand that by adding inspiring value (we 
predict that later they'll add transportation, guides, and other 
services) they help to prime the sales funnel for all the other stuff 
the user will want.

My, how times have changed. I can remember just two years ago visiting 
Booking.com and trying to persuade them to let Japan Travel offer 
activities on their site. They politely but slightly disdainfully turned 
down my offer, saying that they are a hotel specialist. But now, even 
Booking.com is getting into the added-value activities business.

I think the end game will be in 2-3 years time, when FIT repeater 
travelers to Japan will be able to largely plan their travel around 
their interests rather than which location or hotel they'll stay at. 
This will drive people out of just the big cities, and so long as Airbnb 
and its competitors are given the green light, infrastructure will no 
longer be a major deciding factor for travelers from nearby countries. 
Instead, it will be, "Hey, honey, let's go hiking in Nagasaki this weekend."

Put another way, we are quickly moving from a slow "hardware" travel 
economy to a very dynamic "software" one.

...The information janitors/
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---------- ICA Event - Thursday 23rd March ----------------

Speaker: Thomas Nevins - Founder and Chief Consultant. TMT Inc
Title: "Doing Hard Labor in Japan"

Details: Complete event details at http://www.icajapan.jp/
Date: Thursday 23rd March, 2017
Time: 6:30pm Doors open
Cost: 1,000 yen (members), 2,000 yen (non-members). Open to all. No sign 
ups at the door!!!!!!!
RSVP: By 5pm on Monday 20th March 2017
Venue: Room F, 9F, Sumitomo Fudosan Roppongi Grand Tower, 3-2-1 
Roppongi, Minato-ku, Tokyo, 106-0032
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END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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