Japan’s Aftermath

Discussion
Mar 21, 2011

Eleven days after the earthquake and tsunami, it’s still highly
uncertain how the devastation that has hit Japan, the world’s third-largest
economy, will impact U.S. retail and consumers brands in the near-term and
long-term.

Most directly, a slew of U.S. chains that have opened stores in the
nation over the last few decades will take a hit. Coach and Tiffany each derive
as much as 20 percent of their sales from their Japanese retail operations.
Others with stores in Japan include Walmart, Costco, Toys ‘R’ Us, Gap and L.L.
Bean, as well as McDonald’s, Yum Brands Inc. and Starbucks on the restaurant
side. While a few deal with physical damage and blackouts in a near-term, there’s
a concern that Japanese consumers may curtail spending in the same manner U.S.
consumers responded after Hurricane Katrina and 9/11. Tourism to Japan is also
expected to slide.

While not the force they were five years ago as the nation’s
economic growth has stalled, Japanese consumers also remain big buyers of
luxury goods and higher-end gadgets. About 17 percent of the revenues of Callaway
Golf, for example, stems from the country. Still, a Women’s Wear Daily report
saw no long-term impact on the luxury market’s rebound. Observers interviewed
didn’t see the Japanese changing their spending habits long term.

"The Japanese are by their nature the most discerning luxury consumers
in the world," said Guy Salter, luxury investor and the deputy chairman
of Walpole, the association of British luxury goods. "While this disaster
is so appalling on a human level, it’s not going to affect their aesthetic
or desire for quality. I’m absolutely convinced of that."

While
the car industry will certainly undergo some turmoil, the big fear for consumer
electronics retailers is shipment delays or outright shortages of hot product.
Beyond computers, electronic gadgets and video games, Japan supplies about
a fifth of the global semiconductor market and is a major producer of memory
chips used in smartphones.

Stores in Hawaii, meanwhile, are also bracing for
a significant drop-off in Japanese tourists. But Japanese visitors to New York
City has reportedly dropped significantly since the nineties. Greg David, the
former editor at Crain’s
NY
and
now a business columnist, told ABC Eyewitness News, "The Japanese
economy has been stagnating for 15 years. It has affected virtually everything;
their investments in New York, the tourists who come to New York."

On a
wider scale, the concern appears to be any backlash against nuclear power
and the overall impact the U.S. economy’s recovery. Some see U.S. firms adding
jobs as part of Japan’s rebuilding effort. At the same time, economists note
that there’s no historical reference to help measure a disaster of this
size in an advanced economy like Japan’s.

"There’s nothing obvious that says we’re going to get smacked by this," Carl
Weinberg, chief economist of High Frequency Economics, told the Chicago
Tribune.
"There
can be a lot of trickle-downs. We just don’t know."

Discussion Question: What effect will Japan’s tragedy likely have on the U.S.’s consumer brands and retailers? Which companies do you see getting hit the hardest, if at all?

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8 Comments on "Japan’s Aftermath"


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Ryan Mathews
Guest
10 years 1 month ago

Any country whose debt is forecast to hit double their GNP is in for a rocky ride and Japan’s aging demographics and restrictive immigration policies are likely to exacerbate an already bleak economic situation.

We don’t know what the final price tag will be for the disaster or what help will eventually be available for the recovery.

What we do know is that Japan will rebuild and that means some people are going to make a lot of money rebuilding and restocking those homes.

Beyond that it really is too early to start picking winners and losers at least until they stop picking survivors and casualties out of the rubble.

Fabien Tiburce
Guest
Fabien Tiburce
10 years 1 month ago
Warren Buffet is on record today saying “If I owned Japanese stocks, I certainly wouldn’t be selling them now.” You have to look at this with some perspective. As huge and traumatic as these events have been, the Japanese people have always demonstrated courage and determination second to none. They will rebuild. The will rebuild fast (as fast as can be done). The great John Keynes once said the government should pay people to dig holes as a way to kick-start the economy during the great depression. Yes there is a great human tragedy but also an opportunity to rebuild, to create jobs, to drive growth and to rebuild one’s country and hopes. I am very bullish on Japan long to medium term (and wish the Japanese people well in these hard times, short term). As far as disruptions to other economies, there will be some, again in the short term. But production facilities are already restarting today. In the long term, the Japanese economy could very well emerge stronger.
Ed Rosenbaum
Guest
10 years 1 month ago

I am certain of one thing and that is we have no idea what the aftermath of this devastation will bring. Yes, Japan will recover and be stronger. But this will take many years. The effect it will have on the rest of the world’s markets is going to be huge. From luxury automobiles to the smallest part that will take weeks to get because of shortages. From electronics to tuna fish (my wife’s concern) we will simply have to wait, pray and do what we can do to assist this friend in distress.

Liz Crawford
Guest
10 years 1 month ago

I agree with Fabien; I am bullish on Japan.

But on a larger scale, we may be looking at price increases, because the global labor and commodities markets will be impacted. That may not be an entirely bad thing unto itself, it will depend on what else happens. And by what else–I mean politically and environmentally. We are beginning to witness serious climate disruption, and I fear only more and worse to come. Politically, we have good news/bad news scenarios every day. It reminds me of the Chinese curse, “May you live in interesting times.” I wonder if this isn’t one of those historical moments.

Paula Rosenblum
Guest
10 years 1 month ago

Heaven forbid, for the short term we actually might have to take up the slack by manufacturing some products in our own country! I would imagine that’s what will happen with cars.

With regard to electronics, I just don’t see why it’s an issue. The manufacturing plants are far from the scene of trouble, right?

I never count the Japanese out. They’ll be back. They’re a tough and resilient people.

The question is, “will their lack of consumption make up for our increased requirement for production?” Maybe, maybe not.

I think economically, we should be more concerned about getting involved in a third war, than with Japan’s short-term inability to buy our luxury products.

Len Lewis
Guest
Len Lewis
10 years 1 month ago

With all due respect for the people that are living through this tragedy, I think a slightly different view is in order here and that is the impact on the U.S. food industry. Because of this devastation, Japan is going to be an even bigger importer of all kinds of industrial and consumer goods over the next several years. This includes goods from the U.S. and goods from other places that would normally be bound for the U.S.

With increased radiation levels being found in some commodities, the Japanese will be importing way more milk and produce than in the past. A lot of that produce will come from Latin America. The question is what impact this will have on already strained consumer prices here is more product is diverted to Japan. It’s worth looking at.

Camille P. Schuster, Ph.D.
Guest
10 years 1 month ago

Not all products of Japanese manufacturers are manufactured in Japan. If the companies are able to shift production, disruption may be contained. However, the disruption is being felt in every aspect of business and daily life in Japan–with limited or rolling electricity everything is affected. Just as Japan rebuilt after previous earthquakes and disasters, Japan will rebuild after this one. This event will surely be one of those major traumatic events that reinforces and/or changes values of the Japanese people. They will, however, get through this and emerge as a competitive force.

Craig Sundstrom
Guest
10 years 1 month ago

“At the same time, economists note that there’s no historical reference to help measure a disaster of this size in an advanced economy like Japan’s.”

No. I’m not sure which economists these are, but if they’re truly saying this, then they’re wrong: the 1995 Kobe earthquake was similar in terms of total damage, casualties (somewhat lower) and manufacturing disruption (much greater). And, as noted elsewhere, as tragic and traumatic as the events are, they effect a relatively small and mostly rural part of the country.

That having been said, the trio of events could have a very great–albeit more subtle–impact in Japan (and elsewhere) if they so discredit nuclear power that the world begins a shift (back) to even greater use of fossil fuels.

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