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<b>Japan 2006:</b> Bleak Future Unless Industry Reforms

Sales & Trends

TOKYO, Japan – In 2000, Japan’s bicycle industry manufactured 4.68 million bikes. Last year that number fell to about 1.3 million. Having virtually saturated the market, imports are no longer growing at double-digit rates annually, but continued to edge up in volume in 2006.   The industry saw its fair share of upheaval in 2006, […]

TOKYO, Japan – In 2000, Japan’s bicycle industry manufactured 4.68 million bikes. Last year that number fell to about 1.3 million. Having virtually saturated the market, imports are no longer growing at double-digit rates annually, but continued to edge up in volume in 2006.
 
The industry saw its fair share of upheaval in 2006, with the takeover of Maruishi Cycle by a mainland Chinese firm, Tianjin Fushida, and the bankruptcy of major assembler Yokota Cycle. Given the state of the industry, these developments should have come as no surprise, and we are likely to see more of the same during 2007.
 
One reason for the turmoil is that the chickens are coming home to roost for a manufacturing industry that saw price-cutting as a substitute for real competitiveness. Meanwhile the BAA safety mark system, intended to help the domestic industry survive the onslaught of cut-price, low-quality imports, has apparently failed to stem the decline.

 

Inflation and deflation

There was no let-up in imports of low-priced bikes last year, which in 2005 totalled 9.14 million units. In the first 11 months of 2006, imports reached 8.67 million, up 1.6% on the same period in 2005. Of those imports, China accounted for 96% of the total and Taiwan for just 3.7%.
 
Domestic bike production fell well below the two million mark and is likely to be around 1.3 million for the year. Jumps in material prices have been gradually eating into company profits since 2005, but it is very difficult to pass on price rises in the low-price Japanese market. In short, the market has been plagued by the unsavoury combination of inflation in material prices and deflation in product prices.
 
All the same, somehow the spring demand season saw results close to expectations. Although it got off to a start marred by bad weather as in 2005, in certain areas, sales were pulled along by school commuting bikes in the JPY 40-50,000 (€ 318) bracket, with Bridgestone’s ‘Albelt’ series particularly strong. Average prices rose to around JPY 25,000 (€ 159). Other makers followed the lead of the Albelt with high-priced models that also did well and sparked hopes of a ‘return to dealer sales’.
 
According to Bicycle Association statistics for the first 11 months of 2006, production of light cycles, the industry’s mainstay product, halved to 245,115 units. Only the sports bike and electric categories showed an increase, by 9.4% and 11.5% respectively in volume terms. 

 

Japanese Suppliers

Japanese makers experienced a mostly poor year in 2006, with some firms succumbing to bankruptcy. One bright spot was Miyata Industry’s comeback after a difficult start to the year. Delays in moving its PFT manufacturing system to Shanghai hurt the firm during the sales season, and the company also had to cope with a change of presidents, but its return as the ‘New Miyata’ in the second half of the year was encouraging.
 
In the parts market, SRAM’s renewed activity in attracted interest. Giant Japan began handling SRAM components in July, accelerating SRAM’s advance onto Shimano’s home turf. SRAM’s Force and Rival road groups have already gained a worldwide reputation, and its internal 3- and 9-speed hubs are popular on European comfort bikes. 2007 will see the battle for component sales heat up.
 
One of Japan’s major bicycle assemblers, Osaka-based Yokota Cycle, went bankrupt in December with liabilities of about JPY 3,600 million (€ 23 mn). Bankruptcy proceedings were initiated December 4.
 
The industry was also shocked by the takeover of Maruishi by a Chinese firm, Tianjin Fushida, in 2006. Such developments should have been no surprise, given the general industry attitude to the changing times. In the ten years since the beginning of the industry’s decline, it has not effectively dealt with globalization as an issue for the whole industry. The Chinese industry was seen only as a production base that could offer cheap labour, and price-cutting was substituted for global competitiveness, leading to the industry’s decline. Now the power relationship between the two countries is reversed.
 
The bike industry is unique in Japan in being unable to cope with the changes sweeping through the country’s distribution system. Maruishi was simply overtaken by events, while Yokota was unable to adjust when its biggest customers reorganized their operations and product strategy towards higher quality. Other companies are likely to suffer the same fate in the coming year, unless the industry urgently comes up with a coherent strategy that links offshore production, domestic companies and the needs of the home market.

 

BAA: ‘Magic Bullet’ Disappoints

What happened with the BAA safety certification system, which was supposed to save the industry? The system marked two years of full operation in August 2006, but the total issuance of decals reached just over 4.92 million by August 13. While Bicycle Association Chairman Yoshizo Shimano says the target is to achieve certification of 3.5 million bikes in 2007, it’s unclear whether this is feasible. Although BAA-mark bicycles reached 60% of the number sold in the spring demand period, normally this share hovers around 20-30%, so it is hardly fulfilling the promise of ‘excluding low-priced inferior bikes’.
 
There are numerous problems with the BAA system. The biggest issue is that awareness among dealers about the system is still weak. Further, it can’t be said that the introduction of the system has achieved its original aim of slowing down the deterioration in quality caused by sub-10,000 yen bicycles.
 
While the soaring import growth of previous years has stopped, imports of cheap bikes from China continue to flow into Japan at continuously high rate, with the 2006 Jan-Nov inclusive total of 8.6 million units already exceeding the total for the same period in previous year. The share held by Chinese-made bikes in the dealer market is also said to be increasing.
Stores selling bicycles are beginning to be divided into those that survive through sales of higher-priced models and those that focus on quantity. A gain in share by models carrying the BAA safety mark contributed to a rise in average unit prices of around JPY 500 (€ 3.17) over 2005.
 
Bikes for commuting to school made up 28.9% of sales, city and light cycles made up 37.6%, although many of those who bought light cycles use them for riding to school. Sports bikes were next highest at 14.3%, while small-diameter/folding bikes, electric bicycles and children’s bicycles each accounted for around 6%. Unit prices increased between JPY 1,000 and 3,000 (€ 19) in many cases, but some stores saw a significant jump of JPY 5,500 or 6,000 (€ 38). 

 

Mass Merchants

Japan’s annual bicycle market last year is likely to be around 11 million bicycles, with over 70% of bikes sold by general merchandise stores, home centers and other mass-marketing outlets. The traditional mass merchants have been unable to keep pace with diversifying consumer needs, and chain stores specializing in particular products, such as clothing stores and household appliance stores, have been stealing into the market over the past decade. In 2006,
 
Aeon reviewed its product strategy and began making over its outlets. It had already withdrawn production of its ‘Top Value’ private brand from Hodaka and Yokota Cycle in autumn 2005, and the brand was not around during the spring season. In July, higher grade sports bikes including cross bikes supplied by Riteway Products were rolled out in an effort to ensure reasonable margins and cultivate new demand.
 
In August, the Top Value bikes, now made by Saimoto, made a big comeback on the shop floor. These models featured aluminum frames and roller brakes, and two types went on sale at double the previous price of the brand (JPY 19,800 and JPY 24,800 (€ 158) (3-speed internal hub model). In September, the big box ‘home center’ retailers Kahma, Daiki and Homac merged to become DCM. The new entity has combined 524 store nationwide. It leapt past Caintz as Japan’s biggest home center retailer.
 
Retailers, including Home Centers and discounters, are reviewing all aspects of their business, from management systems to pricing. They are questioning the wisdom of their former devotion to low prices. The scramble for a bigger piece of the pie in a saturated market is exhausting these retailers while their gross margins are in decline. Big electrical retailers are also expanding into new areas. Yodobashi Camera and Bic Camera have begun to compete fiercely at huge rail terminal locations. The total floor stock at Yodobashi’s five retail locations is 1,200 bikes, and the company aims to turn this over 15 times per year.
 
The 200 bikes on the floor of Yodobashi’s Akihabara store were turned over once in the space of two weeks during the spring sales season. Yamada Denki, which took over the Daikuma chain, is handling a wide range of bikes at its outlet mall stores, with sales reaching 200,000 units. These retailers’ strength is their ‘rail location’ and impulse buying behavior by consumers.
 
Also, in the same way as they deliver electrical appliances, they can deliver bicycles nationwide. With the value-destruction trend in bikes, the traditional distribution system is collapsing and dealer share is in decline, despite the fact that bicycles really require knowledgeable retailers.

 

2007 Trends

New possibilities are beginning to be seen in the market. One is the expansion of the market for electric power-assist bicycles. Lithium-ion battery equipped models already account for 70% of sales, and a wider range of models is available. Domestic production of electric bikes was 212,438 units in the Jan-Nov period last year, according to the Bicycle Association, a 9.4% rise on the same period in 2005. The value of that production rose by 10.8% compared to the previous year.
 
Shipments in the Japan market were up 6% in the year to October, with total shipments for the year expected to reach 270,000 units and 300,000 units in 2007. The big three electric bike makers (Panasonic, Yamaha and Bridgestone) are in good shape. Miyata is following in their footsteps with its tie-up with Sunstar engineering.
 
There also seems to be an emerging trend towards so-called ‘urban’ bikes in 2007, bolstered by health-consciousness and concern for the environment. These are mountain bikes adapted for town use, with slick tires and usually no suspension. Handlebar height is lower than on MTBs. These bikes were prevalent at the Japan cycle show in November last year, with most priced around the JPY 50,000 (€ 318) mark and mainly targeting the baby-boomer market. 

 

Japan Motorcycle Industry 2006

Japan’s domestic motorcycle production and market in 2006 ticked very slightly downward with the previous year following two years of growth, according to figures from the Japan Automobile Manufacturers Association (JAMA). The production total for January – December 2006 stood at 1,771,386 units, down 20,199 units or 1.1% compared with the production of 1,791,585 units recorded in the previous year. Output of two-wheelers in the 51-125cc category fell by 42.4%, but this loss was made up by increases in the bigger volume categories of 50cc and under and 250ccc and over.
 
Domestic total sales for 2006 totalled 700,366 units, down 0.9% on 2005. JAMA said exports of motorcycles edged up by 0.1% to 1,333,186 units in 2006, the third consecutive year of growth. The value of exports, at US$7,858.78 million (US$6,486.10 million for vehicles and US$1,372.68 million for parts), represented a 2.4% increase on 2005.
 
The big three motorcycle makers posted positive results for the year, with Yamaha Motor setting new records for net sales, operating income, recurring profit and net income. The company produced 546,418 units in Japan in 2006. Yamaha’s motorcycle sales worldwide totaled 914.8 billion yen, up 20.4 percent from the previous year, due mainly to robust sales in ASEAN countries and Latin America. In terms of profits, operating income from the motorcycle business totaled 54.6 billion yen, up 64.6 percent on 2005. Honda Motor also said it expected to achieve record sales in motorcycles in 2006.
 
Unit sales were up 3% on 2005 to 12.7 million worldwide. The company said it would be consolidating all domestic motorcycle production to its Kumamoto Factory by the end of 2009 to achieve greater efficiency. Suzuki produced 523,408 two-wheelers in Japan during 2006, a 7.03% increase. Worldwide production, including production in Japan, increased to 3,138,000 units, up 6% compared to the previous year.
 

2006 production total figures by class of motorcycle

 
50cc or under
306,246 units, up 7,697 units or 2.6%
51 – 125cc
149,868 units , down 110,475 units or 42.4%
126 – 250cc
276,043 units , down 3,231 units or 1.2%
Over 250cc
1,039,229 units, up 85,810 units or 9.0%
Source: JAMA
 

2006 domestic sales total figures by class of motorcycle

 
50cc or under
478,196 units, up 1.5%
51 – 125cc
82,211 units , down 7.4%
126 – 250cc
91,395 units , down 8.3%
Over 250cc
48,564 units, up 2.9%
Source: JAMA 

 

New Registrations-Sales (Motorcycle) Engine Displacement / Manufacturer 2006 

(Changes from the previous year (%))
 
50cc & under
Over 50cc
Grand Total
51-125cc
126-250cc
Over 250cc
Total
Total
478,196
(101.54%)
82,211
(92.63%)
91,395
(91.7%)
48,564
(102.92%)
222,170
(94.3%)
700,366
(99.12%)
Source: JAMA

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