JAPAN REPORT NAA Retailing Corp January 2005 NAA Retailing captures Japan s mood of change Hui Min Neo reports on NAA Retailing Corp, the intriguing new airport/retailer partnership between Narita Airport Authority and JATCO, which is breaking new sales records in Tokyo. You could describe the Japanese as extremely fast learners, or as super managers. Or both. Out of the 100 or so staff members at newly-formed NAA Retailing (NAAR) Corporation, only two have previous experience in travel retailing. But after just a month of taking over eight shops from affiliate company Narita Airport Promotion Foundation and another two from Narita Airport Business Co, NAAR has set new records and nearly doubled sales at some of its brand boutiques (see table). NAAR is a joint venture between Narita Airport Authority (NAA) and established travel retailer Japan Airport Terminal Co (JATCO). It is the first of three joint ventures that the airport authority is to form with its largest retailers. NAAR Senior Vice President Takaaki Iwamatsu tells 40 The Moodie Report
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January 2005 JAPAN REPORT NAA Retailing Corp The Moodie Report that sales at its Bvlgari boutique hit 32 million (US$308,000) in September this year, compared with 19 million (US$183,000) in the same month last year. Results in 2003 may have been affected by the SARS crisis, but it is notable that the September sales figure also soundly surpassed the 19 million achieved in September 2002. And at the Hermès boutique sales grew to 21 million (US$202,000) in September 2004, compared with 14 million (US$135,000) in 2003 and 19 million in 2002. The company is now well on target to achieve the turnover figure of 2.7 billion (US$25.8 million) targeted for its first fiscal year. But, says Iwamatsu, the swift turnaround was no coincidence. He notes that operational changes had driven the positive results. First, we are controlling the stock; second, we are checking out inventory; and third, sales staff are constantly being motivated, he says. For example, teams of Brand boutique sales at Tokyo Narita Airport Bvlgari Hermès 34 million 32 million Iwamatsu: Everything s under control sales staff who exceed sales targets are now given monetary incentives. NAA holds 67% of the shares in this joint venture and plans to buy the remainder from JATCO in about five years time, after it has acquired the skills needed to operate duty free stores, as General Affairs Manager Masatoshi Uchida puts it. The question everyone is asking is how this will work out for the joint venture partners. Iwamatsu says these are early days and it is up to both parties to devise the best solution. 23 million 17 million 19 million 12 million 22 million 19 million 20 million Iwamatsu is one of two former JATCO executives now with NAAR. The other JATCO representative handles floor operations. These two have their hands full bringing the rest of the team up to speed with the business of running airport duty free. And the original 100 staff will treble by 2006 as NAAR brings a large number of new shops into its fold. 13 million 13 million 19 million 14 million 16 million 14 million 14 million 21 million 21 million When Tokyo Narita Airport re-opens the renovated south wing of terminal one in 2006 the company will have some 2,500sq m of extra space. This means that it will have tripled the size of its operations at the airport, where it currently operates 1,250sq m of retail space. The additional space will be divided mainly into smaller shops of 40 50sq m, while the largest new shop will be about 400sq m. In total the company expects to increase the number of shops by about 20. July Aug Sept 2002 Source: NAA Retailing Corporation July Aug Sept 2003 July Aug Sept 2004 The exact plans for the layout have yet to be finalised, but Iwamatsu says that there will be branded boutiques, fragrances and cosmetics outlets, liquor and tobacco shops as well as Japanese souvenir shops and kiosks. The Moodie Report 43
JAPAN REPORT NAA Retailing Corp January 2005 Transit passenger boost for Narita after SARS There was an unexpected winner in travel retail during the SARS epidemic which devastated travel-related industries last year. NAA Retailing (NAAR) Senior Vice President Takaaki Iwamatsu tells The Moodie Report that sales in Tokyo Narita Airport s electronics shop hit a record 59 million (US$ 564,377) in July 2003. This compares well with 42 million (US$401,760) during the same month in 2002 and 41 million (US$392,194) in 2004. Likewise, a gift shop run by the company also registered all-time high sales of 102 million (US$975,703) in July 2003, compared with only 85 million (US$813,085) in 2002 and 88 million (US$841,783) in 2004. Both of these stores were operated by the Narita Airport Promotion Foundation, but were taken over by the NAAR joint venture when it was created this year. Iwamatsu notes that the fear of SARS caused the number of Japanese travellers to fall sharply. At the same time, however, transit passenger numbers rose significantly. Continental and North Atlantic passengers who were originally heading for SARS-hit regions including China, Hong Kong and Taiwan changed their destinations or transit points to Japan, which was not hit by the epidemic. All the aircraft departing and arriving were full of foreign transit passengers, says Iwamatsu. And while transiting these passengers, largely from the US, snapped up electronic products and Japanese gift items. Videos and cameras saw a big boom in sales. There was particular interest in new digital products. To capitalise on this potential of transit shoppers, NAAR opened a new duty free store in November at Satellite 3 with 100sq m of retail space, along with the commissioning of Satellite 4 in terminal one. Both satellites are mainly used by transit passengers from the US. This new shop stocks a range of duty free goods, including liquor, tobacco and fragrances and cosmetics. Transit passengers make up about half of those who use Satellite 3. A further 40% are departing Japanese travellers and 10% are departing foreigners. But as the Japanese take to the skies again, the proportion of transit passengers is falling as the airport s capacity is increasingly taken up by Japanese travellers. Iwamatsu says that NAAR certainly hopes that the airport authority will work on boosting the airport s capacity, in order to accommodate more of the lucrative transit passenger traffic. 44 The Moodie Report
January 2005 JAPAN REPORT NAA Retailing Corp NAAR will become a powerful force in Japanese duty free, says Takaaki Iwamatsu. We will enjoy strong growth in passenger traffic, because Japanese numbers are growing and the Chinese travellers are coming. We are very optimistic. Thanks to its links with the airport authority, the company is expecting to obtain the best locations available in the new terminal. These shops should be the showcase of the company. Most of the sales in future will have to be done by the new part of our operations, says Iwamatsu. In fact the company expects to achieve a turnover of 10 billion (US$95.7 million) with the opening of the new stores in 2006. NAAR will become a powerful force in Japanese duty free, says Uchida. Tapping into the Chinese potential Besides Japanese travellers, another important target customer is the Chinese. One of Japan s leading airlines, All Nippon Airways, will move its operations from T2 to T1 once the south wing is complete. And a code share deal with Air China means that ANA has very good links throughout the country. ANA s Chinese destinations go beyond the main cities of Beijing and Shanghai to include Dalian, Shenzhen, Hangzhou, Qingdao, Shenyang and Xiamen. And to cater to increasing numbers of Chinese travellers, Iwamatsu says the company has been hiring Mandarin-speaking staff. The Chinese are buying a lot of everything from digital products to cosmetics to cigarettes. In some ways they reflect the buying patterns of the Japanese travellers of the past, when everyone was buying a lot, says Iwamatsu. With South Korean travellers already peaking, the Chinese will be the fastest-growing traveller group to Japan, Iwamatsu says. And with that, barring any extraordinary events, the company should be heading towards a strong year in retailing. We will enjoy strong growth in passenger traffic, because Japanese numbers are growing, and the Chinese travellers are coming. We are very optimistic about the coming year, he says. The Moodie Report 45