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Japan Gauges Earthquake’s Economic Toll

Prime Minister Kan calls it the biggest crisis the country has faced since WWII.

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Japan on Sunday, March 13, 2011.

Japan on Sunday, March 13, 2011.

Amanda Kaiser

Japan on Sunday, March 13, 2011.

Japan on Sunday, March 13, 2011.

Amanda Kaiser

Japan on Sunday, March 13, 2011.

Japan on Sunday, March 13, 2011.

Amanda Kaiser

Japan on Sunday, March 13, 2011.

Japan on Sunday, March 13, 2011.

Amanda Kaiser

TOKYO — As Japan grapples with the terrifying aftermath of the most powerful earthquake to ever strike the country and an ensuing tsunami that killed thousands, life in the capital city is slowly easing back to normal.

This story first appeared in the March 14, 2011 issue of WWD.  Subscribe Today.


Pedestrian traffic along Tokyo’s streets was expectantly light on Saturday, the day after an 8.9 quake in northeastern Japan shook buildings in the Japanese capital and stranded thousands in the city overnight. Areas such as Shibuya, Harajuku and Ginza, which are normally teeming with people on the weekend, were exceptionally quiet and many stores were closed for business. That situation changed considerably on Sunday, as the aftershocks tapered off in frequency. The number of people on the streets, many with shopping bags in tow, increased significantly. Nearly every retailer was open, with an apparent quick return to near normalcy, as couples and groups of friends browsed the stores.

“Of course, we feel terrible about the situation in Miyagi [the area the tsunami hit], but being at home watching TV was getting depressing,” said Atusko Minagawa, 26, who was shopping at Roppongi Hills on Sunday and made a small purchase at Zara. “Doing a little shopping with a friend has really improved my mood.”

Emi Nagao, who was walking around the same retail development with her husband and 4-year-old son, said, “We stayed inside yesterday, but the weather is nice today so we decided to go out. Just being outside has made us happier, especially my son. It’s good for him to be able to run around and get some exercise.”

TV coverage of the disaster dominated the airwaves all day Saturday and Sunday as death toll estimates mounted to more than 10,000, with scores more missing. Images of displaced people in shelters sleeping on mats and horrific footage of the destruction have played on a constant loop. Japanese Prime Minister Naoto Kan addressed the nation Sunday, calling the disaster the biggest crisis Japan has faced since World War II.

The country’s attention is focused intently on serious problems at a nuclear plant in Fukushima, near the area devastated by the tsunami. There was a blast at the plant and late Sunday there were reports of a blast at a second site. Wide-ranging reports and theories abound about just how serious the radiation threat is and the situation seems to change by the minute. The government has evacuated more than 200,000 people.

Japan is also facing a serious power shortage and rationing will go into effect, with blackouts starting today. While it looks like the central area of Tokyo will not be affected, everyone is being told to conserve energy and retailers most likely will cut back on their hours. People are stocking up on supplies, pouring into supermarkets and convenience stores to buy bags of ramen noodles, bread and canned goods. The emergency goods and tool sections of the Tokyu Hands in Shibuya were mobbed with people buying earthquake kits, gloves, masks and batteries. Flashlights seem close to impossible to find in Tokyo.

 

“Today we’ve had a lot of people coming in to buy flashlights, batteries, bottled water and other emergency supplies, but the overall number of customers is probably less than usual,” Natsumi Endo, a clerk at Roppongi’s branch of Don Quijote, a novelty and general goods store, said Saturday.

Although their ordeal pales considerably to the vast destruction in the northeastern part of the country, where walls of water swept away entire towns, Tokyoites experienced a restless Friday night. Suspended train service, which has since resumed, forced many to walk for hours home or stay overnight in police stations, schools or other make-shift shelters. The sound of sirens and helicopters overhead persisted into the night as aftershocks kept coming. But life seemed much closer to normal on Sunday.

The longer-term macroeconomic impact for Japan remains a question. The country’s economy has been dipping in and out of a recessionary state for several years. Assessing the situation Friday evening, Brian Salsberg, a partner with McKinsey & Co. in Japan, initially said he saw limited long-term economic fallout from the disaster, but later changed his mind.

“Now that the damage picture is clearer, I would actually say that the impact on the economy is likely to be significant and confidence may be, too,” he said.

The nation’s consumers, once one of the world’s most voracious group of buyers of fashion and luxury goods, had cut back substantially in recent years as the economy wobbled. Most luxury brands had shifted their focus from Japan to China in terms of growth markets, while even fast-fashion giant Uniqlo has seen comparable-store sales declines in Japan in six of the last seven months. Whether the earthquake further derails consumer spending remains to be seen.

Richard Jerram, an economist with Macquarie Research, said there are noteworthy differences between this disaster and that of the Kobe earthquake in 1995 when considering the potential macroeconomic impact. The Miyagi Prefecture, which is home to Sendai, the area most affected by the quake, accounts for 1.7 percent of Japan’s population and the same proportion of gross domestic product, while Kobe made up almost 4 percent, Jerram wrote in a report released Friday evening. Still, he warned that there are some risks.

“There are two basic economics-related concerns,” Jerram said. “The first is that the fragile economic cycle is not in a position to withstand significant disruption. The second is that the combination of a softer economy and the additional strain on public finances will put upward pressure on bond yields.”

But he added that many Japanese companies have reportedly diversified their supply chains after Kobe, so the economic impact should be lower. Economists at Nomura bank noted in their research that industrial production and consumer confidence fell sharply in the month of the Kobe earthquake, but they ultimately rebounded strongly in the following months as reconstruction efforts took place.

Nicole Fall, co-founder of trend agency Five by Fifty, said her business has already taken a hit. This weekend her firm had planned to take clients around Tokyo to learn about the accessories market, but the clients’ flight from Shanghai was cancelled.

“That business was worth thousands of dollars and obviously we’ll need to discuss refunds,” Fall said. “On Monday, we had a creative director from the fashion industry visiting and, again, this visit has been canceled. I rather suspect we are going to see more of this over the coming weeks. Five by Fifty is a small-scale operation and we’ve been affected in the short term, and who knows how much by in the long term. I hate to think how other small, medium and obviously bigger companies will fare, especially as there did seem to be more business optimism recently.”

Tourist flows to Japan are likely to weaken and that’s more bad news for retailers. Although airports are slowly getting back to normal, the U.S. State Department issued a warning urging U.S. citizens to avoid nonessential travel to Japan through April 1.

It’s unclear how much damage Sendai retailers have sustained. On Friday, people on Twitter said the outer wall of the Sakurano department store had collapsed. The Mitsukoshi unit in Sendai has been closed until further notice, according to the retailer’s Web site. A Uniqlo spokeswoman said the chain is still assessing the state of its stores in the area, but damage seemed minimal.

Louis Vuitton has two stores in the area in Sendai and Koriyama. A Vuitton spokeswoman said there was no serious damage and staff are safe, but several of them have missing friends or family members. The Vuitton spokeswoman also said that one of the brand’s warehouses in Chiba, outside Tokyo, has been closed since Friday. There does not appear to be damage but the company is performing checks and it should be operational Monday, she said, adding the quake caused some water leaks in Vuitton’s Tokyo showroom and some samples were ruined. Vuitton closed its Omotesando store Saturday for safety checks but it reopened Sunday. The spokeswoman said the company will need to revisit store operating hours for the coming days in light of the power shortage.

Meanwhile, fashion-related events in Japan are getting the axe. Salvatore Ferragamo planned to hold a press conference today in Tokyo to promote its sponsorship of an opera performance. It has canceled the press conference, although the performance of Giuseppe Verdi’s “La Forza del Destino” will go on as scheduled this afternoon. Ferruccio Ferragamo, the company’s chairman, was slated to come to Tokyo, but his flight from Paris was canceled.

Gucci chief executive officer Patrizio Di Marco was also slated to come to Tokyo next week to unveil the house’s 90th anniversary plans. A Gucci spokeswoman said the company will decide today whether to proceed with the event, but it is likely to be canceled.

As for more local activities, a large consumer fashion show called Kobe Collection, set to take place Saturday in Tokyo, was canceled. Vogue Girl Japan also pulled the plug on its Saturday launch event at La Foret mall in Harajuku. Tokyo Girls Collection, another fashion event targeting consumers, cancelled its Okinawa edition, slated for Sunday. It seems Japan Fashion Week, set for March 21 to 25, is still a go.

“[At] this moment, I believe that we are able to run Japan Fashion Week this season, and we should do it to activate the market and the industry, as well as have something like a charity event for the victims in the near future,” Nobuyuki Ota, chief of JFW’s collection project committee, said via e-mail.

 

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