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Retail Growth Spurt at Aoyama

TOKYO — "This area has a mix of residential and commercial, people of all ages and cultures, and now it has an incredible mix of shops."<br><br>That’s designer Michael Kors’ take on one of the hottest shopping destinations in town,...

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TOKYO — “This area has a mix of residential and commercial, people of all ages and cultures, and now it has an incredible mix of shops.”

That’s designer Michael Kors’ take on one of the hottest shopping destinations in town, Minami Aoyama, where he recently opened a shop.

Aoyama is giving Ginza some competition as a key spot for Japanese fashion retailing. Once known as a hip hub for edgy fashion brands like Comme des Garçons, Yohji Yamamoto, Issey Miyake, D& G and Gianni Versace, Aoyama is now adding even more brands.

A number of international designer shops opened in Japan during the first half of this year, and most of them selected Aoyama for their new locations. Previously, shop openings mainly took place in Shibuya, Daikanyama, Ginza and Harajuku, but now Aoyama — particularly the Minami Aoyama sub-neighborhood — has become a magnet for fashion brands.

Between February and April, Minami Aoyama has seen openings of Michael Kors, 10 Corso Como, Comme des Garçons, Undercover, Marni, Nina Ricci, Hugo Boss and Anteprima. Playboy opened its first flagship in the area in July and Prada is building a flagship.

The spate of openings is the silver lining that has resulted from the enduring recession here. The dour economy has led to better real estate conditions, including cheaper rents and newly available spaces. Plus, consumers have been eager to start buying fashion again.

Aoyama is near Harajuku and Omote-Sando, a slightly younger but bigger market where top names including Yves Saint Laurent, Chanel, Gucci — which all opened in the past year —are located. Aoyama, however, is less crowded and noisy than those two areas, and Minami Aoyama in particular has a quieter, more sophisticated ambience for shopping.

“The new shop in this neighborhood is a close cousin to my New York store on Madison Avenue,” said Kors. “The area has always been very sophisticated, and customers feel a bit more exclusive and special when they go to their destination a little off the main drag.”

Kors’ shop is located a block off the main street of Minami Aoyama. “I felt the same when we selected the location for the store [on Madison Avenue and East 76th Street] because the traditional commercial district was below 72nd street.”

One of the reasons of this opening rush is active development of the real estate in Minami Aoyama district.

A drop in retail leasing prices in Japan has contributed to the store boom.

After the bubble economy burst in the late Eighties, real estate prices in Ginza dropped and the fashion brands that survived were able to expand their retail opportunities, said Toru Kanyama, a trend analyst here.

“[Over the past 10 years], land prices in commercial districts in Japan dropped 10 to 20 percent compared with their peak in 1989,” said Itsuro Anan, of the Japan Real Estate Institute. “Fashion brands are investing [in Aoyama] for the better location at a less expensive price.”

And price is a big drawing card for Aoyama. In Ginza, rent for 35 square feet — the equivalent of one tsubo, a standard Japanese measure of space — costs more than $835 (about $24 a square foot). On the other hand, the price in Aoyama for the same space is roughly $543 ($15 a square foot). (Dollars are converted from yen at current exchange rates.)

Aoyama also became a launching pad for many brands to develop their international strategy. Marni’s shop in Aoyama is the brand’s fifth store in the world after units in London, Milan, Paris and SoHo in New York. Kors opened his second flagship here, after his shop on Madison Avenue.

Marc Jacobs opened his first global store of 3,300 square feet April 4. The store was originally opened in 2000 and then was renovated to accommodate his entire product line.

“I love the location,” said Robert Duffy, president of Marc Jacobs. “The atmosphere is great. We renovated the shop in the right place at the right time.”

Shops on the same street include Dries Van Noten and Neil Barrett.

“The Aoyama district has a magnetism,” said analyst Kanyama. “Its popularity never faded, even during the recession.”

Ian Bickley, president and chief executive of Coach Japan, who opened the brand’s flagship in Ginza in March, said, however, that in his ever-expanding distribution plan, “Aoyama is always in the list.”

But the spotlight isn’t only on Minami Aoyama; Omote-Sando and Harajuku are also active. At a recent news conference here, LVMH Moët Hennessy Louis Vuitton chairman Bernard Arnault announced the construction of a Dior Building, to open next July.

“The new building is modern and a reflection of the spirit of Christian Dior,” Arnault said. The new building will open in the heart of the Omote-Sando district. It is positioned as Dior’s flagship of the 21st century and is expected to be one of the most important bases for the brand, along with the Avenue Montaigne store in Paris and the 57th Street shop in New York, said the firm.

“We invested [$33 million] for the construction of the building and project annual sales of [$25 million],” Arnault said.

Tod’s and Hogan are planning to open their flagships in Omote Sando in September 2003.

Masayoshi Soutome, research director at Mitsubishi Research Institute, explained the genesis of the opening rush: “Because of the drop in land prices, it is certainly easier for brands to have shops in Aoyama. But in many cases, Japanese counterparts are required to open flagships as conditions for exclusive distribution agreements or licensing agreements. There are some brands whose flagships in Aoyama don’t generate enough sales, and the gap between the profitable and non-profitable shops in Aoyama are obvious.

“Before, the brands focused on having in-store shops in department stores. Sales of each store were small, but the brands were able to generate sales by having many shops. But now, power brands open large-scale stores to increase sales,” added Soutome. “Also, there is no big department store in Aoyama. For brands that intend to open in department stores, there is no conflict in Aoyama.”

Kana Sasaki, analyst for Tsubasa Securities Economic Research Center mentioned that the profitability is higher at freestanding shops than opening in-store shops in department stores. “Of course, the initial investment is more expensive. But the higher profitability is expected in opening freestanding shops,” she said.

“Previously, imported brands were said not to be able to run the freestanding shops and be profitable, and that’s why they opened shops focused on building the brand’s image. But today, freestanding shops pay off due to the decrease in land prices,” said Soutome.

“For Aoyama, now is the time for refreshment,” added Sasaki. “The town itself welcomes luxury brands to open shops that will draw consumers from other markets and that will create an ideal shopping atmosphere.”

Sasaki doesn’t view the Japanese openings as stepping stones to larger markets, like China. “It takes a while for Asian markets to expand. Rather, the Japanese market is still a sweet market for these brands. Their leading consumers are young women from their late teens into their 30s. And Aoyama attracts the younger segments, which differs from Ginza. Brands in Aoyama reach younger prospects that are more trend–conscious.”

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