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The two-and-a-half-hour ride into downtown Osaka from the bullet train station north of the city center offers little more than an anonymous skyline of high-rise buildings. Then the giant red Ferris wheel atop the HEP Five department store comes into view.

No wonder citizens here, whether they be teen girls strolling the shopping streets or city officials beaming with civic pride, are quick to point out their hometown is far from ordinary.

For what They Are Wearing in Osaka, click here.

Many in the fashion industry know relatively little about Osaka, which is Japan’s second-largest retail market after Tokyo and third-biggest city in population, behind Yokohama. But within Japan, Osaka residents enjoy quite a reputation for their gregarious, fun-loving nature and cheekily irreverent streak. The city is famous for churning out some of Japan’s top comedians, and, true to local insistence to do things their own way, citizens here ride escalators on the right side, unlike Tokyoites, who veer left.

It’s an interesting and important time to examine the city, as Osaka embarks on some heavy lifting to jump-start its economy, lure foreign investment and emerge from recent political scandals and turmoil in its public finances. The city, one of the biggest casualties of Japan’s late Nineties bubble burst, has an ambitious roster of construction projects and revitalization schemes under way, including the $8.3 billion development of a 59-acre rail yard into a sprawling complex of residences, offices, shops and hotels, which city officials expect to generate tens of thousands of jobs. A new Mitsukoshi department store and St. Regis hotel are also on tap.

“There has rarely been so much development work going on in Osaka, even in the boom of the bubble period,” asserted Alex Stewart, president of investment promotion company Alexander Capital Access Co. Ltd. and an adviser to the city of Osaka for five years. “But this is not a construction bubble. Osaka, especially by comparison with Tokyo, had become tired looking. Most of the office and commercial building stock was outdated. It needed a major overhaul.”

Once a prime manufacturing hub for Japan — the city boasts a variety of impressive achievements from having invented Cup Noodles ramen to producing the first television set in Japan — Osaka has been shifting its economic focus to areas such as robotics, biotechnology and IT services. Traditional industry still plays a significant role in the region, and electronic giants Matsushita Electric Industrial Co. Ltd., Panasonic’s parent company, and rival Sharp Corp. both recently announced plans to open new flat-screen television factories in the Osaka bay area.

This story first appeared in the February 21, 2008 issue of WWD. Subscribe Today.

Osaka also touts the strategic importance of its proximity and trade links to other Asian countries, which helped the city and surrounding Kansai region emerge from the late Nineties recession.

“Exports from the Kansai area have been increasing over the past five years, supporting the local economy when local demand was weak,” said Takumi Hirai, senior researcher with the Osaka Prefectural Government’s Institute for Advanced Industry Development.

Undoubtedly, recent dramatic changes in local government also will factor significantly into Osaka’s future. Late last month, lawyer and television personality Toru Hashimoto won the race for Osaka governor by a landslide. The 38-year-old, the youngest of the nation’s 47 governors, replaced Fusae Ohta, whose term was marred by her entanglement in a series of financial scandals. Hashimoto has said he will use the local government’s checkbook sparingly, given the prefectural government’s grave financial crisis and debt pile, a reported 5 trillion yen, or $46.23 billion at current exchange.

“Osaka is facing bankruptcy. Funding for all prefectural projects and public facilities will be reviewed with an eye toward cutting those that are not necessary,” Hashimoto told reporters earlier this month, according to The Japan Times.

Hashimoto has not outlined his political agenda, but expectations are high. “People are expecting him to make a new Osaka,” said Kana Uemura, an employee at a local advertising agency, summing up the local mood.

Japan’s consumer spending, though stagnant for several years, is still extremely significant in terms of sheer bulk, and cities like Osaka are major trade centers. According to the Japan Department Stores Association, Osaka was the second-biggest city after Tokyo in terms of 2006 sales, accounting for 12.6 percent of the 7.77 trillion yen, or $71.17 billion, total. Its market is more than double the size of the next biggest city, Nagoya, which generated 6 percent.

There are lingering concerns about the health of the Osaka economy, and that of Japan in general, in the wake of rising oil prices and fears of a global economic slowdown. Large-scale retailers in Osaka saw October sales slip 2.1 percent, steeper than the 1.8 percent drop posted nationally, according to figures from the Osaka Prefectural Government.

But the questionable climate is not deterring retailers and luxury brands from flocking to the region. Earlier this month, Hankyu opened its new men’s building, which contains a host of designer labels and a Tiffany & Co. boutique. That new addition solidifies the department store’s dominance in the northern neighborhood of Umeda near the main Osaka train station, and the area is also home to its women’s store and youth-oriented emporium, HEP Five.

The southern part of the city also is buzzing with new retail developments. Last year, Hermès, Dolce & Gabbana and Harry Winston opened large flagships on the stately, tree-lined Mido-Suji boulevard, joining the ranks of Dior, Chanel and Giorgio Armani. Earlier this month, department store Hankyu opened its first men’s wear building, which houses a Tiffany & Co. boutique as well as Tom Ford’s first store in Asia.

“Osaka is a key market for all fashion and luxury brands doing business in Japan,” said Cristiana Ruella, Dolce & Gabbana’s managing director. “In terms of business, Osaka represents for both of our brands [Dolce & Gabbana and D&G] more than 20 percent of our sales in Japan, and the growth trend has been very positive in recent years.”

Stewart noted that Osaka has come a long way since local department store Sogo collapsed into bankruptcy and closed its flagship on Mido-Suji in 2000, casting a large shadow over the city’s retail industry. Sogo has since recapitalized under new ownership and opened a 14-story store on its original site.

“The thing about the Japanese, especially post-Eighties bubble economy, is that they tend to be pessimistic and cautious, but use your eyes and you can see that, at least in downtown Osaka, people are spending and the economy is buoyant,” Stewart said.

Yasuhiro Sasaki, creative director for Japanese specialty retailer Tomorrowland, noted significant growth opportunities in Osaka for the high and low ends of the retail spectrum. Accustomed to living in Tokyo’s shadow, people from Osaka still are very brand-conscious and eager to impress. But they are also acutely aware of the price-to-quality ratio, he said, drawing a parallel to the city’s acclaimed culinary tradition of street food like okonomiyaki pancakes and fried octopus dumplings.

“Their food is very delicious, but also very cheap,” he said. “H&M might have a hard time when it opens in Tokyo later this year, but it might get better results if it opens in Osaka.”

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