Before the conversation, Liu Sanyong, the person in charge of SHEIN in Japan: Why are young people in Japan still not spending money? | Hardcore Interview · Going Global

Written by Lin Qingqing

Edited by Yuan Silai

In 2008, Richard Koo published "The Great Recession", and the financial crisis swept the globe. However, under large-scale stimulus, the Chinese economy grew rapidly against the trend. The economic recession did not leave a shadow, and the optimistic mood seemed to continue.

Not many people paid attention to Richard Koo until recent years when Chinese people suddenly became interested in his treatise from more than a decade ago. The obscure economic concept of "balance sheet recession" suddenly became popular. Economist Xu Xiaonian heard that more than half of the doctoral students in economics are preparing to write papers on this topic. Even he, who is not usually keen on following trends, has received many messages from people to exchange views on Richard Koo's theory with him.

The path that Japan has taken seems to have special significance at present. As a reference, this neighbor has many similarities and differences with us at present.

The most obvious difference is that Japan has gone through the painful deleveraging process, and the "lost three decades" seem to be coming to an end. The Japanese stock market is booming, Warren Buffett is heavily invested in Japanese trading companies, and the unemployment rate among young people is falling. Some optimistic signs are beginning to appear.

However, the pain of austerity and depression still leaves a deep mark on the lives of the Japanese. The younger generation can hardly imagine the scene on the streets of Japan in the 1980s, where people were waving 10,000-yen notes to compete for taxis. They are used to wearing cheap Uniqlo, decorating their homes with cost-effective products, and trying to erase their own personalities.

But in the plain market, there are still turning points emerging.

Liu Sanyong is the founder of Kagu E-commerce and the former head of SHEIN Japan.

Liu Sanyong has been studying and working in Japan for 12 years. He graduated from the computer major at the University of Tokyo, worked as a strategic consultant at PwC Strategy&, and has two entrepreneurial experiences. Now, he brings these experiences into Kagu E-commerce, committed to replicating the success of SHEIN in the home furnishing field.

His experience provides us with a unique perspective to observe this recovering market, both as a Japanese e-commerce practitioner and as a Chinese entrepreneur in Japan.

In this exclusive interview, we will explore Liu Sanyong's insights into the changes in the Japanese market, as well as the opportunities and challenges for Chinese brands in the Japanese market. In the context of economic recovery, how the consumption behavior of Japanese consumers is evolving, and what new requirements these changes have placed on Chinese brands going to Japan.

The following is the interview transcript, edited by Yingke:

Yingke: What do you think of the saying "Japan's lost three decades"?

Liu Sanyong: This "lost three decades" in Japan means that the economy has transitioned from a period of rapid growth to a state of slow growth. This has led to more intense market competition. In this process, many enterprises or brands must face elimination. Only those truly competitive brands, such as Uniqlo and MUJI, can survive in this environment and achieve greater growth. The reason they can succeed is that they have accumulated a relative competitive advantage in certain aspects such as business model, business strategy, market positioning, and system construction. And they have been continuously investing to expand this advantage over the years, ultimately outputting highly competitive goods or services, thereby winning the favor of a wider range of consumers.

From the perspective of consumers, the slowdown in economic growth has also affected their consumption habits to a certain extent. Previously, they might be more willing to consume or be more extravagant when consuming. But after the economic slowdown, due to the stagnant wage growth and high life pressure, people's wallets are tighter, and they will consume more cautiously. Each consumption will also be more inclined to choose goods with high cost performance and reasonable prices. This change means that brands need to find new opportunities or adjust their business strategies, and operate more precisely to better adapt to changes in the market and consumers.

Yingke: In recent years, some people believe that the Japanese economy has begun to recover and is growing well, and the stock market performance is also okay. Do you feel that with the slow economic recovery, people's consumption behavior has changed?

Liu Sanyong: I think the impact of economic recovery on consumption behavior is actually quite slow. Generally speaking, economic improvement is first reflected in investment and corporate performance, but it is a slow process to be reflected in the income of ordinary people. If the income growth of consumers is not obvious, and their feeling of the improvement in the economic environment is not strong, then their changes in consumption will not be too great.

In particular, the exchange rate of the Japanese yen has been not high in recent years, which has a considerable impact on the purchase of international goods and overseas travel. Besides, domestic production is not the mainstream in Japan, and most daily consumer goods rely on imports from overseas. Therefore, I think the current economic recovery in Japan has little impact on consumer behavior, at least no obvious changes have been seen so far.

Yingke: Currently, the e-commerce penetration rate in Japan is not low, but the consumption habits seem to be relatively conservative. Can you talk about the e-commerce gameplay in Japan? Compared with the lively group buying and live-streaming shopping in China, at what stage has the e-commerce in Japan developed to?

Liu Sanyong: It's hard to say, but I think Japan may not have caught up with some of the new gameplay of domestic e-commerce. For example, although TikTok has a considerable number of users in Japan, since the TikTok Shop e-commerce function has not been opened yet, it is unknown how the potential of the live-streaming e-commerce model similar to that in China is in Japan. In addition, e-commerce platforms such as Rakuten in Japan are testing the water of live-streaming e-commerce, but from the public information, its live-streaming e-commerce business has not yet formed a climate.

Yingke: Although Temu is not the earliest to enter the Japanese market, its growth in Japan recently is quite astonishing. Do you think this foreign platform has the possibility to rise rapidly in Japan and even reach the top of the Liu Sanyong PP ranking?

Liu Sanyong: Both the TEMU and SHEIN platforms take the ultimate cost performance and extremely high richness as the core user value, and have achieved a certain competitive advantage in the competition with other Japanese platforms and channels, thereby achieving rapid growth.

Generally speaking, Japanese consumers have higher requirements for the quality of goods and services. But when the cost performance is ultimate, it is not difficult to impress Japanese users. For example, for the same product, users may perceive that the quality of the product from SHEIN or TEMU is 10% worse than that from other brands or channels, but the price is 50% or even 90% cheaper. Then, users are likely to flow to SHEIN and TEMU. Especially many times, the quality of the products from SHEIN or TEMU may not be bad, and due to the extremely high richness, users cannot buy similar products in other channels.

The user groups of SHEIN and TEMU overlap and also differ. SHEIN mainly focuses on fashion categories with high fashion attributes such as clothing, shoes, and hats, mainly attracting young people who have a limited budget but pursue diversity and do not want to wear mass brands. SHEIN provides a wealth of low-cost goods, meets their needs, and is also easy to promote.

Temu pays more attention to groceries and electronic products, attracting price-sensitive people. These two platforms meet the needs of certain user groups in Japan, and their business model is directly from the Chinese production end to the consumers, which is novel in overseas e-commerce. This model saves the intermediate links, and even if the price is low, it can maintain a certain product quality. These advantages are very attractive to Japanese consumers.

Yingke: Regarding the "cheap goods" market in Japan, such as those 100-yen stores and roadside supermarkets. Do you think there are any big differences between online and offline? In the case of a small price difference, where does the competitiveness of the online platform lie more?

Liu Sanyong: The things in the 100-yen stores are really cheap, but the variety is limited, usually only a few hundred to a thousand items. Online platforms like SHEIN and TEMU are different. There are many more varieties of goods, and the SKU can reach the million level. Although 100-yen stores have a market offline, their business may encounter certain resistance online. Although they have a certain brand recognition, due to the high logistics cost in Japan, for things that are sold too cheaply, such as goods worth 100 yen, the postage may cost 300 to 500 yen. It is not cost-effective to sell them alone, and users need to make more orders to break even.

SHEIN and Temu are different. They sell a wide variety of things, not just small commodities, but also clothes, electrical appliances, etc., so that the customer unit price can be raised. Once the customer unit price goes up, the average freight cost is lower, and the competitiveness of e-commerce is stronger. For example, users may not only buy things from 100-yen stores online, but also buy other goods, spending five or six thousand yen at once. This is much more cost-effective for e-commerce.

Yingke: Is the demand for cheap goods among Japanese consumers the same as in other countries? What are the differences?

Liu Sanyong: I think there are differences. The main consumer group in Japan, especially the part of the population aged 25 - 40, has relatively high requirements for quality and even brand image and reputation. Relatively speaking, Chinese consumers are more widely distributed in terms of consumption level, and there are relatively objective consumer volumes in various price bands. In addition, from the perspective of the demand for the richness of goods, the consumer demand in countries such as China or the United States is also more diverse, while Japanese consumers are more inclined to consistent products or brands, such as Uniqlo and 100-yen stores, which are cost-effective brands with basic styles as the core.

Yingke: Was this convergence phenomenon formed after the burst of the bubble economy, or has it always been like this?

Liu Sanyong: I haven't studied it in depth, but I feel that consumers may have become more convergent after the economic stagnation. When the economy is good, people pursue diversity. When the economy is not good, they tend to prefer goods with high cost performance. In Japan, the purchasing habits of consumers in different regions and age groups for some categories are similar, which is different from other countries.

Yingke: Japan's Gini coefficient is low, which means that the gap between the rich and the poor is not large, and there is not much difference in shopping habits between the middle class and low-income people. Is this very different from the situation in China?

Liu Sanyong: Yes, for example, Japanese high school and college students generally work part-time outside of school hours, and many times these part-time jobs can cover daily expenses and even save money to buy a luxury item. This to some extent reflects the characteristics of the Japanese market. Even people who work part-time can have an income that meets their daily living needs and may consume brands similar to those of the middle class.

Yingke: Kagu E-commerce focuses on the furniture and home furnishing field. I want to know, what is the preference of Japanese consumers for home furnishing styles? Has their demand changed in the past 30 years?

Liu Sanyong: We can look at this issue from two perspectives. First, although the Japanese-style home furnishing style is very popular in Japan, this may be more due to the influence of big brands rather than that consumers really only like this style. These brands are cost-effective and well-made, so they have become the mainstream. But it does not mean that consumers do not like other styles, such as the Italian style, but the price may be several times that of the Japanese style, which is unaffordable for ordinary consumers.

Secondly, fashion is a cycle. Once a certain style becomes the mainstream, there will always be people who want to try new styles and pursue uniqueness. If a new style can be supported by the brand and become a mass consumer product, it may become a new mainstream. But currently in Japan, if you want to try different styles, the choices are limited and the prices are expensive, which limits the diversity of styles. Our goal is to allow home furnishing products of various styles to enter the market at a reasonable price to meet the needs of different consumers.

Yingke: From the perspective of consumption power, the Japanese market seems to be very stable. But it is often said that it is difficult for new brands to enter the Japanese market because it seems that new things are not easily accepted here, and the market relies on offline and acquaintance networks. What do you think?

Liu Sanyong: I agree with this view. For companies that want to enter the Japanese market, it is crucial to understand the local culture. It is best to establish a team locally and act after in-depth understanding of the market. Although some companies can achieve certain success even without fully adapting, this is not common. For example, OpenAI has not been promoted on a large scale in Japan, but due to its excellent products, it still gains users. Therefore, if your product or service is excellent enough, you may not need too much localization. But if your product is only moderately competitive, then it becomes very important to deeply understand the market and consumer needs and adjust and optimize accordingly. Another point is that Japan is different from Southeast Asia, Europe, and the United States. In business activities, Japanese is mostly used instead of English. In Japan, if only English is used, many opportunities may be missed because the English proficiency of the Japanese is generally limited, and because there are sufficient business opportunities in Japan, there is no need to communicate in English with effort. But in Europe, America, and Southeast Asia, English is more commonly used because people in these regions need to use English for international communication.

Yingke: You mentioned that understanding the local culture is very important for entering the Japanese market, but this concept seems a bit abstract. According to your experience, to what extent does it need to be understood? What specific things need to be paid attention to?

Liu Sanyong: In fact, understanding the local culture does not need to go into very detailed levels. Being able to communicate with the Japanese without barriers in Japanese is enough. If the communication is not smooth, the Japanese may quickly lose interest. Therefore, the primary task is to ensure smooth communication. People who can fully communicate with the Japanese have a certain understanding of the culture and business habits.

Of course, just knowing the language is not enough. Understanding the underlying meaning and non-verbal communication is also very important. If a person can conduct business communication with the Japanese smoothly, then he is likely to have mastered these cultural details. If these are not understood, then even if the language is fluent, it is impossible to truly understand the other party's intentions and the subtleties in social interaction.

Yingke: You mentioned the importance of communicating smoothly with the Japanese, but some people also say that when doing business in Japan, the circle culture is obvious, and there is not much communication between Chinese and Japanese. What do you think?

Liu Sanyong: This situation does exist, but it also varies from person to person. If a company only does business in the Chinese circle, although it can reach a certain scale, it will definitely encounter many limitations. I think whether it is Japan or other markets, to reach a certain scale, it is necessary to understand the local market, understand the local consumers, and know how to reuse the local resources, including local partners. As long as the local business habits are fully understood and it is known how to conduct in-depth communication smoothly, it is not difficult to integrate into the Japanese circle.