By Sophia Li, Portfolio Manager, FSSA Investment Managers

The only retail format in Japan that has had much success over the past 20 years is the specialty private-label retailer. These retailers produce high quality products at affordable prices, and transfer their cost benefits (from economies of scale) to consumers in the form of lower prices. Consumers taking advantage of the lower prices purchase more items; and companies pass on the additional savings in a virtuous cycle.

In the midst of economic instability during Covid, a recurring theme we have noticed is the “quality value for money” trend. Demand for goods and services that stretch consumers’ real disposable income have strengthened – and discount retailers, from apparel companies to furniture stores and supermarkets have performed exceedingly well.

Gyomu Super, a leading discount grocery franchise operated by Kobe Bussan, is a good example of this trend. As a vertically integrated retailer, Kobe Bussan sells its private-label goods at a 30-50% discount compared to those at a traditional grocery store. Two kilograms of chicken thighs cost just USD5; and a large pudding dessert can be purchased for around USD3. In 2020, the group reported 16% same-store sales growth, driven by stay-at-home demand and products sold cheaply in bulk.

Similarly, Workman, a specialty retailer of private-label outdoors and athleisure clothing, recorded 18% same-store sales growth over the fiscal year (FY) 2020. Its functional wear is priced at a fraction of the big brands (a Workman winter jacket costs less than USD30 and a suit is only USD50). Demand has been so strong that its franchisees struggle to restock the shelves in a timely manner.

In Japan, “cheap” products used to be viewed with suspicion, though that perception has slowly changed. Gyomu Super’s products are actually quite decent, and Workman’s clothing range (“every day low price”) is seen as good value. Recipes made with Gyomu Super ingredients or outdoor styling with Workman clothes have been posted by customers on social media feeds, leading to a growing cult following for these two brands.

When we invest in Japan, economic growth is never a part of our growth assumptions. We select only the companies that can thrive, regardless of the country’s economic challenges. 

At FSSA, our investment approach – as bottom-up stock selectors – seeks to identify companies that are in charge of their own destiny. When we invest in Japan, economic growth is never a part of our growth assumptions. We select only the companies that can thrive, regardless of the country’s economic challenges.

After all, with almost three decades of deflationary pressure in Japan, companies have had to adapt and innovate. The best among them have learned how to grow earnings regardless of the prevailing macro conditions.



Source: Company data retrieved from company annual reports or other such investor reports. As at 31 December 2020 or otherwise noted.

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Sophia Li, Portfolio Manager, joined FSSA Investment Managers as a graduate in 2009 and has developed an extensive coverage of companies in North Asia. She is the lead manager of the FSSA Japan Equity fund and FSSA Asia Pacific All Cap fund.

This article was adapted from 2021-03 FSSA Japan Equities Client Letter (part 2 of 4).