I don’t know about you but when I was growing up Japan was hot. Cool fashion, cool technology, cool kids.
And then it all went horribly wrong. Japan went through the mother of all investment and housing bubbles, and all those business books about Japan ruling the world found their way into the Oxfam books section, filed next to titles about the end of oil and the inevitable rise of Marxism.
Yet back in the middle of the last decade a new infatuation with matters Japanese began to take shape in the dark corners of the City of London and Wall Street.
Smart strategists and thinkers began to notice that we in the Anglo-Saxon world were beginning to follow in the footsteps of the Japanese again – but this time down a dismal, depressing trail that will eventually lead to national bankruptcy.
Banking strategists and economists such as Albert Edwards at French outfit SG warned that beneath the veneer of buoyant economies and resurgent stock markets we were in fact racking up huge debts across the board at exactly the same point as we started aging at an aggressive rate – made worse by big leaps in longevity.
The global financial crisis came and went, and now Albert Edward’s thinking has become mainstream. The outlines of a new nightmare scenario are beginning to take shape. I’d sum up the Japanese experience of the last two decades in five simple facts:
1. The Japanese government is up to its eyeballs in debt (over 200% of GDP) and sooner or later it won’t be able to keep borrowing hard cash from the ample savings accounts of its wealthy citizens. Currently it rewards those savers with near zero rates, but sooner or later it will have to borrow from abroad. At that point interest rates will shoot up and it will become obvious to everyone that the Japanese government is bust.
2. The Japanese are also mid-way through a decades-long, very painful process of deleveraging which has in turn fed into a nasty local housing market and year after year of deflation.
3. Japanese companies haven’t gone bust. The smart ones have simply switched their focus overseas and sold more cars and TVs. The dumb or zombie companies have continued to roll up losses, but the big banks won’t shut them down because to do so would be to admit that they’re sitting on huge losses on their own balance sheets.
4. Japan is aging at a frightening rate, with a breakdown of traditional family structures and a massive uptick in savings rates amongst the old.
5. Japan has spent the last two decades going nowhere in terms of overall economic growth. Consumers have carried on spending selectively on stuff they really want – new phones, new TVs, fast broadband – but the housing market is mired in recession. These low growth rates have contributed to the deflation problem and have made the deleveraging process much worse – you can’t grow or inflate your way out of the problem.
Many economists and corporate CEOs now believe that the UK is only at the beginning of the Japanese experience. We might think that the UK consumer market is bad and that travel is having a rough time, but as the expression goes, “ You ain’t seen nothing yet”.
Japan represents a vision of what a low growth, deleveraging world looks like and it’s not pretty.
The future for travel
The Japanese travel market has spent the last 20 years going to the same place as the rest of the economy – nowhere.
In the early part of the 1990s travel kept powering ahead, especially outbound package travel, but then by the dawn of the new millennium those numbers had started trending downwards sharply.
September 2001 was as bad for the Japanese as it was everyone else, but travel picked up again in the last decade before tailing off sharply in 2009. Then came the tsunami and earthquake earlier this year, which saw outbound travel plummeted by 9% in March alone.
Traffic is trending upwards this summer – the Japanese state tourist organisation was projecting a 4.5% uptick in July outbound travel – but it’s from a horribly low level.
Stepping back from these numbers we can see constant echoes of low average growth over the last two decades, with long cycles of gentle upturns followed by sudden downturns. If we were brutally honest we’d probably characterise it is as a weak market that just keeps getting weaker.
But dig deeper and a number of key trends become apparent. In no particular order I’d note the following:
- Demand for fully-inclusive package tours has declined rapidly
- The single most dynamic part of the market is the single women aged 15-29, followed by men in their 30s. This trend has been fuelled by the large number of young people opting out of full-time employment in favour of part-time, or short-term, jobs so they can travel
- The number of ‘free individual travellers’ (FITs) has shot up in recent years. Yet the key growth segment remains younger women or ‘office ladies’
- These are the most assertive travellers, in part because many live at home with their parents. But this sector is also highly volatile – spending fell sharply in the last two years. That may be about to reverse again as government statistics show that the number of passports issued to Japanese women under 30 has increased sharply
- The rapid ageing of the Japanese nation is having a massive effect on the travel market. According to one report, by the year 2020 the number of Japanese aged 65 or over will have increased by more than 50%
- This demographic sector has already more than doubled in size over the past three decades. Luckily it likes to travel (cruising in the Pacific is big) and local researchers have pointed to a noticeable recent increase in passport application rates amongst the over 60s.
- This older group also spends much more money when it travels – yet that comes with a downside, namely that this is a more cautious group who are fearful of risk and are likely to curtail their travel plans at the merest hint of geopolitical trouble, terrorist attacks or freak weather.
- The internet is carrying all before it as younger consumers switch their main focus to booking online, quickly followed by nimble silver surfer types who’ve more time on their hands and a willingness to embrace technology. One poll by Japan Association of Travel Agents (JATA) suggested that more than 50% of Japanese consumers finalised their travel decisions last year after finding information online.
- Outbound travel has become inextricably tied up with the swings in the value of the local currency.
There are some major differences between Japan and the UK, not least that our demographic challenge is very different and our debt levels at the national level are currently much lower.
Yet if we do follow the Japanese experience I’d think long and hard about your service proposition to two key groups: smart younger women and intelligent older travellers who are fearful of risk but keen to use technology.
Both of these groups want great service at low prices but also travel with something else – a hint of intrigue, lots of visits to cultural highlights, and a general ‘sophistication’.
Move away from the mainstream family package holiday model as fast as you can – staycationing is also big in Japan – and think about a carefully thought through demographic segmentation model.
Shift your whole business model to one that can work online – and make it robust, because you’ll be hit hard by a gyrating currency. In some years it’ll fall like a brick, in others shoot away as everyone views your aging economy as a safe haven.
That means improving margins at all costs and dumping absolutely anything that looks faintly marginal, if only because it’ll bleed money if the FX rate moves against you.