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Of Price and Yen – The Effects of Japanese Retailers Selling Abroad

When I was a kid, my parents would always bring back Toblerone bars from their trips abroad. This was at a time when the triangular Swiss chocolate bars could only be found at certain specialty shops and ran six to seven bucks a pop, while abroad they could be picked up for about two. The price discrepancy was a product of a variety of factors–import fees, shipping costs, low volume–but if there was a way I could have bought Toblerones at their foreign prices in the States, I would have been a very unhealthy child.

In the world of raw denim, however, my childhood dream has been realized. Merv Sethi grew up in Japan but spent his college years in Boston, Massachusetts. He remembers, “There was essentially zero access to Japanese selvedge denim in that city, or many cities across the US. After trying desperately to get a pair of jeans I wanted (at a fair price for a broke college kid to afford), I always ended up copping pairs when I went back home to Japan every summer/winter vacation to get the jeans I wanted at the price I was willing to pay.”

Sethi saw a monetizable evolution of this habit realized in January of 2012 when he opened Okayama Denim, an online webstore dedicated to making Japanese denim more accessible to global consumers. In his words, “The way to do this was to position ourselves in Japan to save on shipping costs and taxes/duties, and ship globally to customers hungry for a fair price/quality ratio.” For the past few years, denim fans from all over the world have been able to pick up their favorite Japanese brands at near their Japanese prices.

Japan-Blue-ODJB006-18oz.-Snow-Slub-Jeans-leather-patch

Okayama Denim collab Snow Slub Jeans with Japan Blue.

Sethi wasn’t alone—megasites like Rakuten had long been catering to foreigners with an appetite for Japanese goods (even if their labyrinthine site design turned off many westerners), but other boutique sites like Denimio went after those outside of Japan explicitly.

For example, at the time of writing, Pure Blue Japan XX-18oz.-013 jeans are $350 at Blue in Green in New York City and $250 at Denimio. Studio D’artisan SD-107 jeans are $275 at Self Edge‘s all over North America, but $230 at Okayama Denim, and $210 at Denimio. You can make the comparison with any number of models.

Pure Blue Japan's XX-18oz-013 for sale at Denimio (left) and Blue in Green (right).

Pure Blue Japan’s XX-18oz-013 for sale at Denimio (left) and Blue in Green (right).

The reason the Japanese stores can offer cheaper prices than their western counterparts is threefold:

First, all non-Japanese retailers have to pay an import tariff on all goods coming into their country for commercial sale. In the case of denim jeans from Japan entering the United States, that’s a little over 16%. That cost is mitigated for Japanese retailers as Americans no longer have to pay import fees on anything valued less than $800. Even if customers did have to pay, that tariff isn’t factored into the price tag (although Denimio does have a somewhat suspect DIY option to mark whatever value you want on your package’s customs label).

ems package

Orders under $800 do not have to pay a customs or import fee.

Second, non-Japanese retailers have to pay for the shipping to get product from Japan to their country before putting it up for sale and then again with free shipping to domestic online customers. Many Japanese retailers also offer free shipping, which is more expensive than domestic but they’re only paying for one trip rather than two.

And third, the Japanese outlets mentioned are conducting their foreign sales exclusively online, while most foreign retailers also have physical stores. The Japanese stores, therefore, can accept lower margins due to the lack of overhead cost that comes with retail space and store clerks. This also means that their prices can fluctuate with global currency changes more easily than their brick and mortar counterparts, as they can change all of their prices with a few keystrokes instead of marking up all the tags in the store. The prices on Denimio’s goods, for example, change daily depending on currency variance.

The wall of denim at Blue in Green. Image via NY Times.

The wall of denim at Blue in Green. Image via NY Times.

There are still loads of people that are going to shop at brick and mortar shops, but if you live far away from any physical retailers and your purchase is coming in the mail either way, what’s the motivation to order from a domestic store if the exact same product costs $50-$100 less overseas? That’s far more than a marginal cost difference, and it’s not unreasonable to assume that more and more folks will migrate their purchases to the best price.

This is in no way a persecution or condemnation of how these Japanese retailers operate—they are completely within their rights and their legal ability to run their businesses. These practices, however, are overtly enabled by the brands and wholesalers who allow it to happen.

I spoke with a representative for a Japanese denim brand that’s involved with many of these stores who wished to remain nameless. They mentioned that consumers buying directly from Japan, “Are [sic] serious problem for us. Some overseas retailers stop to carry our brand. So difficult to grow our business for overseas.” In relation to having a suggested retail price, “We offer to suggesting [sic] retail price for each country. But not forcibly.” And, they noted, western customers shouldn’t necessarily be buying their products directly from Japan, “Our jeans is not just fashion, include culture [sic]. So we need shop staff introduce our brand story to customer directly.”

Blue Owl Workshop

Inside Blue Owl Workshop, a Seattle-based boutique that sells many Japanese denim brands.

This practice seems counter-intuitive. Many of the brands involved with these stores are also actively pursuing wholesale accounts with non-Japanese retailers, but what retailer is going to want to stock a brand when they know their prices can’t compete from the outset? These market conditions have undoubtedly stunted the retail growth of Japanese denim brands around the world, along with the sales figures of their biggest western evangelists.

I’m reminded of the Massdrop and Momotaro/Japan Blue mess a few years ago. Massdrop, an online group buy site, had a wholesale purchase of Vintage Label Momos, which retail for $295. They wanted to sell the jeans to their members for a one-time only price of $170, but domestic Momotaro retailers cried foul and the company backed out of the deal because it would be “too much of a discount” and “lower brand value.” Yet Vintage Label 0701 Momotaros are currently $212 at Denimio and $220 at Okayama Denim, while they still cost $295 at Blue Owl in Seattle.

I can’t speak for the other denim brands involved, but it does seem dissonant for Momotaro to cancel the Massdrop deal in the interest of maintaining their brand value while allowing Japanese retailers to sell to North American customers for 25% less than the North American MSRP.

I spoke with another brand Japanese brand that is more insistent on maintaining clear prices abroad, Iron HeartGiles Padmore handles all of the international distribution for the brand from his base in Gosport, England.

He recalls setting up the model for the brand,

“We had a choice – sell only online or recruit retailers and sell both online and also in bricks-and-mortar stores. We made the decision that making Iron Heart available to a few specialist retailers, who understand the history and appeal of Japanese denim, would spread our reach and give more access to the consumer…The key issue with having a retailer network is that our retailers also have to make money, and there is a minimum mark-up they need to make to cover their overheads and achieve a profit. In our business that is between 2 and 2.5X.”

Shinichi Haraki and Giles Padmore (right), the two

Shinichi Haraki and Giles Padmore (right), the two “bosses” at Iron Heart. Image via Dylan Mayes.

And all the costs he describes that go into the mark-up calculations are very real:

We have to pay for the goods, ship to retailers worldwide, and for all goods coming via the UK for us and European retailers we pay import taxes (goods dropped shipped from Japan to non-European retailers also attract taxes)—and we have to mark our imports at the real landed cost of goods, plus shipping for taxation purposes (if we undervalue, then we risk prosecution, having our premises locked down and our company not allowed to trade).

“We have calculated a wholesale cost that gives us a fair margin and a retail price that allows the retailer also to make a fair margin. If we get either of those wrong, we do not have a business. That wholesale price is the same for all our international retailers. The recommended retail price is also the same everywhere outside of Japan, which our retailers are happy to support. Once you have retailers trying to undercut each other you end up having internecine warfare with a battle to zero. We simply can’t have that. To maintain the health of our brand, we need all parties in the supply chain to be making reasonable margins.

“Many of my retailers would like prices to be higher (they can sell higher than IHUK [Iron Heart UK] if they choose to, and some do because many customers are happy to pay a small premium for being able to try the clothes in a store). However, if they consistently undercut IHUK (and therefore all our other worldwide retailers who support our pricing), we will discuss this with them and will probably stop supplying them. The absolute key is to maintain harmony within the retail ecosystem.”

Many retailers sing the praises of Iron Heart’s strict adherence to international pricing. And if you check their international retailers, all of their pricing remains nearly identical all across the globe. A strategy like Padmore describes might seem counterintuitive, but it’s kept his business afloat and retailers stable for over a decade.

On the other hand, Japanese retailers can tolerate much lower margins on Japanese products and, if need be, they can price those products lower than their international counterparts can tolerate–and they have every right to do so. But the consequence is that it dried out the market for retailers that have had no choice but to price themselves higher, and now they’re selling those brands less and less.

Last month, Okayama Denim announced that in accordance to the manufacturer, they (along with other online retailers) would be raising their prices on Pure Blue Japan products to match western retailers. And in a statement on the price revisions to Heddels, Pure Blue Japan’s founder Ken-ichi Iwaya explains that the brand will be temporarily suspending international online sales entirely. He describes PBJ’s steady growth in accounts and production capacity, but:

“As the sales of our product grew with brick & mortar as well as online stores, we began receiving comments from our accounts and even actual customers of our products concerning the price disparity amongst neighboring regions.

“Our initial starting point spans back to the opportunity presented to us by International [western] accounts. Our very existence comes into question without their support in the first place. Our feelings of gratitude toward them are not easily expressed by words alone, and many of these business relationships have grown over the years to become close family friends. It is possible that the cultural characteristic of being Japanese lends to attaching greater importance to “debt of gratitude” when compared to other countries. Perhaps this feeling may have unintentionally affected us to prioritize our brick & mortar accounts over the online stores.

Kenichi Iwaya of Pure Blue Japan. Image via M4CC.

Kenichi Iwaya of Pure Blue Japan. Image via M4CC.

“We recognize that this pricing revision has caused significant concern to our clientele due to a lack of transparency. In an attempt to improve the current contentious situation, we have made the decision to revert to the basics and temporarily suspend our international online sales. We understand that this decision will unfortunately cause an inconvenience to our international customers, as our products will be temporarily unavailable to officially purchase online.

We will likely need due time to resolve countless issues, such as selection of accounts with an understanding of mutual benefit, improvement of price reductions, clarification of legal compliance issues, etc. We will do our earnest best to restart our sales as soon as possible. As the founder of the company, I (Kenichi Iwaya), take full responsibility for this issue at hand, and deeply regret any confusion this may have caused.”

I don’t imagine many of the people in the raw denim game have degrees in economics (I certainly don’t) but it’s easy to see how the international raw denim trade is an incredibly complicated system. Even if everyone’s acting with the best of intentions, the bottom can still fall out of the market.

Perhaps this whole tale is another example of fashion’s cyclical nature. Exclusivity, obscurity, and rarity first fueled the hunt for Japanese jeans in the west. Today, many of those barriers have all but disappeared and new brands and products now have that same allure. New York City’s original Japanese denim retailer, Blue in Green, sells a fraction of the Momotaro, Oni, Eternal, and Full Count they once did, and seems to have stopped selling SDA entirely – all of which are available at Denimio, Okayama Denim, Rakuten, or all three. In their place you’ll find Camoshita, Mountain Research, and SVD–names that probably sound just as just as obscure as what they carried ten years ago.

In related news, you can now buy Toblerone for a dollar-seventy a bar on Amazon, but I’ve yet to make the purchase.