Also the Second Hallyu, “Korean wave,” has just begun in Japan. Some of the most popular Korean girl bands, such as “Girls’ Generation” and “Kara,” have entered the Japanese entertainment market and are extending the first Hallyu, which was mainly targeted at middle aged Japanese women, to teenagers and twenties. These Korean celebrities are popularizing Korean culture and the Korean national brand image. 
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The E-Land Group, the parent company of SPAO, is expanding itself in the Asian fashion sector. Currently, seventeen brands under E-Land Group, such as “Teenie Weenie,” are operating in China, with sales nearing one trillion Korean won.  The group will enter the Indian market in the near future  , but currently has not entered the Japanese one yet, even though Japan is one of the largest economies in the world.
The situation is currently favorable for E-Land Group in the Japanese fashion market due to the increasing demand for SPA brands and growing popularity of Korean culture. The E-Land Group, with its expansion strategy throughout Asia, is likely to enter the Japanese market one day. Although global SPA brands are already in Japan, considering the factors discussed above, SPAO would be wise to enter the market now due to this ideal opportunity.
What is SPAO?
SPAO is a brand launched by Korea’s largest fashion group, the E-Land Group, and is targeted at the SPA market of the fashion market. SPA, meaning “Specialty retailer for Private label Apparel,” is a business model introduced by the American fashion brand GAP in 1986. The characteristics of SPA include the company managing all processes ranging from design, manufacture, distribution and sales  . Some examples of SPAs are Uniqlo, Zara, Mango, and H&M. Instead of distributing its products through department stores, SPAs save costs by directly managing the stores, which will eventually lower the price of products. SPAs are also called “fast fashion” because they can react to the customers’ demand and the market situation quickly by adjusting their supply within one to two weeks.
The E-Land Group launched its first SPA brand SPAO in July 2009, and opened its first store in Myeongdong, Seoul on November 25, 2009. The brand opened as a joint venture with SM Entertainment, Korea’s largest entertainment group  . Current advertisement models of the brand are the boy band Super Junior and girl band Girls’ Generation, both groups belonging to SM Entertainment. Each of the groups served as salesclerks on the opening day and two days later respectively. On the fourth floor of the Myeongdong store is “Everysing,” a shop operated by SM Entertainment selling goods related to celebrities of the company. This has a synergy effect with the fashion brand due to the fandom of the younger generation on those celebrities  .
The performance of the first opening month was extraordinary. Sales revenue was two billion won, which is the largest launching revenue ever for an E-Land brand. This number is not too different from other global SPA brands, but considering that fact that SPAO is a very young brand, and that it does not operate on Sundays, its performance is actually towering above other similar companies  . The prices are 30~40 percent cheaper than Uniqlo, and in terms of quality and design, SPAO is considered to be just as good  . Currently there are thirteen stores operating in Korea while in Myeongdong store alone the sales reach about 1.3 billion Korean won each month  .
SPAO is targeted at all age groups, from teenagers to people in fifties. The largest groups of customers are teenagers and people in their twenties, followed by those in their thirties. Nevertheless, customers in forties and fifties also accounted for 10 percent of the sales, so it can be said that the brand is generally favored across all age groups.
Japanese Apparel Industry
The Japanese apparel market has several distinguishing characteristics, especially compared to the US and Korean market. In this part, we discuss the characteristics of the markets in largely three parts: market trends, distributional characteristics of the market, and differences between the Japanese and Korean markets.
First of all, in terms of market trends,  the Japanese market has undergone serious downturns due to the country’s long-term recessions. The apparel sector, along with other consumer products markets, experienced serious slowness in terms of sales and profit growth. In 2007, Japanese department stores recorded 7,705,200,000,000 JPY of revenue, but this itself was a decline from the previous years. The apparel section, which used to be the main drive of revenue, showed a 2.3 % decrease while the food and beverages section became the new top revenue area.
Along with this, the usage of Japanese-produced fabrics decreased. Japanese apparel brands used to use Japanese-produced fabrics a lot; however the apparel market has shrunk to under 10 trillion JPY, which is more than 30% decrease compared to its peak size of 13 trillion JPY. International SPA (Specialty-store/retailer of Private label Apparel) brands, such as Inditex’s Zara, H&M, the Gap are all flooding into the Japanese market, and the Japanese competitors are currently undergoing serious downturns and restructuring within the market. Uniqlo, a Japanese SPA brand that is well-known for its comfortable and cheap clothes, is an exception as the business model is rather similar to its international counterparts.
The second characteristic of the Japanese market is discussed in terms of the distribution channels. Traditionally, the apparel makers used two types of distribution networks; directly operated shops, such as flagship stores on the street, and membership stores easily found in department stores. Membership stores are currently declining along with department stores in general, since the membership commissions do not generate reasonable profits. Instead,  select shops, a store of selected items from clothes, shoes and fashion accessories, are rising. BEAMS, United Arrows and SHIP are the representative chains of these select shops and show promising revenues.
Also in terms of distributional characteristics, the Japanese market is defined so that the peak and off-peak seasons are clearly separated. Even more explicitly than its western counterparts, the market has the product distribution cycle of 4 months. In January and February, the spring new arrivals come to market and they are sold out in March and April. Summer products come to market in June and July, and they are finished in July and August. Winter products, as well, come in September and October, and their cycle is completed in November and December. The peak sale seasons are January and July, and the grand bargains are huge even compared to other European and American markets.
There are also major differences between the Korean and Japanese apparel markets. The Korean market, in comparison with the Japanese market, sees less importance in the men’s apparel sector. Nowadays this area shows signs of growth in Korea, but considering that there are department stores dedicated to men’s products like Isetan Men and Marui Men in Japan, the proportion of men’s products in Korean market is incomparable to its Japanese counterparts.
Also, the fashion trends of the Japanese apparel market are very different from any other market of the world. Accordingly, when a foreign brand like Korean SPAO targets this sector, it is recommended to develop Japan-specialized products.
Competitors within the Japanese Market
The Japanese fashion market has traditionally been saturated with high-end products from the top designers. However, there has been a change of direction in areas such as the fashion districts of Shibuya and Harajuku as consumers have adjusted their fashion styles away from the most expensive brands to cheaper options. This has caused a large flux in Japanese habits as luxury stores have been forced to shut down while clothing retailers such as Zara and H&M have moved in. Although the change has been rather recent, the reverberations have already been felt tremendously. Japanese companies such as Uniqlo have seen their profits rise, while a wide variety of foreign competitors have moved in over the last 5 years. Despite this immense fluctuation, there is still a vast and untapped market for SPAO to move in given the level of differentiation in ideas as well as target market. In order to explain this further, it is necessary to look at Zara, Uniqlo, and some other minor competitors. 
Uniqlo is a subsidiary of Fast Retailing and is currently led by the richest individual in Japan, Tadashi Yanai. It has expanded at an incredible rate over the last 15 years and is a very tough competitor for any clothing store that is looking to enter into Japan. It primarily relies on extremely cheap clothes that are made in China, while still focusing on being comfortable and providing a variety of colors. Its strengths though are also its weaknesses. In Japan, it is viewed as being clothes that you would wear around the home but not necessarily wear to a social event. This means that although Uniqlo will sell a large volume of clothing for every day material, it doesn’t really compete with the SPAO brand given that the target markets are completely different. SPAO focuses on fashionable and cheap clothing geared towards a primarily young market segment which Uniqlo has more-or-less been unsuccessful at controlling. Uniqlo recently has attempted to increase its presence towards the youth market though, which indicates that SPAO may want to act prior to Uniqlo delving into its core competency.
Zara, which is owned by Inditex, can perhaps provide the best model for a successful clothing company expanding into Japan and finding a niche. Having been in Japan since 1998, Zara has set up a large customer base around its stores that are typically located in high-end areas. This has provided Zara an excellent brand image, despite the fact that Zara is very well known for not promoting their products through extensive advertising. This makes Zara unique compared to other foreign retailers in Japan, which have attempted to break into the country via intensive media campaigns. Zara also emphasizes fast fashion and focuses on being able to turn concepts into products faster than other clothing companies. The quickness and variety of fashions, in addition to still being cheap enough to appeal to the typical consumer, has made Zara an overwhelming force in the Japanese market.
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There are many attributes that Zara has that foreign companies can learn from if they want to move into Japan, but there are still many ways in which SPAO differentiates from Zara and can even eclipse it in the long run. First, 64% of Zara’s production takes place in European countries  . While Zara acclaims that this allows them to quicken manufacturing times and improve quality, SPAO’s cheaper production facilities in China would allow them to sell clothes for less than Zara is able too. In addition, Zara’s image is geared towards adults who can afford their clothes and wish to remain appropriately fashionable. SPAO on the other hand targets a younger market and has thus far relied a lot more on advertising and celebrity endorsements. Therefore while Zara can serve as an inspiration for SPAO, it doesn’t aspire for the same niche as SPAO does.
Other Large Retailers
While Zara and Uniqlo provide an interesting dichotomy of how clothing stores have reacted to the change in Japanese trends, there are many other big clothing retailers that have made forays into the Japanese retail market. The two largest ones, Gap and H&M, provide interesting case studies on what works and doesn’t work currently. Gap, which has competed internationally for many years, has started to falter due to its lack of innovation and an increase in competition. Despite having 123 stores in Japan  , Gap’s emphasis on comfortable clothing and basic fashion has essentially been duplicated by Uniqlo. In fact, Uniqlo’s method of expansion was based off of Gap’s SPA (Specialty-store and retailer of Private label Apparel) policy. H&M has also recently moved into the Japanese market, but given that it has been around in Japan for much less than its competitors, there isn’t much to learn thus far for SPAO. There is though a concern that H&M’s pricing may in fact be too low and could scare away some customers. While there are other large companies that have begun to expand in Japan, such as Forever 21, most of them do not have similar market segments as SPAO and therefore wouldn’t initially be major competitors.
Teen and Young Adult Specialty Stores
SPAO has differed itself from most of its potential competitors by focus, price-structure, and method of advertising. However, there are a few minor competitors that overlap in some areas with SPAO. The major one which has just entered Japan is Abercrombie and Fitch. This American corporation does follow the strategy of targeting teenagers and young adults, but it is extremely recent and most analysts believe it has done a poor job of adapting to the Japanese market. On its first day at its new flagship store in Ginza, Abercrombie and Fitch were rumored to have made ¥50 million  . However, most of this has been attributed to fascination with the eccentric methods of business. For instance, Abercrombie and Fitch hired many employees who did not speak Japanese and chose instead to follow an American business style instead of a traditional Japanese store culture. Similarly, Abercrombie and Fitch tends to lean towards upscale in its pricing structure, which would exclude the target market of SPAO. Thus, given that Abercrombie only has its main store and that its pricing model excludes most Japanese youth, SPAO’s ideal market segment is still open for the taking.
SPAO’s international strategy is based on that of its mother company (E-Land) which has set a goal of making global profit of  15,000,000,000,000 Korean Won by 2015.  SPAO is planning to make itself a brand that operates worldwide. In order to do so, it has already started operating in China, Vietnam and India. As mentioned above, since the characteristics of Japanese fashion industry is turning favorably towards the fast fashion model business, it is an opportunity for SPAO to expand itself into the Japanese market. In order to enter Japanese market, one has to first decide which entry method the company should use. There are numerous ways of entry that SPAO could consider, but in brief the main options they have are of the following: licensing, joint venture, export, equity alliance and complete ownership.
Licensing is an entry method where the parent company allows a local company to use its brand name for certain period. By using the licensing method, SPAO can cut down the cost of entering as they will be utilizing a local company’s resources.  However, this is an entry method SPAO should not use for two reasons. First, when using licensing, it is hard to maintain the product quality. The local company may not maintain the quality of product enough, which could result in hurting SPAO’s brand image. Second, SPAO’s brand image is not well established enough to be successful in using the licensing method in Japan. When using the licensing method, it is important to have a strong brand power but SPAO’s current brand power is very weak in Japan.
There are many advantages of choosing the joint venture method. First, SPAO can utilize the already established facilities and distribution channels of its Japanese partner. Second, there will be less interference from the Japanese government as the joint venture company will be considered partly a Japanese firm. Third, it will be less costly to enter due to the fact that the risks are shared with the joint venture partner.  Despite the advantages, we believe that SPAO should not choose a joint venture as their entry method either. While using joint ventures it is hard to make a quick decision because two partner companies have to come to an agreement in order to act. However SPAO’s core competency, fast fashion, requires the company to act quickly which a joint venture would have trouble doing. For similar reasons that were previously mentioned, export and equity alliances are also poor options. They are either too costly and/or SPAO would have too little control to act quickly to market changes.
In conclusion, SPAO should enter the Japanese fashion market by the ownership entry method in order to ensure long-term success. SPAO’s business model, SPA, requires a company to have full control over production, retailing and distribution channels. With the control, SPAO can minimize costs and ensure fast product cycles in order to provide up-to-date trendy fashionable products at a cheap price. However, this is impossible to achieve with other entry methods because they are either too slow in decision making or too costly. To make sure that SPAO has a long-term stable position in Japan, it is best to enter utilizing the ownership entry method.
Marketing Strategy – SPAO with SM Entertainment
SPAO’s main promotion strategy is celebrity marketing.  They collaborate with SM entertainment to promote their brand image and advertisement, benchmarking Gap’s promotion method. The popular Korean girl and boy groups, Girl’s Generation and Super Junior, are the main spokespeople for SPAO. In the short term, celebrity marketing plays a significant role to obtain customers’ attention and press exposure. It is expected that this method will have a bright future in Japan.
24The Korean wave or Korean fever refers to the significantly increased popularity of South Korean culture around the world. It is also referred to as Hallyu(éŸ“æµ) using the Korean pronunciation. The Korean wave hit Japan and lots of Japanese people are fascinated by Korean culture. Korean companies have been taking advantage of Hallyu in their marketing, which has helped increase exports. Nowadays girl groups have become a new source of Hallyu entertainment. The young and pretty girls have been criticized for not having true talent, but it seems that they have morphed into another important pathway to spread Korean culture.
25Girl’s Generation, one of famous pop groups in Korea, was ranked second in Japan’s weekly Oricon chart song which is called “GEE”. They are the first non-Japanese Asian group to do so and the second foreign female group to reach this high in 30 years. Girl’s Generation has become popular with many Japanese girls, and in the process the band has become a fashion icon. Japanese teenagers have sought to imitate all of the band’s life-style choices, especially in the areas of cosmetics and clothing. Because of this, SPAO potentially has a really powerful promotion item. For example, in advertisements, celebrity models could wear SPAO products, which would build up knowledge about SPAO’s styles and affordable prices. Through these marketing skills, and using strong intimacy and positive images towards its potential users, the brand would have the strength to develop in a new market.
SPAO from the beginning faces a major difficulty in that it has to compete with global competitors like Inditex, H&M and Uniqlo. The fast fashion market, or SPA market, is already full of such international brands. SPAO has showed its ambition not just for the Korean market but also for the world market. The Myeongdong flagship store is one of the biggest stores around at 3,000ãŽ¡, and also has various entertainment places inside the building including a cafe, karaoke room and a family restaurant. So far, it has been successful both among Korean and foreign tourists.
Just like the Myeongdong flagship, we believe SPAO should launch its first Japanese flagship in a downtown area such as Ginza or Shibuya. Initial capital expenditure will of course be huge, but a flagship store in a central area would be helpful for making the first impression that SPAO targets, that SPAO clothes are cheap and exceptional in quality. The Japanese flagship will also be a combination of apparel store and entertainment goods store, which will create a spill-over advertisement effect too.
Another possible entry strategy for SPAO is cooperation with a Japanese entertainment company. SPAO is already a joint venture between SM entertainment, the top-level Korean entertainment company and E-land. AVEX or Universal Music Japan, under which SM entertainment’s girl/boy groups are operating, would provide a good partner to advertise to the youth market. An agreement with these well-known entertainment companies will ease the entry barrier, as well as further the brand image through hiring idol stars for models, like SPAO doing right now in Korea.
Overall, SPAO has a perfect opportunity right now to enter the Japanese market given its current strategy in Korea. If SPAO acts to promote Hallyu in Japan while at the same time focusing on its pop-star driven marketing, it can definitely fill the gap in the growing Japanese SPA segment. Although it is still a relatively young brand, SPAO ought to branch out quickly if it wants to join the ranks of such companies like H&M and Zara. By following a model of primary ownership while simultaneously working with Japanese entertainment companies, SPAO would be able to market to the Japanese youth and twenties age bracket in a way that other companies aren’t right now. While SPAO is primarily focused on the Korean market now, with our advice it could be the next-big-thing in Japan as well.
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