Who hasn’t heard the classic trade-show tale: A Japanese distributor walks up to a fledgling U.S. snowboard company and prepays for 2,000 boards. Companies have been launched this way, with a prepaid order funding the entire year’s budget. But what happens once the boards get shipped over to the land of the rising sun?
Pick A Brand, Any Brand
In general, Japanese distributors obtain information about the snowboard brands they want to carry from trade shows, advertising, or personal contacts in the U.S. There are also some U.S. manufacturers that approach Japanese distributors directly.
After the Japanese distributors become knowledgeable about U.S. brands, they use several different factors to evaluate the brand: à'•How eager is the manufacturer?à'•Ability to deliver product?à'•Promotion of the product?à'•Price of the boards?à'•Name value/popularity?à'•Team riders?à'•Design/appearance?à'•Continuity/will the company be in business in a couple of years?
These points are very important. However, there are some cases when distributors don’t take them into account. Today, the snowboarding business in Japan is so popular that some general trading companies are getting involved. Maybe they have a plan, but some don’t have a clue about snowboarding or the market.
This is causing problems, including the mass purchasing of boards by some of these general companies at unreasonable prices. “They don’t mind if the quality is good or bad,” says one distributor. “They welcome every line, as long as they make snowboards. They drive the market to an unreasonable situation. We are afraid U.S. manufacturers will take it for granted that Japanese distributors will pay unreasonable amounts of money for snowboarding goods.”
Channels Of Distribution
After the terms of contracts are cleared, snowboards are imported. When the distributor receives the boards, they are shipped to wholesalers, and finally to retail shops. If the shop deals in large volume, the process may skip the wholesaler. Sometimes the boards get sent from one wholesaler to another smaller one before they actually make it to the shop.
Japanese wholesalers are similar to reps in the United States. They have a strong network in their local area and are responsible for timely delivery, bill collection, sales calls, and also act as a trade agent.
There might be greater profits without wholesalers. However, it costs a lot of time and money to deliver the boards and collect the bills, so the distributors depend on wholesalers to help with these efforts.
Adding To Costs
Of course, all of this adds to the price of snowboards in Japan. Actually, boards are about twice as expensive as in the United States. Here’s an example of why the costs are so inflated:
Distributors import commodities and sell to wholesalers that add on 70 to 100 percent of their buy prices. This includes their profit and some of the importation expenses. Wholesalers then add ten to twenty percent on their cost for shipping and handling. Finally, shops add their gross profit onto the buying price. In many cases, retailers’ profit is 25 to 30 percent of the price.
Some argue that distributors profit too much. But in actuality, they are also paying for customs duties, promotions, riders, contests, and other snowboard-company expenses.
Japanese distributors also are dealing with the serious problem of the gray market, or parallel imports, caused by the difference in price between boards in the United States and Japan. Parallel importers get snowboards from reps or shops in the U.S. and sell these boards at lower prices than properly distributed boards. According to hearsay, 30 percent of all imported snowboards come from the gray market. Mostly these parallel importers’ goals are small profits and quick returns. However, sometimes they play the role of testing the market for certain lines. Parallel importing is highly serious for legal agents, because it not only reduces legitimaate distributors’ sales but it also hurts the brand images they have created though their marketing efforts. In addition, warranty claims are not honored on gray-market goods, but buyers haven’t been dissuaded.
Making up almost a third of the world’s snowboard market, Japan will continue to be an important area to sell products. Like other parts of the world, there seems to be no end in sight to the growth of snowboarding business in Japan. To address the growing needs of dealing with the Japanese, look for a series of articles in the upcoming issues of SNOWboarding Business.
By Tatsuro Higashi
Tatsuro Higashi is on the editorial staff of the Japanese edition of TransWorld SNOWboarding magazine. This is his first in a series of articles for SNOWboarding Business.