From ageing demographics and labour shortages, to changing consumption patterns and dietary habits, Japanese society is evolving.
As a long-time investor in Japan, a large part of what we do revolves around identifying these trends early and focusing on those areas we anticipate being the principal beneficiaries of this societal change.
Below, we highlight three long-term secular trends – as well as companies at the forefront of this change – offering a rich vein of potential rewards for investors.
The changing labour market
One of the largest changes we are seeing is in relation to Japanese workers, who are increasingly changing jobs throughout their career. This is a modern phenomenon and a marked shift from the previous mindset of many Japanese workers, where the general expectation was one of lifetime employment.
As a result, we view several staffing agencies as the most direct beneficiaries of the growing trend towards greater job mobility. The largest of these is a company called Recruit Holdings. At the same time, there are also companies indirectly benefitting of the employment mobility theme.
One example is Benefit One, a business providing employee reward programmes to companies. The host company pays a small monthly subscription per employee and Benefit One provides a broad catalogue of discounted goods, services and partner deals – from haircuts, to rounds of golf, to cheap deals at bars and restaurants. By providing this kind of benefit programme, at minimal cost to the company, employee retention is greatly improved.
This is very important when you consider the labour shortages existing in Japan and the fact companies are finding it increasingly difficult to hire new staff within a tightening pool of talent. In this way, Benefit One stands as a potentially major beneficiary of Japan’s evolving employment landscape.
Evolving consumer trends
As with the rest of the world, the trend toward online retail is growing rapidly in Japan.
One example is Start Today, one of Japan’s largest online fashion portals. Traditionally, Japanese consumers would always go to the physical shops to buy their clothes. However, we have seen a significant shift toward online shopping and having clothes home delivered over the past 10 years. Start Today has started a wardrobe service, sending customers a tailored box of clothes based on historical purchases/preferences. Customers keep what they like and simply return for free whatever they do not.
Another example within the retail space is istyle. The company operates the popular @cosme beauty and cosmetics user site, as well as a number of offline specialty cosmetics shops.
Growing demand for services
The broad IT and services sector within Japan’s Topix index continues to be a rich source of opportunities, particularly within the services component of the sector. Many service companies in Japan are benefiting from structural and socio-demographic shifts, as well as from a gradually improving macroeconomic backdrop.
For example, SMS is a leader in recruitment services for nurses and workers in elderly care and a provider of a management support software package for in-home nursing care operations. The company continues to benefit from an acceleration in its nursing care business.
Similarly, Solasto is one of the leading players in the staffing and operational outsourcing market for medical institutions. It has been reinvesting earnings into its nursing care business, where it has been able to raise salaries and reduce staff turnover. Nursing care is a significant long-term opportunity in Japan, as an aging population means the elderly are the country’s fastest-growing demographic. The company also highlighted accelerating revenue growth in its February 2018 results, due to the successful recent acquisitions of two other large providers in the health care space.
Archibald Ciganer, portfolio manager of the T. Rowe Price Japanese Equity fund