The riddle of the Japanese (ski) economy

[grazza 2]

I was listening to a very interesting radio program this morning on the history of the 20+ year old Japanese economic malaise. Not news I know, but it was interesting to hear the story laid out like that - the asset defaltion, the bad assets on banking balance sheets, the steady feed of public money in to prop up failing banks, to where they are today with massive levels of public debt, an economy that refuses to kickstart, investment appetite minimal, un and underemployment etc, etc. And on top of this, the massive reconstruction costs from the tsunami.

 

In this context, I am intrigued by what I've seen on my annual snow trip for the past five years, namely, empty slopes, ski towns time-warped in the 70's and 80's, infrastructure built in the bubble era that while perfectly serviceable is dated, ratty around the edges and and even falling down in places.

 

Personally, I don't find this a problem. What's not to like about empty resorts where you never have to wait for a lift and the powder lasts all day? But I'm intrigued ... where does the money come from to keep resorts afloat that are clearly not economically viable? I know that there have been a few resorts fall as casualties over the years, but remarkably few considering.

 

And how come so few resorts actually seem worried enough by this to really do something about it , like aggressively market themselves to OS markets? Why haven't there been more consolidation of disconnected resorts to make cool mega resorts, as has happened in Europe and North America?

 

Case in point - we visited Tomamu last year. Insanely good - powder every day, crazy luxurious (if dated) suite in the Tower for stupidly low all inclusive price and best of all no one there. We literally spent days lapping powder runs down courses with no other riders at all in sight. One of the two Galleria Suite Towers (30 odd floors with a few hundred rooms) was closed with lights out. More staff than riders midweek, and not many more on the weekend. So the business side of me is saying - just how much money would this resort be losing everyday? $50k? $100k? I don't know exactly but it wouldn't be small.

 

I get the feeling that there are lots of Tomamus out there. To some degree, most of them seem to in trouble, and appear have a deer in the headlights attitude. Niseko, much as it's not my favourire place in Japan by a long chalk, seems to be an exception. Consolidated resorts, vibrant (if not to my taste) town, new investment, well marketed - it would appear to tick most boxes and probably is getting the visitor numbers to be a decent business. Hakuba has some of this happening too. Shiga has at least done the consolidation thing to build a more attractive resort. From the 10 or so other places I've ridden in Japan, I'd be surprised if any was profitable.

 

So how is it done? Am I wrong? Do these resorts make so much from the summer golf trade that winter is irrelevant? Why doesn't anyone seem concerned? Is there a pipeline of cash that keeps things afloat, and how much longer can such a pipeline hold out in a debt-saturated economy? And are we going to hit a point when the money disappears and Japanese resorts shut down in large numbers. Will visitor numbers be funnelled into the survivors to create viable resorts that can then invest in their future rather than struggle to stop their past rusting away? Is our empty snow paradise sustainable, or is it a fleeting accident of history?

[mitchpee 10]

Japan actually has the highest debt as a percentage of GDP than any country in the world. The debt is apples and oranges to the US debt because of the way it is manifested. Us debt is public and Japanese debt is private. It's very hard to understand where all the debt has gone and I haven't done enough research to accurately say, however I know a majority of it was with infrastructure projects and ensuring jobs which are reasonably productive.

 

With that said, internal factors are not the primary source of the bubble that hit Japan. It's largely an effect of a globalized world. When a country has such a high ratio of exports compared to imports there is bound to be a bubble. It's evident in any economy that has had the phenomenon and "curse" some say of too much capital. It almost always can never be upheld with the amount invested. Once it is realized that the assets never stack up to the insatiable hope people have for growing money...in sets the bubble. Sometimes it bursts and there are secondary bubbles or even recoveries (Sweden and the US). Then other times it bursts and the global market doesn't go back in favor (as in Japan's case).

 

I would really love to be able to do more research as I find the Japanese economy so intriguing. It certainly is one of a kind in the world, an anomaly if you will. It seems to me with a deflation in almost any asset, it will be hard for people to ever really be enticed to invest in Japan. It has the population, education, and productional capability. However, with a very high median age there could be some hard times before there is an opening of opportunity. I predict in about 20 years Japan will see a huge increase in exports again and a return of capital from outside sources. It may be a bit for the worst before that happens as obviously the central bank is not quite sustainable.

[NoFakie 45]

Too many questions for one post!

 

Basically what you say about the Japanese economy is correct, but the factor everyone ignores is that Japan now has a falling population and has had a falling workforce for several years. In GDP per capita and GDP per worker, Japan has been doing much better compared to say the USA than the headline GDP figures alone would suggest. The populations of the UK and USA are rising. I don't have figures, but I suspect exporting is much more important to Japan now than during the Bubble. There were no 100 yen shops back then selling cheap Chinese made versions of everything. People bought Japanese tools, Japanese cutlery, Japanese stationary, Japanese household goods....all at Japan prices. Post-Bubble Japan has suffered a massive drop in demand and has responded by exporting. Perhaps the the greatest export has been unemployment.

 

I personally think the USA, UK, EU, Australia etc. are staring a lost decade of debt deflation in the face. This won't be pretty and in no way should be welcomed, but one result could be that the handling of the Japanese economy from 1990 onwards will be reappraised once other countries are in the same boat. On the debt issue, Japan's main debt is public (i.e., government), but its owed in the form of government bonds 90% owned by Japanese people in the form of post office accounts, pension funds, insurance policies etc. This has allowed the government to borrow vast amounts at virtually zero interest. You can contrast this with the PIIGs now, especially Greece whose one year bond pays 150%. Such bonds are priced to default.

[Go Native 70]

grazza Japanese resorts are already shutting down in reasonably large numbers. Most are smaller one or two lift ski areas few would have heard of but if you've been following similar discussions on these forums over the years there's been quite a few of the bigger ones as well.

Few Japanese resorts market themselves aggressively to the OS market for a number of reasons. Primarily few of the management are fluent enough in english to do it even if they desired to and they seem very reticent to ever hire foreigners with management experience of successful OS resorts. And many just don't desire to have an influx of foreigners. Management of most resorts in Japan is made up of pretty old men who are very set in their ways (well that sums up most of Japan I guess). There is a real lack of innovation and definitely a lack of funds even if they want to implement new ideas. The skiing market OS has changed dramatically over the last 30 years but most Japanese resorts have not. The needs and wants of a large portion of the OS market are not met at most Japanese resorts. Niseko is only popular with the OS market because of foreign run businesses and their marketing. Similar in Hakuba I would think. As much as many foreigners claim they want a real Japanese experience in my years in the industry I found that didn't mean they really wanted to be in villages with little to no nightlife or sleeping on futons in a room devoid of furniture or having only a few ramen and izakaya restaurants to choose from. A large amount of investment would be required to bring most Japanese resorts up to a standard that appeals to the mass OS skiing market. And the money just isn't there to do it. Most of the investment in Niseko has been foreign investment.

I also think they are failing the domestic market. Again most resorts haven't changed a thing in at least 30 years. The whole snowsports market though, including the Japanese one, has changed dramatically. Snowboarding is now as or even more popular than skiing. Skiers themselves now ski on much fatter skis and in larger numbers than ever before like hitting up ungroomed or off-piste slopes. Very few Japanese resorts have changed anything to cater to these trends. I don't buy that the entire decline in the Japanese domestic snowsports market is only due to the economy or declining population. I believe that resorts just aren't catering well to what the market wants, especially those of newer generations who are so important for the long term viability of the industry.

Personally I think the best thing for the industry would be more foreign investment. More resorts brought up by foreign companies who are cashed up and able to make the investments that will bring the industry into the 21st century and cater to the modern snowsports market.

[ILoveZao 8]

There are simply too many skijo and many of them are tiny and just cater for locals.

[NoFakie 45]

Just on the demographic question, Hillary Clinton said the other day that the number of Japanese people studying at college in the USA has fallen by half in the past fifteen years. This is in spite of the high yen making it cheaper. You could come up with a million reasons why US universities are deficient and are messing up, but I think the "simple is best" explanation wins, Occam's Razor or whatever its called. Fewer young people being born and harder economic times -> fewer people studying overseas.

 

I'm a big believer in overseas travel as personal development, so I found this news pretty depressing.

[Slippery Jim 65]

As far as Japanese ski areas go, I think GN has it pretty much nailed. The management is moribund, the ownership is mostly zombie companies and there's little or no imagination or energy for bringing places up-to-date. Shiga/Nozawa/Myoko are basically unchanged since I started skiing 30 years ago; Hakuba? well the area right around Happo-one is starting to get a little improvement, but it's five to seven years behind Niseko and the rest of the Hakuba area isn't even making an effort.

Seibu was the one Japanese company with a little flair for improvements, but Tsutsumi both overextended and screwed the pooch politically and dropped off the scene. Had he moved a bit faster and been a little more astute with the grand plan to hook up Naeba, Manza and Shiga's Yakebitai, adding lifts on Iwa-Sugayama, we'd have a European style ski infrastructure at least that could be built on, but that plan died when he tried to big-foot the Nagano Olympics.

[Alexander L 80]

The Japanese Ecconomy

 

Tough one, otherwise all those "wise" economic narrators would have been proven right.

 

My viewpoint, from the bottom of my well: Japan should print money, in exactly the same way the US are doing. Devalue the Yen at the rate controlled by the mint. In that way, the currency is controlled by Japan, not by the US bully boys. Exports would then be more affordable to the ret of the world.

 

Revamp the stone age banking system. Allow OTC foreign currency investments, allow people to diversify their investments. People are alreay savvy investors, let them have legitimate channels to do their investing.

 

Tourism. Japan is one od the best places to visit for food, sights, gadgets, entertainment, nature. Why does it only have 15 million visitors per year? A tiny island territory like Hong Kong has 35 million. JNTB need to be shot.

[grazza 2]

GN, DiGriz, clearly you're right about the paralysis of snow resort management in Japan, and the fact that the only real movement seems to have been in the areas where foreign investment has driven change. I guess one of the questions that's bugging me is the sheer economy impossibility of the big empty bubble resorts. Where the hell does the cash come from? It sure doesn't walk through the front door in skier wallets. Are there parent companies absorbing these losses year after year? Are there government subsidies? How is it even possible?

 

There comes a point as things get tough in business when the emotional dial of the leaders shifts from denial and complacency to deep fear and recognition of the need for radical surgery. How is this not happening now?

[Hokkaidough 4]

What's the deal with all the tiny resorts that are like one 300m lift and owned by towns/villages?

[tripler 0]

I guess one of the questions that's bugging me is the sheer economy impossibility of the big empty bubble resorts. Where the hell does the cash come from? It sure doesn't walk through the front door in skier wallets. Are there parent companies absorbing these losses year after year? Are there government subsidies? How is it even possible?

Grazza, do you know for a fact that big resort lift companies are losing money? They probably have very few overheads. Little or no rent, temporary staff, low wages. Keeping the existing infrastructure ticking over may just not need much money.

 

Interesting subject. So zombie companies still exist in Japan?

[grazza 2]

Don't know for a fact, but that was what it looks like. At Tomamu for example my estimate of the total midweek crowd on the mountain would be a few hundred. Maybe triple that through the Coming of Age day long weekend. We stayed in a massive suite with sauna and jacuzzi, all food, all lift tickets for 2 people for around $300 a day. Total resort income perhaps $40K per day? Staff everywhere. Huge all you can eat buffets with choice produce.

 

It was an awesome deal, but, back of the envelope, that seems like a major loss to me. I guess I might be wrong, but I'd be surprised. I kinda felt embarassed about it, like I wasn't paying my way. My only thought was maybe this place is packed through summer??

 

Does anyone know if these places, particularly the bigger resorts like Rustsu or Appi or Naeba, make money?

[NoFakie 45]

Some resorts are definitely tax writeoffs, but maybe not so much the bigger ones. Some others are partly public owned and have had cash injections from the local tax payer.

 

The one lift places may be a curiosity, but in ski industry-level terms they are largely irrelevant.

 

As another example of what debt deflation is, the number of cars sold in Japan is down 40% since 1990 and has changed from nice big profitable ones to more and more kei cars. Japan's car companies are run by competent people.

 

It's still early days for Niseko and I don't think what has happened there is particularly applicable to elsewhere or scaleable. Some of the margins on the apartments and rental houses look very thin even with very high occupancy. In the good times you have to make money. It is essential in the long term.

[TJ OZ 0]

Hakuba? well the area right around Happo-one is starting to get a little improvement, but it's five to seven years behind Niseko and the rest of the Hakuba area isn't even making an effort.

Maybe a trip to Hakuba in the warmer months will change your mind. There has been a lot of construction and renovation going on over the time I have been here. Lots of money still coming in to town from Japanese and internationals. New businesses starting up also. 47 are still proceeding with their development plans. This summer has been the biggest ever in terms of turnover for many business owners.

[best skier in hakuba 5]

TJ OZ always seems to find these unrealistically extra bright fluroescent colors from somewhere to paint the picture.

 

While it was certainly better than many expected due to March and all that, try telling many business owners here who did not have their "biggest ever in terms of turnover". Bookings for winter are very slow for most people. Almost all people talking honestly would say that.

 

To suggest all is going excellently is misleading at best. Although that's hardly a surprise. I seriously don't know how you can constantly post stuff like that with a straight face.

[Slippery Jim 65]

Guys, I'm already far too nononotorious as a Niseko skeptic; can't get involved in Hakuba as well. Mine was strictly an opinion based on observation, and far less of it than I can claim for Niseko as I rarely get to Hakuba for more than a couple of days a season. I think it's a great place, and I often recommend it to people, but doesn't seem (to me) to have development on Niseko's scale as yet. Apologies if I'm mistaken. Love Peace & Powder to the People

[TJ OZ 0]

"the rest of the Hakuba area isn't even making an effort."

I must be dreaming when I go into new restaurants and cafes. The new buildings are a figment of my imagination. Business owners telling me they have had there best summer ever - another fairytale. Investors putting a million on the table - couldn't happen.

I'm glad others know what's really going on to keep me honest.

 

Not sure where I said it was going "excellently". Maybe read the quote first.

[Chriselle 158]

Interesting thread. I spend most of my ski season (weekends) in Hakuba with an annual Christmas break to Hokkaido wedged in there for good measure. A few years ago I had an opportunity to buy out a lodge in Hakuba but I dragged my feet as I share in the many concerns already expressed in this thread and the window of chance passed. I would like to be as optimistic as TJ OZ in seeing construction as building...but I see it more as merely maintaining a dated and uninspired plan. I applaud new projects like Gakuto Villas (thank you SJ for the stay) but unless the locals get motivated and more importantly, united...you are always going to have....and I coin, Hakublah.

 

And the "blah" starts way before you even get to Hakuba....it pretty much starts from Toyoshina....that is one depressing stretch of road leading to what should be a fabulous and vibrant ski resort. It's dark, dreary and broken down. I get bummed out before I even get to the slopes. Come on Nagano folk...get your shit together.

[best skier in hakuba 5]

Wow! A new restaurant and bar! A few new buildings

Press Releases sent round the world!!!!

How about the restaurants that have closed?

The shops and businesses that have closed?

The borded up buildings on the main road near the station, which looks more of a mess than it did 5-10 years ago.

I suppose we ignore and blinker those out of the equation.

 

Yes there are some things going on, that is not being denied.

 

You are incapable of being 'honest' when it comes to Hakuba and have proven that many times.

It is not optimism, it is either yourself actually believing it all or just blatantly trying to constantly paint a picture. It's insincere.

 

I'd love to see a questionnaire of the people who own businesses in Hakuba and see what percantage would answer "Yes" to the question "Was this summer the best ever for your business"?

 

As much as I love the Hakuba area myself I see no need to make shit up to try to promote the place.

[muikabochi 208]

There's a new burger shop in Yuzawa.

There's investment for you!

[Chriselle 158]

There's a new burger shop in Yuzawa.

There's investment for you!

Damn,,,I just bought more land in Canada when I coulda had a burger....another missed opportunity.

[muikabochi 208]

They might have even spent a million yen making it up I reckon.

 

 

Exciting stuff.

 

PS. Come to Yuzawa! It's Yuzawatastic!

[TJ OZ 0]

Like to Hazard a guess at how many new building went up.

[pie-eater 207]

In Hakuba?

 

At least 300,000!

 

 

World economy relaxes at this excellent news!

 

 

Did they take all the crappy old derelict buildings down though?

[Chriselle 158]

They might have even spent a million yen making it up I reckon.

 

 

Exciting stuff.

 

PS. Come to Yuzawa! It's Yuzawatastic!

It's called the Hamburger Hut.....and it really is a hut...right? Explosive growth in Yuzawa.