Apple to Increase Investment in Japanese Market with New Tokyo Store

| Analysis

Apple is planning a new retail store in Tokyo, the first such since August of 2005. Bloomberg reported that Apple has picked out a multi-million dollar site in the upscale Omotesando shopping district, and that the building could be completed in February of 2014 for a store opening as early as March.

Apple in Japan

Apple in Japan

Japan is a big market for Apple, but it's an expensive market. Real estate in Tokyo is off the charts expensive, making a new Apple Store in the city a tremendous investment for Apple.

That investment has been balanced against an economy in Japan that has under performed for many years, but a combination of an improving economy and the right spot becoming available has apparently tipped the balance for Apple to open a new store.

How expensive is Tokyo, you ask? According to Seth Sulkin, of Tokyo-based Pacifica Capital KK, the land cost some ¥16 billion, or US$162.5 million. The value of the land once Apple's building is complete is being estimated at ¥25 billion, or $254.1 million.

“Apple wants the best real estate they can get,” Mr. Sulkin told Bloomberg. “They are particular about size and shape. If they have to wait to get the real estate, they would.”

The building will have three levels, including two underground levels, and some 20,189 square feet of floor space. What's not clear is whether or not Apple will occupy all of that space or if it will be merely one among other tenants.

Many of Apple's flagship stores are standalone locations, however, and I can see Apple claiming the space in its entirety. For comparison, the company's 5th Ave. Apple Store is 10,000 square feet; the Boston Boylston Street store is 20,000 square feet; and the Covent Garden in London store is a massive 40,000 square feet.

DoCoMo Aside

One has to love corporate executives, and this was brought home by a tidbit in Bloomberg's piece about DoCoMo, Japan's largest carrier. Apple doesn't have the iPhone at DoCoMo, and it would be represent a big opportunity for Apple to claim market share in Japan if it could change that.

DoCoMo has always been rumored to be a bit precious about signing up with Apple, kind of like China Mobile. The company has allegedly been cranky about Apple's subsidy levels (Japan offers subsidized and pay-as-yo-go service), and other concerns.

According to Bloomberg, DoCoMo said on August 8th that it would consider carrying the iPhone, "if it can limit the handset's share of sales to less than 30 percent of the company's total."

In other words, DoCoMo doesn't want to carry the iPhone because it would sell too many of them, and DoCoMo wants to artificially prop up its own music, video, and game store that competes with Apple's iTunes.

Of course, DoCoMo has been losing market share to its rivals who do offer iPhone, because, you know, people want iPhones.

It reminds me of the cable, studio, and network executives who are terrified of giving control of the user experience to Apple because Apple will do it better than they do and own that customer relationship.

Comments

palenoue

Any pictures of the Tokyo location?  You know, as a “Before” reference for when the store opens next year?

ibuck

By the time it’s built, Apple will spend about $300 million US for this store ? Assuming sales typical of other prime Apple stores, how long until it hits the break-even point?

wab95

Bryan:

The textbooks on free enterprise in the tech sector and related/collateral sectors, their alignments, successes and failures are still being written. Apple will feature prominently in those pages.

So too will be the music, TV (entertainment writ large), cable and carrier companies, including a mention of DoCoMo, and other companies that made imprudent, indeed self-defeating decisions on the basis of protecting turf. Hopefully, for DoCoMo, that mention will not be a post-mortem.

One take home message thus far, in my view, is that one common trait amongst those companies that have survived to date during this hurly-burly period is a penchant for pragmatism over purity and the obstinate adherence to a failed idea.

The record of the entertainment industry and the carriers remains chequered on this score.

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