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Japan's Aftermath

March 21, 2011Written by Tom Ryan

Eleven days after the earthquake and tsunami, it's still highly uncertain how the devastation that has hit Japan, the world's third-largest economy, will impact U.S. retail and consumers brands in the near-term and long-term.

Most directly, a slew of U.S. chains that have opened stores in the nation over the last few decades will take a hit. Coach and Tiffany each derive as much as 20 percent of their sales from their Japanese retail operations. Others with stores in Japan include Walmart, Costco, Toys 'R' Us, Gap and L.L. Bean, as well as McDonald's, Yum Brands Inc. and Starbucks on the restaurant side. While a few deal with physical damage and blackouts in a near-term, there's a concern that Japanese consumers may curtail spending in the same manner U.S. consumers responded after Hurricane Katrina and 9/11. Tourism to Japan is also expected to slide.

While not the force they were five years ago as the nation's economic growth has stalled, Japanese consumers also remain big buyers of luxury goods and higher-end gadgets. About 17 percent of the revenues of Callaway Golf, for example, stems from the country. Still, a Women's Wear Daily report saw no long-term impact on the luxury market's rebound. Observers interviewed didn't see the Japanese changing their spending habits long term.

"The Japanese are by their nature the most discerning luxury consumers in the world," said Guy Salter, luxury investor and the deputy chairman of Walpole, the association of British luxury goods. "While this disaster is so appalling on a human level, it's not going to affect their aesthetic or desire for quality. I'm absolutely convinced of that."

While the car industry will certainly undergo some turmoil, the big fear for consumer electronics retailers is shipment delays or outright shortages of hot product. Beyond computers, electronic gadgets and video games, Japan supplies about a fifth of the global semiconductor market and is a major producer of memory chips used in smartphones.

Stores in Hawaii, meanwhile, are also bracing for a significant drop-off in Japanese tourists. But Japanese visitors to New York City has reportedly dropped significantly since the nineties. Greg David, the former editor at Crain's NY and now a business columnist, told ABC Eyewitness News, "The Japanese economy has been stagnating for 15 years. It has affected virtually everything; their investments in New York, the tourists who come to New York."

On a wider scale, the concern appears to be any backlash against nuclear power and the overall impact the U.S. economy's recovery. Some see U.S. firms adding jobs as part of Japan's rebuilding effort. At the same time, economists note that there's no historical reference to help measure a disaster of this size in an advanced economy like Japan's.

"There's nothing obvious that says we're going to get smacked by this," Carl Weinberg, chief economist of High Frequency Economics, told the Chicago Tribune. "There can be a lot of trickle-downs. We just don't know."

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