On May 28, the "White Paper on Monodzukuri (Manufacturing Industries) 2021" was approved by the Cabinet. The report explains that an outlook for the manufacturing industries is still unclear due to the ongoing COVID-19 related stagnation and presents the following key strategies for the days ahead after the pandemic is over: Strengthening of supply chains (Resilience), Realization of a carbon neutral society (Greening); and Promotion of digital transformation (Digital). Most of all, “Greening” strategy is supposed to be the first and foremost priority in business structural reform with the target year set at 2050. There is no spare time left for the realization of innovation.

As for the “Greening” strategy, the used goods and reuse (second-hand) markets are booming in tune with increasing environmental awareness. In particular, the fashion reuse market covering apparel goods, brand-name products, miscellaneous goods, precious metals, etc. shows a remarkable growth. The market size, estimated to reach 820 billion yen in 2020 (forecast), has grown by 1.8 times in the past five years. (Data from “Fashion Reuse Market in Japan: Key Research Findings 2020,” issued by Yano Research Institute.)

The digital native generation is considered as a growth engine. Without having a strong possessive instinct, they easily accept an ecology-oriented consumption style. Currently, buying and selling on C2C channels such as flea market applications and online auctions is a common practice for them.

However, in consideration of the correlation with manufacturing industries, reuse products and new products are inherently incompatible with each other. In 2010, the Ministry of the Environment reported the economic ripple effect (production value basis) associated with reuse of products. The calculation was made based on the size of the retail market of used products reported in 2009 (499.6 billion yen), as a reference, which excluded the C2C market from the entire reuse market, by setting an assumption that a 10% of people would not have purchased the item unless used goods were available. The results showed that the sales of used goods traders increased by 50 billion yen; the sales of new products as a result of production restraint reached a deficit of 1,624 billion yen; consumer income increase associated with selling used goods reached 266 billion yen; and consumer income increase associated with purchasing used goods reached 785 billion yen. The economic gain and loss in total resulted in a deficit of 524 billion yen. Besides, the size of employment lost in the manufacturing sector due to production restraint was 74,000. If the C2C market is included in the factors of calculation, the range of deficit due to the production restraint effect will further expand (According to the report of the 3rd “Product Reuse Promotion Project Research Committee" issued by Ministry of the Environment)

On the other hand, the new products market has become mature, which accelerates the market reorganization led by major distribution companies. As always, it is aimed to pursue economies of scale in terms of product procurement and production of PB products. Without changing the concept of values, it is hardly possible that the domestic manufacturing industries get out of the exhausted conditions.

If the growth of the reuse market as a secondary market is assumed to be achieved, the new products market should concentrate on pursuing high-value-added products. Komehyo Co., Ltd., a well-established second-hand goods retailer, presents a new wording, "Relay use" to show their management philosophy. The company says it is intended "not only to reuse products, but also to carry on something good quality and valuable." If manufacturing, retail, and reuse sectors are all restructured to step into a new distribution system based on a comprehensive and optimal perspective, that is what we call “innovation.” If made-in-Japan products and also used-in-Japan products create a new cycle of values in the future, accordingly, it is very sure that manufacturing industries can develop their own new future.

This Week’s Focus, June 4

Takashi Mizukoshi, the President