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How Japan's growing Subscription Economy could redefine the way consumers and companies interact

Alex Martin

Hironori Sakamoto and his wife plan to spend the next few nights at a spacious, fully furnished two-story house with a large wooden deck in Kitami, a quiet suburb in Tokyo's Setagaya Ward.

They’ll then move to another home in the neighboring district of Tsurumaki, which they have registered as their official residence. Then they’ll decide where to go next — maybe a place in the mountains or somewhere by the sea.

In that regard, they are spoiled for choice: Including the Kitami and Tsurumaki properties, there are nearly 90 shared homes across Japan where they can stay as long as they pay a set monthly fee.

Sakamoto isn’t on vacation or hopping around AirBnBs. The self-employed sales consultant and his wife are members of ADDress, a subscription-based co-living service that launched last year, offering an alternative lifestyle somewhere between home ownership and traditional rental housing contracts.

“We had been searching for a new place to live for three or four months before discovering this service,” says Sakamoto, who began using ADDress in March. “Since I work remotely, we were looking to get out of our rental apartment in Tokyo and move to a more scenic location.”

“It was quite a gamble, letting go of a permanent residence and living with strangers,” he says. “We did away with most of our belongings and took with us only the bare essentials. But I think it paid off. I can’t imagine being stuck living in the same place anymore and I’m appreciating the companionship of residents who come and go.”

Subscription benefits

 Sakamoto is part of a trend that is not restricted to the housing market. While Japan has lagged behind other large economies in terms of subscription-based businesses, the model is finally catching on as consumers search for personalized, cost-effective alternatives to access products and services with recurring fees.

From suppliers of housing and transportation to purveyors of food and beverages, subscription-based companies are popping up everywhere, demonstrating resilience and potential even in the midst of a pandemic.

Today’s consumers can subscribe to an ever-expanding range of products: meal kits, cosmetics, apparel, furniture — even cars. For businesses, it’s an opportunity to establish long-term relationships with their customers and secure steady revenue streams. For consumers, the growing array of services allows them to access personalized experiences, such as made-to-order selections of bread and coffee.

Pan For You is a startup based in Gunma Prefecture that delivers gourmet bread produced by a selection of bakeries to households and offices for a set monthly fee.

“As a business, a fixed-fee model simplifies our operation,” says Kenta Yano, founder and CEO of the company. “We also found there was demand for quality bread deliveries, so a subscription service was the natural solution.

For Â¥2,900 a month plus delivery fees, subscribers receive a box that contains between six and 10 pieces of freshly baked and frozen bread from one of the 35 bakeries Pan For You collaborates with. Customers don’t know which bakery the bread will be delivered from, which, Yano says, is part of the fun. The bread can be heated up at home using an oven toaster. There are currently around 3,000 individual subscribers, he says.

Meanwhile, roughly 150 firms have signed up so far for Pan For You’s office delivery service, which involves a monthly delivery of typically around 200 to 300 pieces of bread from multiple bakeries. Sales are soaring, Yano says, with revenue in July, for example, quadrupling compared to the same period last year.

“Despite the shrinking population, the market for bread is expanding, so it’s a good business to be involved in,” he says.

According to a report by Fuji Keizai, last year’s sales figure for the domestic market for bread, once the totals are combined, is expected to be Â¥2.78 trillion, and the forecast is for that to grow to Â¥2.81 trillion in 2020.

“I think the subscription business model will continue to expand, partially because of the wealth of information we now have access to through the internet,” Yano says. “Consumers are overwhelmed with choices. That provides opportunities for businesses like us to offer personalized services to alleviate the hassle of having to make decisions.”

Stay-at-home requests by municipalities amid the pandemic are also working in the favor of companies such as PostCoffee Co., a startup that offers deliveries of boxes of customized whole or ground specialty coffee the highest grade available using single origin or single estate coffee. After taking a 10-question online quiz, a customer is matched with three of the more than 30 varieties of speciality coffee that are delivered each month.

“COVID-19 has helped our business, with more folks opting to stay home and purchasing quality goods to enhance their lifestyles,” says Ryo Shimomura, president of the firm.

Customers can provide feedback via the company’s website and request a particular bean they may like. And in case a customer wants to learn more about the bean they’re drinking, Post Coffee also operates a brick-and-mortar store in Tokyo that offers free coffee tasting experiences. 

'Personalized experiences'

The success of a subscription-based business depends on the product category, Shimomura says. Offering products and services such as specialty coffee, quality alcoholic beverages, cosmetics and perhaps even children’s toys that offer a wide range of products and require a certain amount of knowledge comes with a built-in advantage, since they allow a firm to play the role of concierge.

The winner of the 2019 Subscription Business Award issued by the Japan Subscription Business Association, for example, was Toysub!, a service that delivers toys, based on the child’s age, every two months.

“On the other hand, products that are easily comparable perhaps certain home electronic devices may have a disadvantage when it comes to the subscription model,” Shimomura says. “The point is to reduce the burden on consumers while providing quality, personalized experiences.”

The World Economic Forum said in a recent report that the pandemic is accelerating the shift toward a subscription economy: Subscription-based business models are driven by a global shift in consumption preferences that favors access to services over the ownership of physical products.

“One of the primary drivers of this shift is the lack of capital or a reluctance to spend capital in the face of adversity, which is resulting in companies reducing their capital expenditure budgets,” the report says. “This works to the advantage of subscription businesses, as the shift to quarterly or annual operational expenditure for an ongoing service becomes increasingly attractive to customers.”

According to the Yano Research Institute, the domestic subscription market, covering seven industries including fashion, restaurants and entertainment, was estimated to be worth ¥683.5 billion in fiscal 2019, up from ¥562.7 billion the previous year. That figure is projected to reach ¥787.3 billion in fiscal 2020.

A Netflix for cars?

The trend is catching on in the automotive industry as well, with companies rolling out car subscription services — a kind of Netflix for automobiles.

Last year, Toyota Motor Corp. became the first Japanese automaker to introduce a subscription-based car leasing service allowing a customer to drive one vehicle from a growing selection of more than 30 automobiles for three, five or seven years.

Insurance, maintenance fees and taxes are all included in the monthly fixed price of the service, called KINTO. A three-year plan to rent Toyota’s compact car Passo, for example, would cost Â¥32,780 a month. Users can also switch cars midway through the contract for a fee.

The new service is part of an effort by Japan’s largest automaker to establish alternative revenue streams as the current business relies heavily on new car sales.

“Back in late 2017, I was summoned by Akio Toyoda, president of Toyota,” says Shinya Kotera, president of KINTO Corp., a firm funded by companies including Toyota Financial Services Co. and Sumitomo Mitsui Auto Service Co. “He told me the automotive industry was facing a once-in-a-century transformational period, and asked me to come up with innovative sales ideas.”

Kotera explained that while technological advancement has changed consumer habits in many ways, car sales in Japan have relied on the traditional model of dealerships and face-to-face transactions that can be time consuming.

“We took it upon ourselves to resolve the stress consumers may be feeling,” Kotera says. “We were also seeing how subscription-based music and video streaming services were thriving, and decided to launch a web-based subscription service for cars.”

KINTO’s customers can apply for subscriptions online or at dealerships, although 67%have opted for the former. There were 5,214 applicants as of the end of June, and while that figure may seem relatively small, Kotera says he senses strong potential in the business model.

“In Europe, for example, subscription-based car ownership is widely available and accepted. That’s yet to be the case in Japan, but I believe the concept will gradually take root.”

Kotera says KINTO will eventually introduce a similar service for second-hand cars while expanding its business globally so users can seamlessly take advantage of the service during overseas trips.

There are obstacles, however, including expensive and limited parking in large cities such as Tokyo.

“We’re looking for a solution to this particular issue,” Kotera says, without elaborating.

Expanding horizons

ADDress, the subscription-based co-living service, has found a solution to the same obstacles that Toyota’s KINTO is trying to cope with through non-automotive transportation. Satoko Sakurai, co-founder of ADDress, says the firm has so far teamed up with All Nippon Airways and major railway operators to offer special discounts for members traveling to different ADDress properties. ADDress is also offering solutions to a major demographic issue facing the aging, shrinking population — a glut of abandoned homes. There were 8.46 million such dwellings in 2018, or 13.6% of all residences nationwide, according to the communications ministry. That’s a record high, and the figure is expected to grow in the coming decades as deaths outpace births in a country where already more than 1 in 4 people is 65 or older.

“Most of our properties are homes and weekend retreats that have gone vacant and whose owners are looking for useful ways of managing them,” Sakurai says. “After a screening process, we typically rent the property from the owner. We then renovate the place if necessary and seek a housekeeper who can oversee the property and introduce residents to the perks of the neighborhood.”

Amenities, furniture and Wi-Fi are included in the deal. By the end of the year, Sakurai expects the number of properties to reach 100.

For ¥40,000 a month, ADDress users can make up to two weeks of advanced reservations to stay in any house listed on the platform for a maximum of seven consecutive nights per location. Typical users spend three or four nights at a single home. These rules are aimed at encouraging members to explore different localities and appreciate what each region has to offer, Sakurai says.

Some properties are managed by municipal officials interested in luring younger residents to their communities, she adds. And the younger generation — many of whom are teleworking now amid the pandemic — appear to be open to the idea of leaving cities and spending time in the countryside. Those in their 20s and 30s account for roughly half of registered users.

Eighty percent of ADDress members have a home and use the service as a weekend getaway, Sakurai says. Others who have opted to become full-fledged nomads such as the Sakamotos rent a “fixed bed” for an extra Â¥10,000 or Â¥20,000 per month in one of the houses that can be registered as official residences to receive mail.

And it’s not only abandoned homes that are being given a second life. Sakurai says since the onset of the pandemic, the firm has been working with hotels and guest houses looking for ways to monetize their vacant rooms.

“Many hotels are struggling with a lack of guests as COVID-19-imposed travel restrictions have poured cold water on tourism,” Sakurai says. “We’ve received around 100 inquiries from members of the lodging industry interested in renting out rooms for long-term stays.”

That’s good news for users of ADDress, as it gives them even more options.

“We’ve refrained from traveling to distant properties so far due to the pandemic,” Sakamoto says. “But we’re looking forward to exploring what the rest of Japan has to offer.”

This article is written by Alex Martin from The Japan Times and was legally licensed via the Tribune Content Agency through the Industry Dive publisher network. Please direct all licensing questions to [email protected]

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