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China's piano market hits the right note for Yamaha

Japanese company sees sales surge as parents push for music education

As disposable income increases in China, more families are splurging on big-ticket items like pianos, which are becoming status symbols while also contributing to a child's education.  (Photo courtesy of Yamaha)

TOKYO -- Yamaha, a major manufacturer of pianos, now sells more of the instruments in China than in its home market of Japan.

This reflects both China's size and its growing enthusiasm for children's music education. Yamaha's instrument business in China, led by pianos, more than tripled over the decade ended in March. The country now accounts for 17% of Yamaha's total instrument sales, up from just 5% 10 years ago.

China is expected to be a bigger market for its instruments than Europe by the end of the current fiscal year, and may even overtake the U.S.

Liu Yeqing, a piano teacher in the city of Zhuhai near Macao said, "Many Chinese parents have their kids take piano lessons these days," adding that with more disposable income on hand, they use it to realize their childhood dream of owning a piano.

Yamaha's 30,000 yuan ($4,250) upright pianos make up about 15% of the instruments Yamaha sells in China. "The typical customer is a married couple in their 30s with a monthly income of a little over 10,000 yuan, who are buying the piano for children aged 3 to 5," said Teruhiko Tsurumi, executive general manager of Yamaha's musical instruments unit.

Many couples choose to have only one child despite the end of China's one-child policy. This allows parents to splurge on their child's education. A quarter of the pianos Yamaha sells overall are acoustic, but in China the figure is 40%.

According to a 2017 study by a unit of Chinese internet company Sina, in households with young children, education comprises 26% of spending. Another study by Tokyo's Benesse Educational Research & Development Institute, also in 2017, found that 90% of Chinese children in urban areas take extra classes outside of school.

Learning an instrument is the third most popular choice at 20.6%, behind foreign language studies, drawing and painting, and dancing.

Yamaha's instrument-related sales in China have shown double-digit growth for the past decade except in 2016, when a strong yen crimped results. In the year ended March 2019, sales hit 44.6 billion yen ($410 million). This compares to sales in Japan of 75.4 billion yen in the same year, according to the company's earnings report. But about a third of the Japanese total includes items other than instruments, such as sheet music. Sales of instruments themselves in China -- such as pianos and guitars -- actually topped Japan's figure in the year ended March 2018.

According to Tsurumi, "The market for pianos in China's coastal regions has started to mature." Sales for the first quarter ending in June grew just 9%, down from their typical double-digit growth. Yamaha hopes to turn this around by expanding market share, replacing some of its 500 local sales agents with stores dealing exclusively in Yamaha products.

Yamaha's market share grew to 36% in the year ended March 2019 from around 25% in 2015, but it wants to push this to 40% in three years. The company will help this along by expanding into relatively untapped inland urban areas, targeting households with monthly incomes of 5,000 yuan for pianos priced at around 20,000 yuan -- lower than those in coastal regions.

The move seems well timed, as household spending for education in inland regions is similar to that of coastal urban areas five years ago. Moreover, the populations of inland cities have steadily grown, increasing the pool of potential customers.

Yamaha's current medium-term business plan targets total revenue growth of 33 billion yen by the end of March 2022. It expects its China operations to contribute 13 billion yen, more than any other region.

Piano teacher Liu says that "piano skills are popular partly because they are considered in high school and university entrance screenings." In other words, money spent on learning the instrument is regarded as just another cost of education.

This thinking supports Yamaha's revenue target for China, Mizuho Securities analyst Kenichi Saita said, "because education costs tend not to be cut immediately if the economy deteriorates." These costs include buying a piano for some households.

But despite the promise of China, Yamaha's shares have recently been languishing at around 5,000 yen, down about 20% from their all-time high of 6,080 yen in October 2018. This reflects investor concern over the impact of the U.S.-China trade war, which could drive up prices of Chinese-made instruments bound for the U.S. The stronger yen against the euro is also weighing on sales.

Still, the market remains optimistic with analysts targeting a price of 5,933 yen, as tallied by QUICK Consensus. By the end of fiscal 2025, Chinese sales are expected to top that of North America, which at 58 billion yen is Yamaha's biggest market.

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