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Super-customization -- a lifeline for Japan Inc?

While companies elsewhere are also targeting 'only for you,' Japan has big advantages

| Japan
Using the dotted bodysuit and a smartphone app, Zozo customers can take 3D images of their bodies with measurements from their neck to their ankles. (Photo by Ken Kobayashi)

From Hong Kong to Dubai to Tokyo, it is hard today to tell one high-end retail scene from another. Global brands are everywhere with identical facades and similar seasonal offerings. In fact, the further upmarket we go, the more consistency prevails. It is as if the customers all want to look the same.

This is quite in contrast with the wealthy upper-classes of a century ago. Anybody who has watched Downton Abbey, the popular television costume drama, can see that everything from furniture to dress, jewelry and perfume was custom-made to an individual's liking.

But individual customization for the mass market will soon allow many more of us to sample what was once an exclusive privilege reserved for the likes of the aristocratic Grantham family.

The ever-falling cost of processing data holds the key. Personalized tailoring of goods from apparel to cosmetics is now within reach thanks to the combination of several technological changes including the digitalization of the interface with the client, which brings down transaction costs, data-based automated manufacturing, which reduces labor costs and lead times, and personalized doorstep delivery services. On top of this comes AI which opens a wealth of possibilities of gleaning information from customers and using it to replace disparate transactions with life-long engagement, which enriches the experience for clients whilst simultaneously cutting costs.

The trend started with digital online content, including music and media. Spotify was the spearhead -- streaming music which keeps evolving according to your taste. YouTube does the same for video. Now individualized and real-time customization is sweeping from digital to real, into the world of physical merchandise.

A late-comer in digital services, Japan has leapt ahead with a few leading examples from the world of physical products. ZOZOSUIT, a sensor-enabled high-tech suit from apparel startup ZOZOTOWN, measures you from head to toe to make a unique paper pattern of you which can be used for making clothes.

airCloset takes an equally individualized approach but meets its customers' taste for clothes in a completely different way. It offers subscription-based short-term rental of women's attire. Available from 6,800 yen ($61) a month, users receive three sets of clothes from an automated warehouse containing more than 100,000 items of clothing, with selection supported by AI analysis and personal stylists. Some 160,000 users, 90% of them working women, were using the service as of October 2018.

airCloset users receive three sets of clothes from an automated warehouse containing more than 100,000 items of clothing. (Courtesy of airCloset)

Japanese companies are not alone in making customization made affordable. Dollar Shave Club, a U.S.-based subscription service containing customized assortment for A to Z in the bathroom, was acquired by consumer products combine Unilever as long ago as 2016. The $1 billion deal raised eyebrows. Subscription services for consumable items are growing fast in the U.S. and Europe in everything from cosmetics -- for example ipsy -- to dog treats, with barkbox.

But "only for you" offerings are cropping up at a remarkable pace in the Japanese market, even though it is conventionally -- and wrongly -- believed to be devoid of major innovation. It is also interesting to note that some examples in Japan seem to take customization one notch further, reaching customized manufacturing beyond the customized assembly of pre-existing items.

For example, many women have a complicated lifelong relationship with skin care products. For them, Optune, a customized skincare service from Shiseido, could be a game-changing concept in that it promises a lifetime of personalized service. Night and day, it reads your skin condition through iPhone apps, measures temperature and moisture parameters in the air, and optimizes the skin care mix from five cartridges set in a little machine which sits on your bathroom counter. Any future development in research will be reflected in cartridge updates which customers receive every six to eight weeks.

No more trying things out, it will be just adapted for you, all the time. All included, the end price will come to about 10,000 yen per month, which is not a super-exclusive price level for many women.

Shiseido's Optune system makes use of a smartphone app before dispensing skin lotion in one of up to 1,000 possible combinations.

If companies are heading in this direction, what does it mean for the consumer industry? The biggest impact is that the new model dramatically shortens the value chain. The cascade of supply chain links from parts or ingredient manufacturers to brand owners to middlemen to retail store shrinks to a minimum. The cascade will be replaced by brand owners simply connected with consumers with a digital feedback loop which feeds into automated manufacturing.

The consumer data a brand owner could access has, until now, often been an aggregated mishmash of information collected over many layers of distribution. Now in exchange for a customized solution, millions of consumers will collectively compile big data on a real time basis. The brand owner will receive the information in a form that can immediately be used for further product development. Optimizing the use of this data to enhance product quality is the key.

With individual customization, consumers generally expect instantaneous feedback. The order-to-delivery lead time needs to be very short, as it already is, for example at Amazon Prime, the delivery service that brings parcels to the door within a few hours.

This favors locating manufacturing bases close to the end consumers. With the help of automation and digital connectivity they can respond quickly to client needs, greatly reducing the advantage of offshore manufacturing with lower labor costs.

Already Japanese manufacturers, both in finished goods and parts, are reshoring some of their manufacturing base back to Japan. According to the Japan External Trade Organization, a government agency, the domestic share of Japanese companies' capital expenditure is rising after hitting the bottom at approximately 70% in 2014 . It now stands at about 77%. While the reshoring trend is attributed to a combination of a robust domestic economy, a sustained cheaper yen and rising overseas labor costs, individual customization is another tailwind that could blow with growing force.

Moreover, this model can be transferred to overseas markets. Once the digital infrastructure and local distribution partners are secured, the whole assembly of savvy consumer interface, AI algorithms and connected manufacturing can be replicated. Furthermore, since it is not capital intensive, the model can be adapted by large companies and startups alike. While incumbents will compete with the advantages of strong brands, scope for heavy research and development spending and global reach, new businesses can generate innovative ideas.

Japan faces competition in super-customization but it can do well in this field, as Japanese companies, at their best, can combine Japan's strength in factory automation with its preference for top-class service. While not everything will be super-customized tomorrow, there are opportunities which did not exist a few years ago.

Nobuko Kobayashi is a partner with EY-Parthenon, a strategic consulting group within E&Y Transaction Advisory Services. Based in Tokyo, she specializes in the consumer sector with a special focus on multinational corporations operating in Japan.

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