State's focus on Japanese tourism faces scrutiny

By Kelly Yamanouchi
Advertiser Staff Writer

With Japanese tourism free-falling on news of the Iraq war and spreading SARS cases, some in the tourism industry say the state and the tourism industry would be better served if they focused less on visitors from Japan and promoted the Islands more heavily to other travelers.

Setsuko Goto shops at Ross on Ward Avenue with her mother, Hiroko Yamazaki, and her son, Ryosuke. Goto, who is from Tokyo, said she found out about Ross through her travel guidebook. Gregory Yamamoto • The Honolulu Advertiser

"Japanese are very, very concerned about safety when they travel, perhaps more so than other markets," said Joseph Toy, president of hotel consultancy Hospitality Advisors LLC.

Their heightened sensitivity compounds a trend seen over the years: the Japanese share of the tourism market is shrinking and their visitor expenditures are declining. Japanese visitor arrivals have fallen steadily from 2.1 million in 1996 to 1.5 million in 2002. Total Japanese expenditures in Hawai'i have declined as well, from $3.5 billion in 1996 to $2.2 billion in 2001, the most recent full-year data available.

The shifting numbers have spurred some to rethink and question the state and tourism industry focus on Japanese tourism.

Given Hawai'i's historic reliance on Japanese travelers, it made sense for the Hawai'i Visitors and Convention Bureau, the marketing agent for the state, to devote about $9 million or roughly 27 percent of its $33.15 million to marketing for Japan. Now that notion is coming under scrutiny as the state's dependence on Japanese business is showing itself as a weakness in uncertain times.

One reason for the re-evaluation is that while Japanese still spend more in the Islands than any other visitor group, many in the tourism industry say that lead is narrowing.

Peter Schall, senior vice president of Hilton Hotels Corp. in Hawai'i, said he has seen a move toward more frugal spending by the Japanese as "people shift more and more down to the hamburger place," a trend that is affecting hotels, retailers and restaurants.

But Schall said it's not only the Japanese and other international visitors who are spending less, but Mainland visitors and kama'aina as well. The Japanese, who account for about 24 percent of visitor arrivals, attract more attention because they spend more per capita than others. As Japanese visitors reduce their spending, however, they become less sought-after by businesses.

A major reason why the Japanese appear to have grown more frugal is the years-long economic slump in Japan, one that has changed their consuming habits.

Japanese shoppers are being careful about how they spend their money and Japan has seen development of discount stores that didn't exist 10 years ago.

The Japanese have also become more informed travelers. Since many Japanese are repeat visitors they are "much more discriminative in terms of how they want to spend their money," Toy said. "They tend to look more for value, regardless of whether it's a hotel or retail."

Tourists who once crowded the designer shops at Ala Moana Center can now be seen at such value-oriented stores as Ross Stores and Marukai 99 Cents Store in the Ward Avenue shopping complex.

Some high-end retailers have closed shop in the past two years because of the decline of Japanese tourism. And tourism executives say the structure of Hawai'i's tourism industry must change to accommodate the downward shift in Japanese spending.

Because of lower spending by Japanese tourists, "the restaurant choices are changing," said David Carey, chief executive of Outrigger Enterprises Inc.

"I suspect that places that cater to the North American business tend to do better," Carey said.

Noting duty-free retailer DFS, which caters primarily to Japanese, is being sued by the state for $49 million in debts, "the business model that was driving DFS is finished," he said.

"For a long time one of the drivers for the Japanese market was shopping. That is rapidly diminishing as a primary driver," Carey said. "There's going to be a wholesale change ... That's the world so we just have to deal with it."

Dieter Thate, who runs German tour operator Dieter's Tours, said he thinks the state needs to shift its focus to more promising markets.

"Japan was the primary travel force here for a long time but then it went down," Thate said. The U.S. Mainland market makes up a greater proportion of tourism here, "so I think we should focus on it."

Tourism officials acknowledge arguments such as Thate's.

"There are those people that say, well, spend less in Japan," said Frank Haas, marketing director for the Hawai'i Tourism Authority, the state agency that finances the visitors bureau.

"Well, there's a very large segment of the industry here that as a state agency we have an obligation to. To just abandon a market, I think, would be ill-advised."

Given the importance of the Japanese to the tourism industry, no one has suggested the market be abandoned. But some decision-makers in government and the industry want the state to reduce its spending on the Japanese market.

Some have suggested the tourism authority spend money on a promotional mission to the Mainland, rather than one planned for Japan.

The Hawai'i Tourism Authority and House Speaker Calvin Say had initially planned a Japan trip led by Gov. Linda Lingle within two to three weeks of the outbreak of war. The tourism authority is still evaluating the timing of the trip after Lingle and some Japanese tourism business leaders said it would be better to wait.

Haas dismisses the idea of a trip to the Mainland, which he said "doesn't have the same cultural background that requires that kind of mission."

The Hawai'i Tourism Authority, nevertheless, is planning as part of its war contingencies to spend 82 percent of its budget marketing to the Mainland and 18 percent to Japan. Haas said he expects the most immediate response to the marketing to come from the U.S. West region.

Since the war plan is a temporary strategy, what the authority does after the war may be more important for the long term.

For shops and companies that cater to Japanese tourists, there is still more than enough reasons for the state to continue investing in the Japanese market. They point to the higher-spending habits of the Japanese and the possibility of a economic rebound in Japan.

"The Japanese market has always been important," said David Uchiyama, Starwood Hotels & Resorts spokesman. "They come in, they do a lot of their shopping here — so it's not just here for vacation. They provide revenue in other areas of our local economy."

Japanese expenditures are down, but "I think all markets have spent less," Uchiyama said. "I think there is a decent balance between both the domestic and the Japanese markets."

While Mainland visitors who make up about 65 percent of all tourists will continue to get their share of attention, other parts of the world are drawing the attention of decision-makers looking to cultivate potentially large markets.

Theodore Liu, state Department of Business, Economic Development and Tourism director, could heighten interest in China with his knowledge of the tourism market there, just as the department's last director, Seiji Naya, often capitalized on his contacts in Japan.

Liu last week signed a memorandum of cooperation with the chairman of the Beijing Tourism Group and has been working on visa restrictions that have limited travel from China to Hawai'i.

Thate wants the state also to focus on Germany because Germans have seven weeks of vacation each year and former East Bloc countries have a pent-up demand for travel, he said.

And any shift in the market from the Japanese could also result in advantages for local residents, who have already seen tourism businesses roll out kama'aina discounts and special deals to counter declines in visitors.

"With the Japanese bubble there was a skewing of the market toward the Japanese customer," Carey said. Whereas in the past many retailers catered to Japanese customers, "if you're a local person going into Waikiki, suddenly you're going to be welcome."

Reach Kelly Yamanouchi at 535-2470 or kyamanouchi@honoluluadvertiser.com.