Profiting from Japan's Long, Hot Summer

Barely three months after a 9.0 magnitude earthquake and tsunami rocked Japan, the island nation is well along in the difficult process of rebuilding. Now comes the latest challenge: a summer with minimal air conditioning. With the government intent on cutting energy use to avoid overtaxing eastern Japan's strained power system, many businesses and individuals say they will restrict the use of air conditioning during Japan's sticky summer season. The prospect is spurring demand for everything from sun-blocking goya vines to clothing fabric designed to wick away body sweat.

Sales of so-called green curtain kits, used to grow goya vines on trellises that block sun rays from a building's exterior walls, have jumped ninefold this year at Rakuten, Japan's biggest online retailer. Hitachi, the country's second-biggest private employer, is draping factories with the plants and handing out seeds to employees for use at home, a strategy that electronics maker Kyocera (KYO) is sharing.

Businesses are also looking at lots of ways to lower power use. Seven & i Holdings, Japan's biggest retailer, is installing LED lights at 5,000 of its 6,000 7-Eleven stores in Tokyo and surrounding areas, and solar panels at 1,000 units. And McDonald's Holdings (Japan) is recommending employees go on leave from Aug. 1 to Aug. 5 to allow it to shut most of its headquarters. Yet it's the prospect of a long, hot summer without air conditioning that worries many Japanese. "Our office will be like a steam sauna this summer," says Yasuo Kawada, a 59-year-old employee at a Tokyo-based office equipment maker. "We can't open windows. Coping will be tough."

One man's heat wave is another's business opportunity. Fast Retailing's Uniqlo casual clothing sales are surging after Tokyo Electric Power asked companies to set thermostats to 28C (82F) and reduce power use by 15 percent. The government's existing "Super Cool Biz" campaign, intended to reduce the need for office air conditioning by easing Japan's more formal office dress codes, is also pushing up sales of Uniqlo clothing that wicks away sweat. Toray Industries helped develop the cooling fabrics.

Fast Retailing, Asia's biggest clothing retailer, expects sales of chino pants to double and those of polo shirts to jump 50 percent this year, says Chief Operating Officer Naoki Otoma. "Wearing our clothes actually keeps you cooler than when you're naked," he says. Investors seem to agree: The company's stock has lost only 3.9 percent since the earthquake, compared with an 11 percent slide for the broad Topix index.

Graham Elliott, chief executive officer of MF Global FXA Securities (MF), attributes the extent to which Japanese consumers are willing to alter their lifestyles and purchasing habits so quickly in part to "the way the nation responds almost unilaterally in a crisis." That resolve will soon be put to the test. The quake's crippling of the Fukushima Dai-Ichi plant northeast of Tokyo and mandatory maintenance at other facilities mean only 14 of Japan's 54 nuclear reactors may be operating in August, according to Bloomberg calculations. Temperatures, meanwhile, have historically risen as high as 40C (104F) that month.

Sales of home appliances in April rose 19.7 percent from the previous year to 175.3 billion yen, led by a 79.6 percent rise in sales of energy-saving air conditioners, Japan's Electrical Manufacturer's Assn. said last month. Sales of fans rose 145 percent, to 454,000 units, and refrigerators rose 19 percent, to 370,000 units.

Aeon, the country's second-biggest retailer, forecasts its sales of electric fans should jump 50 percent, while sales of high-tech lace curtains that it says block 80 percent of ultraviolet rays will jump 20 percent. Aeon will also offer credit worth 200 yen to customers of its Jusco supermarkets who bring in power bills showing they've reduced use of electricity by at least 15 percent during July.

"It's hard to imagine we can resolve this power supply problem anytime soon," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute in Tokyo. "Still, little efforts multiplied a millionfold can help mitigate the impact." Shiseido, Japan's top cosmetics maker, is doing its part: It recently boosted shipments of its mint-scented Sea Breeze lotion by 30 percent.

The bottom line: With power supplies low, Japanese are bracing for a summer without air conditioning—and retailers are capitalizing on the opportunity.

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