Global Economics

Japan's Ski Areas: The Next Investment Bonanza?


Resorts are being snapped up by investors who count on attracting older skiers and foreigners to the best snow and slopes in East Asia

A feature of Japan's economic recovery has been savvy investors making a mint by acquiring, sprucing up, and selling diverse assets ranging from failed banks to bunkered golf course operations (see BusinessWeek.com, 10/4/06, "Japan: Cashing In On Golf's Comeback"). Could ski resorts be the next big investment opportunity?

A couple of announcements in December suggest that might be the case. On Dec. 8, Citigroup Principal Investments Japan, a unit of Citigroup (C), acquired 12 ski resorts from Prince Hotels, a Japanese hotel group, for $52 million. A few days later Hoshino Resort, a Japanese resort operator with ties to Goldman Sachs, revealed it planned to spend around $119 million over the next five years to spruce up failed ski resorts acquired in 2003 and 2004. Goldman isn't participating directly in the deal, but has a joint venture partnership with Hoshino to help turn around 50 hot springs or onsen resorts in 2005.

More deals could follow. Prince Hotels, a big ski-resort operator, is eager to offer up more of its slopes. The group plans to sell another 13 resorts by the end of March, 2007. But perhaps more important is that ski resorts in Japan have the potential to be money-spinners if properly managed.

Bad Loan Leftovers

Indeed, just as investors like Goldman Sachs and Texas-based Lone Star Group, which has a stake in Japan's largest golf course operator, have made vast sums turning around troubled golf courses, new investors in Japan's ski resorts are convinced they'll strike gold on the slopes. "I'm confident we can get more people skiing again," says Yoshiharu Hoshino, president of Hoshino Resort.

One reason for the interest is that many operators made ill-judged investments in ski resorts at the height of Japan's real estate bubble in the late 1980s and early 1990s. While Japan's bad-loan problems are on their way to being resolved, ailing ski resorts are still available at reasonable prices, particularly if their owners must sell. Citigroup bought its resorts from Prince Hotels for $21 million less than their book value.

What's more, after years of under-investment, there's potential for improvement in the Japan skiing experience. Hoshino says that that many struggling ski resort operators have lost sight of who are their core customers. Rather than focusing on families and older skiers, most still target Japan's younger generation. That's not the smartest move in a country where 20.4% of the population is over 65.

Family Friendly

"It's amazing that most Japanese stop skiing after they get married and have a family because Japanese ski resorts are designed for young and single skiers," says Hoshino. "That is one of the main reasons why the popularity of skiing in Japan plummeted."

By investing to attract young and old at its resorts in Fukushima and Hokkaido, Japan's northern island, Hoshino says his company is already enjoying some success. At the Alts Bandai Resort in Fukushima, which it acquired in 2003, the company has installed daycare centers, enabling parents to ski while their children are being looked after, and family-oriented restaurants. As well as increasing visitor numbers that is also attracting a wealthier, bigger-spending demographic, helping get the resort back in profit, and giving Hoshino the confidence to make additional investment.

Hoshino adds that there is also room for improvement in the way many resorts are operated. For example, rather than have a single owner-operator, many Japanese ski resorts traditionally divide responsibilities between several companies. For instance, different companies might operate the ski lifts, accommodations, and restaurants, so decision-making can be painfully slow.

Bleak Leisure Prognosis

For all that, even proponents of Japan's ski business accept that domestic skiers alone won't be enough shake off the doldrums. According to the Japan Productivity Center for Socio-Economic Development, the number of skiers and snowboarders in Japan had fallen to 12.3 million in 2005, compared to a peak of 17.6 million in 1992.

Throw in Japan's demographics—the population began falling in 2005—and the fact that Japan's young professionals complain they don't have enough free time to spend on leisure, and the prognosis is bleak. "Taking a long-distance train to get to a ski resort doesn't fit people's lifestyle anymore," says Kosho Yamada, a professor specializing in the leisure industry at Bunkyo University in Kanagawa, just outside Tokyo.

Instead, foreign tourists, particularly from Asia, are expected to fill the void. The hope is that rising incomes in China and other fast-growing economies in Asia will grow a new generation of skiers. One big pull is that Japan is relatively close. Shanghai, for instance, is just a two and a half hour flight, while Seoul is even closer. Even for Australians, the Japanese Alps in Nagano are much closer than Europe.

Signs of Progress

Another attraction is the quality of snow on offer in Japan. The prime skiing regions of Nagano, Hokkaido, Niigata, and Fukushima offer perhaps the best snow and slopes in Asia. Despite catering to an estimated 3.2 million skiers, China's 180 ski slopes all use artificial snow. Taiwan has no ski resorts at all.

While it's still early days, there are signs of progress. The number of Korean tourists visiting Yamagata, a couple of hours north of Tokyo, has doubled in the last year. Most head for the Zao skiing and hot spring bathing resort. Meanwhile, the number of non-Japanese visitors to the Niseko skiing resort in Hokkaido has increased more than tenfold in the last five years. "As skiing becomes more popular in Asia, more people will think about coming to Japan for the better snow," says Hoshino. Investors in Japan's ski resorts will hope he's right.

Rowley is a correspondent in BusinessWeek's Tokyo bureau. Tashiro is a correspondent for BusinessWeek based in Tokyo.

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