Differences in Sword Prices Across International Markets

Introduction

When contemplating the beauty and art of nihon-to, perhaps most collectors would just as soon divorce themselves from the crassness that surrounds discussions of price. For most of us, collecting involves the allocation of our limited, or constrained, resources (cash and time) in a way which maximizes our utility (enjoyment). Unfortunately, in the maximization of our limited resources, price becomes an integral component of most collecting decisions-buy, sell, or hold- just as it does to the dealer trying to maximize his utility (return on investment). To make intelligent and responsible decisions which do indeed maximize our utility, collectors need both information and an understanding of the wide variety of macro and micro economic factors which determine national and international market prices, and the fluctuations in these market prices. In this article I will address the differences in sword prices across international markets, specifically, the differences in prices between the United States and Japan.

American Markets

A key feature of U.S. sword markets is that they are imperfect-information does not flow readily, consequently large price differentials exist between markets. Before I can begin to address the differences in prices, it becomes important to define the different types of markets which generate these prices. In the United States, we can define the following sell-side markets:

1. Wholesale market

This market can be further differentiated into:

1-A. "outsiders" selling to collectors and/or dealers

1-B. collectors selling to dealers

1-C. collectors selling to collectors

In the wholesale markets, as we move from market 1-A to 1-C, we see a decreasing spread between wholesale purchase prices and retail purchase prices. This spread results from differences in knowledge between the parties and the propensity of the knowledgeable to exploit this inequality. If a collector or dealer purchases a sword from an "outsider", the uninformed participant is at the mercy of the purchaser. The price depends on the knowledge, honesty, etc. of the collector or dealer, and the knowledge, willingness to trust, greed, etc. of the "outsider". "Beating the bushes", "out of the woodwork", and "hotel buys" are all euphemisms for buying at large discounts by purchasing from uninformed "outsiders". This is the market where juyo token are purchased for hundreds, rather than tens of thousands of dollars. In the past fifty years this has been the preferred market of both collectors and dealers alike. As the number of swords in the hands of these "outsiders" decreases, this market will shrink, driving up prices and forcing buyers to look in other markets. Also, with frequent advertising these individuals have become increasingly aware that these "souvenirs" can be valuable and this has also driven prices higher.

In 1-B, again, we see a price spread. Collectors selling to dealers know that the price a dealer pays is lower than the price the dealer will attempt to resell the piece at. We all know that dealers buy to sell; dealers try to buy low and sell high. However, the spread is again dependent on differences in knowledge between the parties and the propensity of the knowledgeable to exploit this inequality. Most collectors have no problem with a dealer making a "reasonable" profit. The definition of "reasonable" will of course vary greatly from collector to collector, and from dealer to dealer. Dealer margins are a frequent concern of collectors who don't want to "undersell" and an area where I will attempt to provide some information. Volume in this market continues to increase due the migration of swords from the hands of the "outsiders" to the "insiders".

In 1-C, while differences in sophistication certainly exist between collectors, I will assume in this case that the general level of knowledge is relatively the same among the active group of collectors that frequent the various sword markets (shows) in the United States. When transactions take place on a level field between collectors, it is usually at a slight discount to what a dealer would charge and at a small premium above what a dealer would pay. Here we see the smallest difference between wholesale sales price and retail sales price. Market volume is also increasing here, yet is still rather insignificant when compared to看 1-A and 1-B.

2. Retail market-dealers selling to collectors

The retail market, in general, generates the highest sales prices. Dealers have better access to price information. Dealers can maximize profits by functioning as "market makers"-they match their inventories, which are unique, to individuals searching for specific items. These individuals are willing to pay a "uniqueness" premium and compensate the dealer for his cost of doing business. As the number of swords in "outsiders'" hands decreases, the volume of sales on the retail market increases. Lately, for most collectors, this is the market where most acquisitions are made.

Japanese Markets

In Japanese markets, dealers are those individuals engaged in sword sales as a full-time profession with a place of business. Quasi-dealers are those engaged part-time or deal out of their homes through word of mouth. Some material differences exist between the Japanese and American wholesale markets; these are as follows:

1. Practically speaking, there are no "outsiders" in Japan; while not all Japanese are knowledgeable about swords, they almost all know that they can be very valuable, unlike most Americans. Consequently, market 1-A is almost nonexistent in Japan.看 When an unregistered sword is "discovered" by someone unfamiliar with swords, it is licensed, and if sold, almost without exception, it is taken to a dealer. I have witnessed this on numerous occasions at the monthly Ministry of Education licensing sessions. There is almost always an elderly individual with a rusty sword, found in the attic, wrapped in newspaper. When asked, usually they say they will call the local dealer to have it polished and sold. Secondly, valuable swords rarely suddenly appear. These two facts greatly reduce the opportunities for finding the widow and buying her husband's juyo token souvenir through a hotel buy.

2. Collectors usually sell through dealers. Collector to collector sales are fairly rare-it is perhaps too direct for Japanese sensibilities. A middleman protects both parties from disappointment, loss of face and other potential embarrassment. Often, pieces are sold on consignment through a dealer.

3. Dealer to dealer selling is highly organized and controlled in Japan. There are numerous private, dealer only, auctions and markets where large amounts of merchandise are exchanged. There are no organized, private dealer-only markets in the U.S. that can compare. Entrance to these markets requires a dealer's license (obtained through application to the police department) and an introduction from a current member. This is the minimum. Many private groups require large cash security deposits which function like surety bonds to cover the group should a member default on payment. Unlike U.S. auctions, where an item is payed for at the time of purchase, many of the private dealer markets don't require payment until a future date. This permits dealers to buy "on margin".

4. Because markets are much more organized, information is processed and transmitted with much greater efficiency. There are many sales catalogs which list prices along with pictures and descriptions. It is easy for anyone to subscribe. There are many shops which sell swords. One needs only to frequent these shops to obtain price information.

1. Wholesale Markets

Wholesale markets can be categorized as follows:

1-A. "outsiders" selling to collectors/dealers

1-B. collectors selling to dealers

1-C. collectors selling to quasi-dealers

1-C. quasi-dealers selling to quasi-dealers

1-D. collectors selling to collectors

Again, these markets are listed in order of decreasing spread between the wholesale purchase price and the retail purchase price. 看

2. Retail Markets

There are several types of retail markets in Japan:

2-A. Quasi-dealers selling to collectors

2-B. Dealers selling to collectors

2-C. Re-import dealers selling to collectors

Quasi-dealers usually get their merchandise through the private markets mentioned above. They cater to collectors on a budget-collectors who either can't or refuse to pay full retail price. The re-import dealers are those dealers that buy the bulk of their merchandise outside of Japan, exploiting the market inefficiencies between the U.S. and Japan, and then "re-import"看 to the Japanese market. There are several individuals in this business and they resemble the quasi-dealers in that they usually carry second class merchandise.

Pricing structures are noticeable different between 2-A and 2-B, with 2-C somewhere in between. Without the expensive overhead (rents, salaries, advertising, etc.), quasi-dealers can offer their merchandise at lower prices. In addition, they usually deal in items in less than perfect condition, of often times questionable authenticity, and/or of lesser quality. Dealers usually carry the very best merchandise-what I like to call the 3 P pieces: polished, papered, perfect.看 They have the best merchandise at the highest prices. The re-import dealers may or may not have significant overhead expenses, but they usually sell through catalogs and often rent exhibition space for "special sales".

Again, differences between Japan and the U.S exist. There are very very few full-time sword dealers in the U.S. that operate a retail shop. There are many in Japan. While there are many quasi-dealers in the U.S. (most in fact may be called quasi-dealers), the general level of knowledge, the access to information, and the organizational structure is inferior. Exporting to the U.S. is almost, but not quite, nonexistent, while there are thousands of swords being brought into Japan every year.

Prices

Now that the different types of markets have been identified, and the differences between U.S. and Japanese markets has been discussed, we are ready to look at differences in prices. Be aware that discussing prices of unique collectibles in general terms is perhaps impossible. What I would like to do is offer my observations, based on 14+ years of living in Japan. I have spent untold hours in swordshops across Japan. I have attended hundreds of kantei meetings were I have taken part in discussions of price. I have attended dozens of private, dealer-only auctions (I have a license), and I subscribe to four different monthly sales catalogs. I have bought swords from collectors, quasi-dealers, dealers, and re-importers. I have sold swords to collectors, quasi-dealers and dealers.

The selling prices of swords sold at the wholesale level, unlike the retail level, is difficult to document because it is generally not publicly available information. A few general observations based on my experience:

When a collector is selling a blade (all things being equal), in the U.S. and in Japan, private collectors will pay a higher price than a quasi-dealer. A quasi-dealer will pay a higher price than a dealer.

When a collector is buying a blade (all things being equal), in the U.S. and in Japan, private collectors will sell at a lower price than a quasi-dealer. A quasi-dealer will sell at a lower price than a dealer.

Comparing general sword wholesale price levels in Japan to those in the U.S., there are two trends:

1. Prices in general, and sword wholesale prices specifically, have dropped drastically in Japan over the past two years. This is true not only for swords, but for all assets. The so-called "bubble economy" of Japan in the late 1980's and early 1990's collapsed, sending stocks, real estate, and other assets plummeting. The Nikkei Stock Average (Japan's Dow Jones), once nearly reaching 40,000, has retreated to as low as 15,000.看 Swords, being a luxury item, have been especially sensitive to this change in economic conditions.

2. The prices of the 3 P swords (polished, papered, and perfect) hasn't dropped as drastically as the second rate swords. Top quality pieces tend to hold their value better through economic downturns.

With this in mind, I would estimate that on the wholesale side, prices in Japan and the U.S. for second rate pieces are fairly equal at the moment. This past year, in Japan, I have seen papered, mounted, jo-saku shinto blades sell at wholesale for prices in the $5,000-$8,000 range. Gendaito by Yasukuni smiths, as close to a commodity as you can find in the sword world, are fetching about $4500 in Japan.看 This compares favorably to prices I have witnessed in the U.S. of late. Signed, papered, polished, mounted pieces by upper-level smiths, say a ni-dai Tadahiro (Hizen-to are also as close to a commodity in shinto as you will find) wakizashi, are bringing about $10,000. These prices seem to be down 20-30% from a few years ago.

The big differences, in the past, were between retail prices and prices at both the retail and wholesale level for top-end pieces. This trend continues, though the gap isn't as great as it was a few years ago. Retail prices in Japan are between two and three times those seen in the U.S. For top end pieces, this can easily jump to four or five times those seen in the U.S. This is seen in all three retail markets in Japan: quasi-dealers, dealers, and re-import dealers alike.看 Again, using Yasukuni blades as an example: recently, a quasi-dealer offered a Yasukuni blade for $6,000; a dealer recently offered a similar blade for $7,000; and a re-import dealer was asking $8,000 for his Yasukuni blade.

Getting back to the issue of "reasonable" profits and dealer profit margins, it is clear that in Japan, retail mark-ups are very large. Retail mark-ups are traditionally high across the board in Japan due to the complex and inefficient distribution networks. For dealers with large shops in Ginza, high payrolls, and glossy catalogs, these large mark-ups are defensible. For dealers who have had both a low cost source of merchandise (i.e.,re-importers), and low overhead, profits have been very good indeed.

I believe it is a fairly accurate comparison to say that the re-import dealers in the past had an advantage when purchasing swords in the U.S. much like U.S. collectors and dealers had when buying from "outsiders". Most collectors in the U.S. even a few years ago could buy swords from "outsiders" for $100 to $500. These could be resold to re-importers for perhaps $1,000 to $5,000.看 Seemed like a great way to make some extra money. It was, but be aware that these re-importers sold these blades in Japan for $10,000 to $50,000 or more. Of course, things are a little different today, but not a lot.看 Does this represent an "unreasonable" profit? Remember, no one is forcing anyone to sell. Another point to be made is that few U.S. collectors will pay "the big money", while collectors in Japan will. I was shocked to see a shodai Tadayoshi katana, fresh polish, papers, etc. for sale in the U.S. last year for $25,000. There were no takers. I saw an almost identical shodai Tadayoshi for sale in a Tokyo department store several months later for $150,000 and it didn't last one day.

These days there are rumors that certain dealers are going out of business due to the extremely poor business conditions. It is also quite obvious that re-importers aren't paying as much as they did in the past at the various U.S. sword shows. Another change is the decline in quality of re-import swords. The good merchandise of yesterday has become increasingly hard to find. I have heard this comment from re-import dealers and collectors alike. It is clear that the economic slowdown in Japan and the decrease in quality in re-imported swords has had an effect on prices. Additionally, with the number of people using the internet to gather information and the increasing number of swords available on line, price differences have been pressured.

Conclusion

The wholesale and retail sword markets in the U.S. and Japan are different in several fundamental ways. Perhaps most importantly, Japanese markets are better organized and have a freer flow of information. Price information is much more readily available in Japan. Consequently, the lack of information and the imperfections in the U.S. market result in lower U.S. prices. Currency market fluctuations aside, lower U.S. prices have drawn speculators (re-importers) to the U.S. markets where they exploit these spot market price differences by buying low and selling high. Thousands of swords leave the U.S. every year as a result. One re-importer regularly receives Juyo Token on 5-6 re-imported swords per year.

A contributing factor is the propensity of Japanese collectors to spend freely for quality items. There is little hope of finding a "sleeper" in Japan, consequently, collectors harbor no hopes of saving a bundle by "beating the bushes".

While wholesale prices have come down in Japan to near U.S. wholesale levels (for average quality pieces), retail prices are still many times greater in Japan than in the U.S. Prices for top-end pieces, both wholesale and retail, are still many times greater in Japan.

U.S. collectors seeking to maximize utility would do well to cultivate collector networks when trying to buy or sell average pieces in the U.S. U.S. collectors seeking to sell high-end pieces might try to tap the Japanese wholesale quasi-dealer market, where several dealers sell on consignment through catalog sales. Furthermore, U.S. collectors wishing to better understand "Japanese Prices" might try subscribing to several of the sales catalogs published monthly by Japanese dealers and re-importers. This would raise the consciousness of collectors, improve market efficiency, and stem the flow of swords out of the U.S.