For Nomura's shoe-leather sales force, an uncertain future after Covid-19

For years Nomura Holdings Inc has relied on an army of retail salespeople to peddle stocks and bonds to investors sitting on one of the world's largest pool of household savings, generating revenue even in the bleakest of markets.

But since the Covid-19 pandemic put a stop to in-person sales calls, Japan's biggest brokerage has lost a key advantage and its 7,000-strong sales force now faces an uncertain future.

The crisis has only deepened concerns about the viability of Nomura's business model, which is more reliant on retail broking than rivals. It's also being squeezed as online brokerages draw younger investors.

For the last several years, Yorio Sawamoto, a 69-year-old small business owner in Osaka, has been trading with Nomura. Now he's trading less frequently and refuses to place large orders over the phone.

"As an amateur investor, it's really tough to take the plunge and spend the money if you don't meet with the salesperson," Sawamoto told Reuters. "When it's just on the phone, for some reason you get wary. You end up wondering, 'Is what this person is telling me really true?'"

Investors like Sawamoto can mean big business. Japanese households hold a staggering 1,903 trillion yen ($17.8 trillion) in assets, around half of which is in cash or in bank savings.

The shift to telephone sales has made it harder to establish a connection with customers, said one Nomura salesman who has been with the firm for around 20 years, adding that last month he made just 60% of his monthly sales target.

"We were like actors in front of customers, but now we are like radio DJs," said the salesman, who, like other current and former Nomura employees, spoke on condition of anonymity. "It's really hard to sell products with only our voices."

Japan lifted a state of emergency last month but the salesman said he was still largely stuck at his office because customers don't want to meet.

Nomura declined to comment.

Meeting face-to-face helps put customers at ease, one Nomura saleswoman said.

"One time my customer noticed I was using a pen with a Disney character on it. The customer also turned out to be a big fan, and we got caught up in a Disney conversation," she said.

"Stuff like that seems trivial but it's hugely important."

The customer eventually bought 10 million yen ($93,000) in bonds and investment trusts, she said.

Another salesman said telephone calls made it awkward to deal with customers who had lost money on the market. In such cases, he finds it impossible to convey enough sincerity when apologising over the phone, leaving him to fear he might lose customers.

Despite a global reputation for investment banking, Nomura is better known in Japan as a brokerage, and its clout overshadows rivals such as Daiwa Securities Group.

Retail on average accounted for 39% of its pre-tax profit over the last five years, compared to 28% of recurring profit at Daiwa and 22% of recurring profit at smaller Mizuho Securities Co Ltd, according to Reuters calculations from filings.

Nomura's strength comes from a "shoe-leather" culture that stressed going out to meet customers and was instilled with an almost military discipline, according to one former employee.

The former employee recalled being told there were only two acceptable answers to requests from superiors - "yes or yes".

Online threat

Even before the coronavirus, the face-to-face retail model was under pressure from online brokerages, said Chizuru Tateno, a director at S&P Global Ratings.

Therefore, it's even more crucial that Nomura and other brokerages adapt to change after the pandemic, she said.

SBI Holdings Inc, Japan's largest online brokerage, surpassed Nomura in number of accounts for the first time in March, as more people appear to be trading from home.

Nomura's retail revenue in April was down around 20% from the average of the first three months of this year. May was similar to April, CEO Kentaro Okuda told Reuters last month.

Nomura and other brokerages may need to reduce their sales staff or cut salaries if the trend continues, said Yusuke Maeyama of NLI Research Institute, a think tank.

Michihiro Yamashita, a 48-year-old owner of an izakaya pub, has had an online account at Nomura for more than 10 years and has never used in-person sales.

"Not only are transaction fees much cheaper for online trading, but you can now get a lot of information yourself online," he said.

"Who needs a salesperson?"