Raw Japan
Slices of Japanese business, politics and life
Deflation? Don’t blame me
The president of Aeon bristles at the suggestion that he’s partly the reason for deflation in Japan, as the country’s No.2 retailer and its rivals slash prices to snag yen-pinching shoppers.
“It’s stupid. They don’t know anything,” Motoya Okada told a group of reporters, when asked about a recent magazine article that criticised Aeon, budget fashion chain Uniqlo and other retailers for a price war that, the story argues, only hurts the economy by squeezing profits and wages.
“Japanese people are getting poorer and poorer. Unless their incomes rise, there’s nothing they can do about it,” said Okada, whose company has been marking down prices sharply to reinvigorate sales at its Jusco supermarkets and other general merchandising stores — all-in-one stores that sell everything from food to clothing to electronics.
Expressing frustration with accusations that he’s partly responsible for deflation, Okada reminisced about the good old days of barbecued eel, a traditional Japanese delicacy.
“Once upon a time, every supermarket’s fish section competed to sell barbecued eel, creating a new market,” he said.
“Before that, we could eat barbecued eel only at restaurants. But people became able to have it at home, it was a revolutionary thing. Do you call this deflation?” he said, adding that the same barbecued eel selling for around 2,000 yen at restaurants goes for about 400 yen at supermarkets.
“If we did this now, we would be accused of accelerating deflation and media would say it’s the end of the barbecued eel tradition,” he said.
Retailers do the limbo
For some of Japan’s retailers trying to jumpstart consumer spending, setting prices is like doing the limbo: How low can they go?
Japanese retailers reported mostly dismal first-half earnings results, with the industry stuck in a slump as shoppers remain reluctant to open their wallets even as the economy emerges from recession.
With no sales pick-up in sight, stores seem to have no choice but to continue their race to undercut rivals, with prices dropping for everything from cars to clothes to milk.
On the surface it sounds like a shopper’s paradise: Who wouldn’t mind paying less than 1,000 yen ($11) for a pair of jeans?
But it could also lead to a deflationary spiral in which consumers put off spending in hopes of further falls in prices.
And what’s more, these price cuts are slicing into already razor-thin profits at companies, which are then forced to pass on the pain to employees in the form of lower paychecks.
“It’s a death march,” said Junji Ueda, CEO of FamilyMart, Japan’s No. 3 convenience store chain.
Denim deflation
James Dean smouldered in his, the Marlboro men looked rugged in theirs, and now me and hordes of other Japanese people can feel frugal in ours. Jeans — practical, durable and with just a hint of rebelliousness — are at the centre of a price war in Japan, as struggling retailers look to lure cash-strapped customers back through their doors.
With the country slipping deeper into deflation and its jobless rate rising, shops have for some time been marking down almost everything from bags of cereal, to laundry detergent and bicycles.
But curiously it is jeans that have emerged as a symbol of this deflationary race as major retailers roll out dirt-cheap denim in bids to undercut each other.
Fast Retailing, which operates the Uniqlo casual fashion chain, started the phenomenon in March when it said it it would start flogging jeans for 990 yen (about $11) a pair at its g.u. stores.
Back then, this was widely seen as an astoundingly cheap offer — the price was around a quarter of some jeans sold at Uniqlo, a chain known for its competitive pricing. The 990-yen jeans drove up sales at g.u., which had suffered from little consumer recognition until that point.
And the move sparked a round of tit-for-tat discounting, that this week continued with supermarket operator Seiyu, a Japanese unit of Wal-Mart, starting to sell jeans for 850 yen. “We would like to keep our price leadership,” a Seiyu spokeswoman said.
The trend could also indicate that deflation in Japan is worse than government statistics show as this kind of price competition is not fully reflected in official figures.
Discounting Japan
As Japan’s economy slips back towards deflation, the country’s price-cut kings are raking it in. The latest Forbes wealthiest list for Japan was headed by those running companies offering discount clothes, discount shoes, discount broking, discount drugs – and for people without the funds to take advantage of all the discounts — a consumer lender at far-from-discount interest rates.
Forbes said the nation’s richest man was Tadashi Yanai, worth $6.1 billion and quarter owner of seemingly recession-proof clothing retailer Uniqlo. Yanai saw a $1.4 billion jump in his fortune after a huge surge in company shares despite the economy shrinking faster than it has in decades.
Masahiro Miki, founder of discount shoe chain, ABC Mart, Chizuko and Michio Matsui of the eponymous on-line brokerage, and the Kinoshita brothers of lender Acom, rounded out the small list of those increasing their wealth last year in the world’s No.2 economy, which appears to be going through its longest recession on record.
The Tada brothers, who run discount chain SunDrug, and Akio Nitori of the same-name discount home furnishing retailer also made the Top 40, as disposable income was disposed of ever more cheaply.
Overall, though, the pie of Japan’s 40 wealthiest shrank from $89.5 billion in May to $69 billion, Forbes said. Former Nintendo Chairman Hiroshi Yamauchi saw his fortune dwindle by $1.2 billion as shares in the maker of hit products like the DS and Wii tumbled, knocking Yamauchi from the top spot down to No.3.
Uniqlo has been called Japan’s Gap, although its total sales are far behind the U.S. giant. Nonetheless, Yanai’s wealth now exceeds that of Gap founder Donald Fisher and family, Forbes said.
PHOTO CREDIT: REUTERS/Stringer
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Resident Raw Japan Expert
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It sounds like a controversy to me. By the way is The Messiah coming?!