Thrift trumps Abenomics as Japan shoppers stick to bargains
12/07/2013 10:07
* Spending per customer falls at major retailers * Shoppers unwilling to part with more cash as wages stay flat * Retailers aim to bump up unit sales as margins are pinched By Sophie Knight TOKYO, July 12 (Reuters) - Japanese apparel firm Fast Retailing Co Ltd 9983.T has a problem: sales are surging, full-year net profits are expected to rise nearly 28 percent but the customers thronging the stores of its popular Uniqlo brand are far too frugal for its liking. Prime Minister Shinzo Abe would also disapprove. Abe's aggressive economic stimulus measures, aimed at lifting Japan out of two decades of deflation, hinge on a pick-up in consumer spending, but eight months after its launch, "Abenomics" has yet to convince many Japanese to part with their thrifty ways. "Customers are clever - they want the more expensive items but they hang on to see if they get discounted," Fast Retailing Chief Financial Officer Ken Okazaki said. "Shoppers are buying at the cheaper end of our product lines, so spending per customer has fallen," he said after the company maintained its sales and operating profit forecasts for the year, knocking its shares 6 percent lower on Friday. Abe's policies have boosted Japan's benchmark Nikkei average .N225 by two-thirds since mid-November, cheering stock market investors who used their new-found wealth to splurge on luxury goods such as handbags from LVMH-owned LVMH.PA Louis Vuitton and jewellery from Tiffany & Co TIF.N . But wages have yet to show any real gains and overall consumer sentiment remains lacklustre. Consumer confidence weakened in June for the first time in six months, government data shows, and total cash earnings for Japanese employees were flat in May and April from a year earlier. Even the monthly pocket money Japanese wives traditionally give their husbands has fallen 3.3 percent from a year ago to 38,457 yen ($390), or just half of its 1990 peak, the latest survey by Shinsei Bank Ltd 8303.T shows. "They keep saying the economy is getting better but so far I haven't seen it reflected at all in my day-to-day life," said Ayano Sakuma, 33, a housewife who was shopping in central Tokyo with her son. "I've heard that things are supposed to be getting more expensive but as far as I can see goods are still cheap." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Abenomics' kimono effect: luxury up in Japan ID:nL3N0CW0BY Japan consumer mood slips, challenges Abenomics ID:nL4N0FG176 Uniqlo operator leaves profit forecast unchanged ID:nL4N0FG2KY Japan plans to switch inflation gauge ID:nL1N0FF04X ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> FALSE POSITIVES Abenomics has boosted revenues for luxury department store operators such as Takashimaya and Co Ltd 8007.T and J.Front Retailing Co Ltd 3086.T , but even they admit there is little evidence of a pick-up across the board. "Luxury brands, watches and jewellery have seen double-digit sales growth and have pulled up overall department store revenues," Shigeru Kimoto, managing director of corporate planning at Takashimaya told an earnings briefing last month. "But we can't see any strength in other parts of the consumer sector." Like Fast Retailing, the latest earnings reports by Japan's biggest retailers have been riddled with healthy figures that suggest stronger demand but which actually show weak consumer sentiment and entrenched deflation. Supermarket operator Aeon Co Ltd 8267.T and convenience store owner Seven and I Holdings Co Ltd 3382.T reported record high net profits in the March-May quarter, but growth was largely due to strong sales of their own-label goods which are often cheaper than branded items but carry larger margins. At 7-Eleven stores, the flagship chain of Seven & I, sales of its own-label items rose 30 percent for the quarter. Spending per customer, however, dropped 0.6 percent for the month of May. To avoid losing customers, Aeon said it would accept smaller profit margins on its house-brands and absorb the higher costs a weaker yen is wreaking on imports such as bread and ham. "We'll try to avoid passing higher costs on to retail prices," Aeon's Senior Executive Vice President Yoshiki Mori told an earnings briefing this week. The company's 9.8 percent profit increase was driven largely by its consumer credit operations and not its supermarkets. To boost the economy, the Bank of Japan has set a 2 percent inflation target to be reached within the next two years, but prices are still falling at a rate of 0.4 percent a year. Ironically, the prices of flat-screen TVs, long a symbol of Japan's deflation, are bucking the downtrend. Prices, however, are rising because manufacturers are willing to sell less to maintain their margins. Flat-screen TV prices fell more than 40 percent from late 2010 to 2012 after manufacturers such as Sony Corp 6758.T and Panasonic Corp 6752.T offered huge discounts to staunch a slide in sales caused by the drying up of government incentives. Demand remains weak, and with sales volumes now at less than one-tenth of their peak in November 2010, manufacturers have little to gain by cutting prices further. "We haven't seen any effects from Abenomics yet," said Hisashi Yamada, the executive in charge of corporate planning at Yamada Denki Co Ltd 9831.T , Japan's biggest electronics retailer. ($1 = 98.7400 Japanese yen) (Additional reporting by Nobuhiro Kubo, Ritsuko Shimizu and Izumi Nakagawa; Writing by Edmund Klamann; Editing by Miral Fahmy) ((edmund.klamann@thomsonreuters.com)(+813 6441 1841)(Reuters Messaging: Reuters Messaging: edmund.klamann.thomsonreuters@reuters.net)) Keywords: JAPAN RETAILERS/