Japan’s government steps in as spending plummets

Japan’s government last week laid out plans to plough an extra ¥10 trillion (£68.2bn) into attempts to stimulate its ailing economy.

Retail sales have been a big victim of the country’s economic travails and fell to their lowest levels for seven years in February.

Japan’s finance minister Kaoru Yosano has labelled the economic crisis the worst since the end of the Second World War and retailers face tough trading as the traditionally cautious nation seeks to save and not spend.

Japanconsuming.com editor Roy Larke warns: “In 1998 we saw the peak of savings in Japan reach 20 per cent of household income. I will not be surprised if it exceeds that this time.”

Larke believes that the fiscal stimulus will do little, at least in the short term, to help galvanise retail sales significantly.

To encourage shoppers to spend in their stores, Japanese retailers are beginning to compete more readily on price – something not traditionally done in that market.

Last summer one of the country’s biggest retailers, Seven & I, launched a new low-price format. Called The Price, it has performed well and Seven & I now expects to convert about 140 of its stores to the fascia.

The retailers with the biggest non-food operations face the most difficult outlook. Planet Retail analyst Robert Gregory says: “Diverse non-food operations are dragging down Japanese retailers.”

Larke says: “Good retailers will still get people through the doors but the older department stores, for example, will not.”

Gregory believes another problem that many Japanese retailers have is that they have been slow to expand overseas so cannot benefit from a presence in stronger international markets.

However, some non-food businesses, such as Fast Retailing’s Uniqlo chain and Muji, have established an overseas arm and have recorded some of the best figures. “We are not likely to see a Japanese Tesco just yet,” concedes Larke, but he adds: “Uniqlo has finally begun to introduce more fashionable lines and in a recession people are turning to them because they are reasonably priced.”

One advantage that Japan’s retailers might have in the global downturn is that the country is no stranger to economic troubles. Gregory says: “Japan has been in the doldrums for about 15 years, in almost permanent recession.” 

This is likely to mean that the more forward-thinking retailers are best equipped to navigate through the slump.