Price Competition in Retail Market Fuelling Deflation

The Japan Times reported on Fast Retailing Co., the operator of the Uniqlo casual clothing chain, record profits and profit growth driven by low price fashion wear and customers campaigns.

Similarly, Seven and I Holdings Co., which operates the Ito-Yokado supermarket chain, posted a ¥218.3 billion operating profit for the March-November period, up 4.4 percent from the same term the previous year, although it expects its profit to ease by 11.3 percent to ¥250 billion for the full year to February.

In the recent months, price competition has intensified in many parts of the retail industry — apparel, furniture and food — which appears to have accelerated Japan's deflationary trend.

Young people jumped on jeans priced below ¥1,000. Fast Retailing surprised consumers last March by launching its g.u. jeans for ¥990 a pair, triggering a race to release lower-priced jeans with Aeon Co., Daiei and Seiyu Ltd., a wholly owned subsidiary of U.S. retail giant Wal-Mart Stores Inc.

In October, Don Quijote Co. also sold 30,000 private-brand pairs of jeans priced at ¥690 in five days.

The trend toward lower prices has now spread to other sectors.

In the furniture market, Nitori Co. started to cut its prices on an additional 400 items in October, after it began announcing a series of similar large-scale price cuts in May.

In the food industry, convenience store chain Lawson Inc. said it aims to boost its value line lineup, most of which are small cooked dishes priced at ¥100, to 1,000 items by April. Lawson's proprietary brand is sold at its Lawson Store 100 outlets and subsidiary Ninety-nine Plus Inc.'s Shop 99.

Shop 99 has seen quarterly growth since last April, bucking the trend at supermarkets.

But only a limited number of retailers are successful, and their successes did not benefit the overall retail market, where sales currently stand about 2 percent lower than the level posted a year earlier, said Taketo Yamate, a retail industry analyst at UBS Securities Japan Ltd.

"The situation is very severe. Current sluggish consumption does not come from withering sentiment but simply from decreasing incomes," he said. "Unless incomes rebound, we cannot expect a better outlook for consumption."

So will consumption rebound?

Yamate believes nationwide income is ready to bounce back by fall because overall overtime work, which he sees as an indicator moving six to 10 months ahead of the income movements, has already bottomed out and is likely to recover by spring.

Yet consumption is expected to recover slowly because the distributive share of labor shows a decline even when listed companies marked record profits from 2002 to 2007. This means, even if the economy recovers in the near future, it is not clear whether salary levels will go up, Yamate said.

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