While the Japanese economy has been slow to come out of the downturn, it seems that business conditions in the country have turned the corner and are now on the up.
Growing global demand has put Japan’s export-dependent economy on the slow track to recovery and the Bank of Japan was last month able to ease its monetary policy to fight deflation.
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Significantly, figures out later this week are expected to show that production returned to growth last month – although unemployment is expected to remain steady at 4.9%.
While the business community remains cautious, the Tankan business sentiment survey for March, released last week, indicated the least pessimistic view of the economy since September 2008.
However, weak domestic demand and deflation remain key risks – not least for Japan’s retailers.
Consumer sentiment remains weak as fear over job security and declining household incomes has prompted a prolonged period of belt tightening.
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By GlobalDataRetailers have responded to wavering consumer confidence by embarking on a period of intense competition on price.
The likes of AEON and Seven & I have embarked on a series of aggressive price cuts and adjusted their sales mix with the expansion of cheaper own-label discount ranges. This weekend Ito-Yokado launched a massive half-price sale in response to Aeon’s plans for a similar campaign on items close to their expiry date.
While such measures have resulted in greater sales volumes, they have also driven a decline in yen-sales and sharpened the deflationary environment.
According to data from the Japan Chain Stores Association, released on Thursday (22 April), supermarket sales in the market fell for the 13th straight year, dropping 4.4% to JPY12.7trn (US$136.49bn).
To put this in some context, this is the first time in 21 years that total sales in the sector have fallen below the JPY13bn-mark and, in a further sign of the poor health of Japan’s retailers, the drop in comparable sales outpaced the overall decline.
The latest stats also suggest that the decline is continuing apace and, in March this year, sales fell faster still, dropping 6.6%.
The Japan Chain Stores Association – which represents 64 supermarket operators – cited unseasonable weather as a factor contributing to the accelerated decline in the month.
Nevertheless, while the weather and the economy will – eventually – improve, the long-term outlook remains gloomy for Japan’s retailers.
The real issue driving down supermarket sales in Japan is the structural problem of an ageing and shrinking population.
There is now a greater proportion of elderly people in Japan than anywhere else in the world, while the proportion of children under 15 is also the lowest globally. Declining retail sales are simply a reflection of the shrinking market. And – despite the Japanese government’s best efforts – this trend does not look likely to reverse in the near-term.
Many Japanese retailers have responded to this issue by looking further afield to drive top line growth, investing in establishing an oversees presence.
However, while the sector’s major players battle for a larger slice of a shrinking pie at home, the Japanese retail market will not return to rational pricing and deflationary pressures will continue to intensify.
