Archive for the ‘Retail’ Category

The price is right, but sometimes difficult to read

Sunday, April 27th, 2014

Do the right thing: this supermarket tells customers that all prices indicated include the consumption tax

A quick survey by the Ministry of Internal Affairs and Communiciations has revealed that the average price of goods and services, excluding “fresh produce,” since the consumption tax hike went into effect April 1 has increased 2.7 percent, which sounds about right since the hike itself was 3 percent. When the consumer price index is announced next month, the ministry projects that it will be 3 percent higher than it was a year ago, so everything is going as planned.

Of course, that’s the word from on high. Here in the real world, meaning in the stores where we all shop, the situation isn’t that clear-cut.

Some consumers will notice that prices have gone up much more than what they would perceive as 3 percent, while some prices have actually gone down, and many prices have stayed the same.

CONTINUE READING about post sales-tax prices →

Consumption tax hike projected to increase appeal of electronic money

Monday, March 24th, 2014

The ones: You'll be seeing more of these guys in the near future

The ones: You’ll be seeing more of these guys in the near future

Last month the national mint intensified production of ¥1 coins in anticipation of the consumption tax hike on April 1. The Ministry of Finance wants 26 million of them manufactured by the end of March, and then another 160 million after the start of the new fiscal year. Once the consumption tax goes up from 5 to 8 percent, retailers will need more small change.

With a 5 percent tax, it’s relatively easy for stores to limit their use of coins since they can set prices based on multiples of 5. Maybe it’s possible to do that with multiples of 8, too, but not right away, and many fear they will not have enough ¥1 coins on hand when the tax hike goes into effect. An employee of the nationwide ¥100 shop CanDo told Asahi Shimbun, “Altough we sometimes receive ¥1 coins in payment from customers, we don’t recycle them as change to other customers, but now we’re trying to hoard as many as possible.”

If the consumption tax increase is an inconvenience to retailers, it’s even more of a pain in the neck for the government, since it costs between ¥2 and ¥3 to make a ¥1 coin, which is 100 percent aluminum. It’s the first time the mint has produced ¥1 coins on anything approaching this scale in four years. It will also produce an extra 100 million ¥5 coins, just to be safe. The government doesn’t want to relive the small change panic that happened in 1989, when the 3 percent consumption tax was first introduced.

CONTINUE READING about the consumption tax hike's effect on e-money →

Tax structure encourages getting wasted

Monday, March 3rd, 2014

Zero's not in it: Selection of Suntory chuhai at discount store

Zero’s not in it: Selection of Suntory chuhai at discount store

There’s no end to speculation as to how the consumption tax increase in April will affect the country, socially as well as economically. Last week, Tokyo Shimbun published a conversation between a college professor and one of its reporters about the effect on beer prices and, in turn, beer consumption, which last year declined for the ninth year in a row.

When the reporter asks the professor about this effect the professor feigns amazement that the reporter, who specializes in tax matters, didn’t know that “42 percent of the price you pay for your beer is already tax.” He goes on to explain that the beer tax is a holdover from the 19th century, when beer was considered a luxury item. Since then it’s become much more the drink of common people thanks to improved and cheaper refrigeration, but the government liked the revenues too much and maintained the tax structure for beer. To the professor’s thinking, the tax should be pegged to alcoholic content, and since beer’s is relatively low the tax should also be lower than it is for other alcoholic beverages.

It’s easy to get people to pay the tax since it isn’t indicated on the package or even at the place of sale, unlike the consumption tax. For the sake of reference, when you buy a 350-ml can of beer you pay ¥77 in tax. If you bought the same volume of whiskey you’d pay ¥129 in tax; shochu ¥70, nihonshu ¥42 and wine ¥28.

Basically, that means the consumption tax is levied on a tax, since the consumption tax is determined by the price that the wholesaler and retailer pays for the product, which, by the time they receive it, already includes the alcohol tax that is levied at the manufacturing stage. “When the government said they’d increase the consumption tax, people got angry,” says the professor. “But no one says anything about the alcohol tax, because people don’t notice it.” The reporter thinks that a “tax on a tax” violates the principle of taxation. The professor doesn’t disagree, and adds that beer accounts for half the revenues brought in by the alcohol tax. Because beer makers are large companies with responsible accounting practices, it’s easy for the Finance Ministry to collect the tax. The reporter says, “Why don’t manufacturers get angry?”

Actually, that’s why they started making the “beer-like” happoshu in the late ’90s. Because the ingredients used in happoshu are different from those that define beer for tax purposes, the beer tax doesn’t apply, and so makers could sell it at a much lower price. The government, of course, didn’t like that and eventually raised the tax rate for happoshu, too, though not as high as it is for beer (¥46 for a 350-ml can). Makers came back again with dai-san (third type) beverages, which use fermented soybeans for flavor instead of hops, and that got around the happoshu tax (¥28 for 350-ml). But while these new, cheaper brews outsold “real” beer handily, sales for all three beverages have still decreased over time, due to the shrinking population and a younger generation of consumers who don’t drink as much as their parents did.

In that regard, beer makers don’t see much of an impact of the consumption tax hike on beer and beer-like beverage sales; or, at least, they don’t see any point in trying to offset the hike. But they are modifying their lines of canned drinks that contain shochu, colloquially called chuhai. As the price of chuhai goes up thanks to the consumption tax, they are increasing the alcohol content. In fact, many companies have already added more alcohol to their chuhai products.

Kirin Beer increased its Hyoketsu Strong from 8 percent to 9 percent alcohol, and in April it will boost its Hon-shibori Lime chuhai drink from 6 to 8 percent.

Asahi Beer is already advertising its new Karakuchi Shochu Highball, which is 8 percent, in a bid to persuade normal fans of high balls — whiskey and soda — to switch to shochu and soda. That’s a full 5 percentage points higher than Asahi’s other chuhai, Slat, and both beverages will be sold for the same price. (Note: Slat is aimed at young women and the word suggests slimness, though an English speaker may be forgiven for thinking the name an unfortunate choice for such a target group.)

Suntory’s chuhai product, -196 Degrees C Strong, which enjoyed a 22 percent share of the chuhai market in 2012 thanks to its already hefty alcohol content, will be strengthened from 8 to 9 percent. The company told Asahi Shimbun that it expects sales to grow by 8 percent.

The target is middle-aged and elderly men, the main demographic for alcoholic beverages anyway. Makers think they will be attracted to the cost effectiveness, according to the Asahi, which means they can “get drunk more easily” for the same amount of money. In many countries, tax on alcohol is referred to as a “sin tax,” since it has a double-edged purpose: raising revenues on a product or service that may be harmful to society, on the one hand, and on the other checking consumption of the harmful product or service by making it more expensive.

This latter purpose doesn’t seem to apply in Japan, where alcohol companies have figured out a way to use the tax structure to their advantage. There’s no sin in that.

Consumption tax rush approaching peak time

Tuesday, February 18th, 2014

Curb your enthusiasm: Don't rush out and buy an aircon to beat the tax hike since it will probably be cheaper afterwards anyway

Curb your enthusiasm: Don’t rush out and buy an aircon to beat the tax hike since it will probably be cheaper afterwards anyway

Retailers continue to enjoy good business in the runup to the consumption tax hike on April 1, but some are a bit anxious that consumers may not understand the situation sufficiently. Tokyo Shimbun visited a few Tokyo department stores where the rush to buy is especially intense, causing them to post clarifying announcements to head off any attendant disappointment.

At Isetan, these notices are posted prominently in the furniture and bedding sections, as well as the eyeglass section, meaning departments where people order merchandise and then take delivery later. As one Isetan employee explained to the paper, the consumption tax is applied on the day of receipt of merchandise, not on the day it was ordered or even on the day it was paid for. A good portion of department store sales are order-made products, and the notices are cautioning customers to make sure they understand the date their stuff will be ready to pick up, otherwise they may end up paying more than they thought they would.

Keio department store is telling all its customers about the rule so that “there is no misunderstanding.” Daimaru Matsuzaka, near Tokyo Station, has seen sales of order-made men’s suits climb to 14.4 percent higher than last year, a new record, but the closer they get to March the more nervous they are since some suits take longer to make than others. Takashimaya in Nihonbashi is apparently the most conscientious department store, posting very detailed explanations in all its sections that insist the earlier you order something, the more likely it will be you can avoid the extra 3 percent charge.

However, a related article in the weekly Aera says that consumers shouldn’t worry that much, since there’s a good chance people will buy something now to avoid the tax hike only to end up paying more. Some retailers are not as straightforward as the above-mentioned department stores, using the rush as a means of getting customers to sign up for credit cards in order to compound their savings without realizing that in the end they’ll probably have to pay handling fees that will negate such savings, unless they happen to be frequent patrons of the store, in which case they probably already have a card. The magazine interviewed a few housewives who plan to make big purchases ahead of the tax hike.

One woman says she is going to buy all new household appliances, while another in her early 30s will buy baby shower and wedding gifts for friends who will celebrate these happy events in the near future, but as she said, “often these gifts go on sale in July, so I don’t know if I’m actually saving money by buying them now.”

A financial planner told Aera that it may be a mistake to buy some big ticket items now. Air conditioner sales, for instance, tend to be their lowest in March, which is between the cold and the hot seasons. That’s also when manufacturers put out new models, which means last year models will be quite cheap, so he advises to wait. Even after April 1, the price could be considerably less than they are now, even taking the tax hike into consideration. But automobiles and home improvement work, he says, should be ordered right now, if it already isn’t too late, because they require time before final delivery and there are no bargain sales associated with either. For mini-cars (kei jidosha), in particular, now is the time to buy since next year the car tax for buying one will increase by 50 percent.

In the end, here are items that Aera recommends buying now to beat the tax: household appliances; over-the-counter drugs that can be stored for long periods, like aspirin; gold, since the purchaser can buy at a lower tax rate and sell at a higher one; theme park tickets; long-term commuting passes and train tickets in bulk (kaisuken).

Items that Aera doesn’t recommend buying now: PCs and TVs, because they always go on sale; apparel and accessories, which tend to be much cheaper during semiannual bargain sales; real estate and stocks; gems and platinum, which, unlike gold, are more vulnerable to price fluctuations; and everyday necessities like toilet paper, which people all over the world tend to buy up whenever there is some sort of financial panic.

Special K: Mini-cars come of age in a maxi-world

Sunday, January 26th, 2014

Thinking inside the box: Honda's N-WGN

Thinking inside the box: Honda’s N-WGN

The nationwide used car dealer, Gulliver, recently set up a new venture called Gulliver Minicle, which deals only in kei-jidosha, often referred to as minicars in English, though here we like to call them K-cars, which make up a separate class of automobile. The engine displacement can’t be more than 660cc, and they were developed in the ’60s and ’70s for people with limited incomes.

When K-cars first appeared the engines were as small as 360cc, and have always been a point of contention for the U.S. automobile industry, which describes them as a “non-tariff trade barrier” because taxes for K-cars have been much less than they are for regular cars and thus are deemed as being unfair competition for infamously larger American cars — though it should be noted that U.S. automakers have tried to sell compacts in Japan.

K-cars have always had one glaring drawback. Because the engine is so small, they have to be light, and that means they are less safe. Consequently, families don’t buy them; or, at least, they didn’t until recently.

Gulliver’s launch of a retail entity that only sells used K-cars shows that there must be a viable market, since K-cars are already cheap and Japanese people aren’t big used car buyers. So far there is only one Minicle, in Morioka, and it has about 50 cars on display divided into three sizes: S, M and L, like apparel.

According to an article about the store in the Asahi Shimbun, there really isn’t much difference in the sizes, but the designations appeal to women, who are now the main target demographic for K-cars. There is even a play space in the store where kids can relax while mom is shopping for new wheels.

Gulliver is already planning Minicle stores in Hokkaido, Tohoku, Kyushu and the San’in region, and by 2018 expects to have about a dozen throughout Japan, mainly in the vicinity of regional capitals and not so much in the big three metropolitan areas.

In December, the Japan Light Motor Vehicle and Motorcycle Association estimated that 2.1 million K-cars would be sold in Japan during 2013, a new record. In contrast, sales of all other cars amounted to about 3 million. So while sales of minicars increased by 4.8 percent over 2012, sales of other cars decreased by 5.3 percent.

As a portion of all car sales, Ks increased by 2.4 points to 39.3 percent. The only other automotive sector that showed more growth was foreign (read: German) cars, whose sales increased by 9 percent, also a record. And in terms of production by Japanese automakers, 40 percent are now K-cars.

The obvious reason for the popularity of minicars is their price, but they’ve always been cheap. It’s their reason for existing in the first place. Some say that people bought them last year because the K-car tax is set to be eliminated sometime this year, but a more likely reason is increased safety and functionality.

More than a year ago, Daihatsu started selling a new version of its Move model that uses sensors to automatically reduce speed when it gets too close to the car in front of it. Though it’s offered as an option at ¥50,000, more than 80 percent of the buyers order it. In succession, similar options were added by Suzuki to its popular Wagon R model, for ¥42,000, and by Honda to its N-WGN model.

A Honda representative told Asahi that since 64 percent of K-car drivers are women, this option was incorporated specifically to attract them. A good portion of K-cars are bought as second cars, for shopping and shlepping the kids around. In the past, these women bought compact cars, but they’re switching over to Ks.

Nissan and Daihatsu have upped the ante by also offering windshields that cut ultraviolet rays, something else women demand. In addition, K-cars now have much roomier interiors than in the past and larger cargo areas. In truth, there isn’t much difference, performance-wise, between a K and a standard compact.

Which is why the U.S. is even angrier than before, because that makes the so-called trade barrier even higher to scale. Due to regulations and consumer sentiment, K cars aren’t marketable in America, and the Big 3 automakers aren’t going to manufacture them only for one market, but that could be changing. India seems ravenous for K-cars and Suzuki is quickly setting up factories and joint ventures on the sub-continent.

Some experts say that the U.S. Trade Representative’s gripe about Ks is actually a means of keeping pressure on other sectors, generating leverage to open Japan’s agriculture and insurance markets more, for example. Also, it gives the American government an excuse to maintain its own tariff to protect the U.S. truck market from low-priced Japanese imports.

McDonald’s smells the coffee: Limited expectations are here to stay

Friday, December 27th, 2013

Fill 'er up: Customer using self-service coffee maker at 7-11.

Fill ‘er up: Customer using self-service coffee maker at 7-11.

If the central point of Abenomics is to boost prices and thus wages and consumption — the old “raise all boats” metaphor — then to a certain extent the plan has succeeded over the last year. Consumers don’t seem to be fixated on cheap goods and services any more, though, to be honest, it’s difficult to tell if this willingness to spend more is a function of anticipation for April’s consumption tax hike. But for the time being there seems to be that old desire for high quality stuff, regardless of how much it costs; which isn’t to say consumers aren’t looking for cheap things, only that they aren’t making it a priority any more.

This paradox seems to have had a bad effect on the fortunes of a company that some once thought was invincible: McDonald’s. Since August, the fast food behemoth’s Japanese operation has had to lower its sales projection for fiscal 2013 twice. Profits are expected to be around ¥5 billion, or a whopping ¥6.7 billion lower than originally thought. Sales have decreased five months in row, with the number of customers dropping for 7 consecutive months. The company is telling the media that the reason is “no hit product” this year, thus making it sound like a PR failure, but according to Asahi Shimbun, and almost every other Japanese media that has reported the story, McDonalds’ poor showing seems to be more systemic, an indication of a sea change in consumer sentiment.

The company’s response has been to bring in new blood. Sarah Casanova, a Canadian, was appointed president of McDonald’s Japan last summer, and, again, it seems to be more a matter of an image makeover. The announced new strategy is to target women as a demographic, since it is younger females who have tended to resist McD’s charms the most during its two straight years of falling revenues. The plan reinforces “healthy menu” items, which to a company like McDonald’s means offering more things with chicken in them.

Though it doesn’t sound like much, it’s actually quite a turnaround. When the previous president, Eiko Harada, was appointed in 2004 his big move was pushing the so-called ¥100 Mac, the cheap hamburger that was always going to be McDonald’s mainstay, and it worked. For the next six years profits grew.

The next big coup was ¥100 coffee, which effectively challenged coffee shops and coffee chains like Starbucks. Then the company made over their restaurants with more attractive decor. These various gambits were predicated on boosting the brand, but actually it was the price and the speed of service that mattered to customers. People buy McDonald’s hamburgers not because of the taste or the atmosphere, but because they’re cheap, and the same went for the coffee, which was pretty good considering but not as good as Starbucks, for what it’s worth.

To make matters worse, McDonald’s raised prices in the past year, thinking that the economy justified the change, and in a way it did, but people don’t think that way about McDonald’s. They aren’t willing to pay more for fast food, no matter how well it’s presented or how nice the decor is.

In the era of Abenomics, that means any competition can eat into McDonald’s sales more easily. Just as McD stole customers away from Starbucks when it launched its ¥100 coffee, now convenience stores are taking business away from McD with their own cheap coffee. About a year ago 7-11 put self-service coffee machines, which grind beans and brew coffee while you wait, in 16,000 stores, and by September they had sold 200 million cups. It only costs ¥100, and other CS have followed suit, though Lawson’s coffee is a bit more expensive at ¥150.

The market has grown so much that the consumer report magazine Nikkei Trendy named convenience store coffee the #1 hitto shohin (hit merchandise) of the year. It should be noted that Japan is a formidable coffee market, number 4 in the world in terms of consumption — 50 percent more than green tea, in fact. Even sushi restaurants are now serving fresh coffee. More significantly, 7-11 reports that its new coffee service does not subtract from other in-store coffee-related sales, such as canned coffee or chilled pack coffees. It’s simply gravy.

But someone has to lose in this equation, and it seems to be McDonald’s, which has a lot to lose. After all, ¥260 billion, which is McD’s projected revenue this year, is still a great deal of money. The problem is that McD is associated with hamburgers, whose traction on the Japanese imagination has always been tentative. Older people don’t really eat them as much, and Japan, as everyone knows, is the fastest aging society in the world.

Also, the tendency to eat out is becoming weaker in Japan as the population ages. Restaurant sales have decreased by 20 percent since they peaked in 1997. The weekly magazine Gendai, in typical hyperbolic fashion, has predicted the end of McDonald’s in Japan after reporting that the company will have closed 160 outlets by the end of this fiscal year.

Postal employees carry extra burden during the holiday season

Thursday, December 5th, 2013

Until around 2000, the custom of sending nengajo, or New Years greetings, to friends, family and business associates was widespread in Japan, but since then it has become less so. According to Japan Post, mail carriers delivered 3.7 billion New Years cards in 1999. That number dropped to 2.6 billion in 2012. More significantly for JP, which is in the process of being privatized, the organization sold 4.2 billion cards in 1999 and 3.3 billion in 2012.

Hard sell: New Years postcard display in Kyobashi post office

Hard sell: New Years postcard display in Kyobashi post office

The 22 percent drop in sales shows how much business JP has lost over the last 13 years, since nengajo account for 10 percent of JP’s total postal-related business. In fact, JP depends on sales of New Years cards to make up for the loss in other areas. But look at that other statistic, the one showing how many cards were actually sold, and a question has to arise in your mind: Why is there such a huge gap between the number of nengajo sold and the number delivered? What happened to the 700 million cards that were sold but not delivered in 2012?

It’s a question Asahi Shimbun attempted to answer in a recent article about the practice known as jibaku eigyo (suicide bomber sales), which many employees of Japan Post resort to at this time of year. One of the reasons sales of New Years postcards (nenga-hagaki) is so high is that almost all employees of the postal service sell them. They have quotas, and while there are no written stipulations that require employees to meet their numbers, it’s tacitly understood that their future in the company is jeopardized if they don’t.

Many employees sell cards they can’t otherwise sell to kinken resellers, those storefront operations that buy things like railway tickets and store coupons and then resell them at prices slightly below their face value.

For years postal employees have dumped their remaining postcards at kinken shops rather than return them to their supervisors. And since they receive less than the ¥50 face value for each card, the employees lose money, because they don’t earn commissions from the cards. They have to return to JP ¥50 for each card they sell.

JP frowns on the practice, not because it’s illegal, but because it looks bad, especially since JP plans to become a listed company sometime in the near future. A public relations person told the Asahi that the company is “aware” that many employees sell their unsold postcards to resellers, as well as through Internet auction sites, and have deemed such practices “improper.”

This year they plan to crack down on these practices, which shouldn’t be too hard. Every nenga-hagaki has a lottery number printed on it. After New Years JP conducts a drawing and people who have received postcards with winning numbers can redeem them for prizes (a custom that will be covered in a future Yen for Living post). All a supervisor has to do is record the lot numbers of the postcards he or she assigns to an employee. If any of those cards end up in kinken shops, JP will know who sold them.

Some employees end up spending even more money trying to confound this countermeasure. Asahi talked to one non-regular mail carrier from Central Japan who traveled all the way to Tokyo with more than 3,000 cards to sell them to a kinken shop in the capital, because he thinks the chances of him getting caught will be less. Also, kinken shops in Tokyo pay more for nenga-hagaki than shops in the Chubu region. Still, even after he sells them he stands to lose ¥40,000 on the deal, and that doesn’t even count the cost of his train ticket. A Nagasaki-based employee sent 4,000 cards via express package delivery to a kinken shop in Hokkaido, thinking it was far enough away to be safe.

The size of the quota depends on the job description of the worker: Quotas are higher for regular employees than they are for non-regular and part-time employees, but since non-regular salaries are so much lower than those of regulars, the burden may be greater. Since they are employed on a semi-annual contract basis, many non-regulars believe that their contracts won’t be renewed if they fail to meet their quotas.

Supervisors have higher quotas than their subordinates, but supervisors are usually older employees who already have a solid base of established customers, which are mostly friends and relatives anyway. Also, supervisors have time to carry out sales activities in front of their offices or in public places during normal work hours. Mail carriers are always making deliveries, so they have to sell their cards on their own time. Some quotas seem ridiculously difficult to fulfill.

According to an internal document that Asahi got ahold of, each regular mail carrier in Saitama City is required to sell 7,000 cards a season, which starts on Nov. 1 with a media blitz. The section chief in a Western Japan branch has to sell 13,500. For non-regulars, the burden is anywhere from 1,000 to 5,000 cards, usually depending on their respective branches’ sales figures in the past. Employees told Asahi of how they were browbeaten by supervisors to sell more cards, with one saying that he was accused by his boss of “robbing JP” because he hadn’t sold enough. Japan Post has said that employees should report supervisors who exert “unfair pressure” on them to sell cards, but it seems no one has done so.

Some quit, while many others simply dump the unsold cards in their closets and absorb the loss, which is why the holidays are anything but happy for postal employees. In any case, nobody the Asahi talked to said they sold all of their cards. When the reporter asked an officer of one of the labor unions that represent postal workers if the union isn’t doing anything to counteract the quota system, he replied somewhat bizarrely that JP has to maintain sales in order to survive.

Though sales quotas have always been part of postal employees’ jobs, they used to be fairly low and manageable. But since JP’s privatization bid the quotas have skyrocketed, mainly because people aren’t sending as many cards as they used to.

In a survey conducted by Internet news service J-cast, only 58 percent of respondents said they planned to send out nengajo this year, with 19 percent saying they would send more than a hundred cards, 22 percent sending out 50-100 cards, and 36 percent sending out less than 50. Twenty percent said they had no plans to send cards at all this year.

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