Archive for the ‘Retail’ Category

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.

Supermarkets finally get serious about shopping bags

Thursday, November 21st, 2013

A few weeks ago we were waiting at a checkout counter in an Aeon supermarket and placed in the basket one of those laminated cards that say you don’t need a shopping bag. When our turn came the cashier gave us a funny look and asked us if we really needed a bag for one item. We then read the card, which said that you should put it in your basket if you want a shopping bag.

Card saying bags cost ¥2 each

Card saying bags cost ¥2 each

We made a false assumption because we don’t usually shop at Aeon. The supermarket we normally patronize asks you to indicate if you don’t want a bag, and they’ll knock ¥2 off the total if you do. Apparently, that practice is now giving way to the opposite tactic: You have to tell the cashier if you want a bag, in which case they will charge you for it.

Aeon, Japan’s biggest supermarket chain, started this practice way back in 2007, and as of Nov. 1 every outlet follows the policy, which is ¥5 for an extra large bag and ¥3 for a large bag. Even Aeon’s discount food chain, MaxValu, has adopted the charge-for-bags policy. For that matter, so has every other major supermarket chain. Ito Yokado charges ¥2 per bag, Uny ¥5, Seiyu ¥2 for a medium and ¥3 for a large, and Daiei ¥3 to ¥5, depending on the size.

According to Sankei Shimbun, Aeon donates all the money it collects for bags to various environmental causes, while Uny donates half the money it collects. Saving the environment is what bag reduction is all about, though the government stresses it from a different angle than you might think. A study sponsored by the Environmental Ministry looked at the shopping bag problem in terms of resources. One bag requires 18.3 ml of oil and Japan uses 30.5 billion shopping bags a year, which is the equivalent of more than 600,000 kiloliters of oil.

The study also calculates that 967 shopping bags are given away every second in Japan, or the equivalent of 8.82 two-liter PET bottles of oil. The study says that shopping bags waste precious resources, which is of course a relevant situation in resource-starved Japan, though in most other countries the plastic bag problem is associated with pollution.

The main reason bags aren’t considered a waste problem in Japan is that they are routinely incinerated here. In America plastics generally are not burned, which is why the campaign against shopping bags is older, since most end up as landfill. Then again, more European countries are starting to burn plastic refuse, but they are also more strict about shopping bags. In Ireland, for example, a shopping bag will cost you ¥15, which is why there are almost none in Ireland any more.

Card saying no bags and it's ¥2 off your purchase

Card saying no bags and it’s ¥2 off your purchase

Refuse officials in Japan say there is no problem with burning plastic. Dioxin emissions are almost non-existent because Japanese incinerators use very high temperatures, an assertion some environmentalists are skeptical of. But in any case, people still use shopping bags and plastic bags mandated by local governments to dispose of household waste, and the real problem with incineration isn’t plastic but organic waste and kitchen scraps, which tend to be wet and thus require a lot more heat to burn up.

So while the bags themselves may not be a problem, what they contain is. San Francisco realized this and went beyond limiting plastic bags, requiring residents to dispose of organic waste in composting boxes, and it’s been a success.

So while every reduction helps, environmentalists belief that only limiting shopping bag usage isn’t enough. One person on the Internet (scroll down to commenter qqme9839) calculated that in 2009 burning garbage accounted for only 3 percent of all CO2 emissions. And since plastic constituted 45 percent of the garbage being burned, it created only 1.35 percent of the CO2 that was emitted that year. And since production of shopping bags in 2009 accounted for 0.55 percent of all discarded plastic by weight, that means plastic bags’ contribution to CO2 was 0.075 percent. Reducing people’s reliance on shopping bags is a good thing, but it’s not the only thing.

Where’s the beef? Japanese taste buds dictate processing methods

Wednesday, November 13th, 2013

Something to chew on: Packages of fat-injected processed beef in a supermarket

Something to chew on: Packages of fat-injected processed beef in a supermarket

Thanks to the hotel restaurant menu scandal, even food retailers’ product descriptions have come under scrutiny. Internet mall Rakuten received the biggest black eye, though it appears to have been for a genuine mistake and not because of a planned deception. To celebrate its baseball team’s Japan Series victory, Rakuten held a bargain sale that marked some prices down as much as 77 percent, but in several cases the markdowns were carried out so sloppily that a whole digit was lost. For instance, an A5-grade, 550-gram “steak set” that normally sells for ¥18,400 was marked down to ¥1,000, which is a lot more than 77 percent.

The sale price was supposed to be ¥10,000, but somehow one of the zeroes didn’t make the transition. Rakuten received lots of complaints and had to apologize again (having already suffered the same mistake over boxes of cream puffs) and fork out refunds, but anyone who knows anything about Japanese beef prices should have realized that ¥1,000 for Tosa-bred wagyu (Japanese beef) had to be an error.

Increased scrutiny, in fact, has revealed that many indications for beef, whether sold in restaurants or in stores, while not being technically deceptive are less then forthcoming. Aera reports that one Hokkaido beef wholesaler has been cited for misrepresenting its wares, calling some of its items “beef” when it should be labeled “processed beef” (kako-niku).

The closer attention to wording was probably fallout from the menu scandal, in which Osaka’s Shin-Hankyu Hotel was found to be at fault for listing processed beef as “beef steak,” which it is not. The Kintetsu Hotel restaurant, awarded a star by Michelin, sells processed beef as wagyu steak for a whopping ¥6,300. Even Takashimaya department store’s “beef filets” were found to be processed. A steak or filet is a cut of meat that has not been changed in any way, but many meat sellers take cheaper cuts of beef and inject them with fat to give them the marbled effect that Japanese people prefer.

In the West, the adjective “lean,” which implies less fat, is considered a positive attribute for beef, but wagyu is characteristically streaked with fat, which means it has a richer flavor and is more tender. Generally speaking, the beef that Americans, Australians and Europeans eat is considered by Japanese to be tough and difficult to chew. Thanks to improvements in feed grains in the early 90s, American producers developed softer beef for the Japanese market, which is why so many fast food chains prefer using cheaper USA beef.

Most Australia beef sold in Japan has been processed, meaning that fat has been added. Some store cuts that look like steak may even have been “molded” (seikei). Different pieces of meat are “glued” together to make what looks like a steak and then injected with fat. A friend of ours who once had a job promoting “Aussie Beef” in Japan said the joke among his Australian colleagues was that “Japanese really don’t like the taste of beef,” since to Australians real beef is chewy and has no fat.

It should be noted that the reason beef is chewy is because the cattle is more muscular, in other words healthier than cattle that has more fat. Australian cattle are typically raised on the range where they eat grass, while in Japan and America the cows are penned up and fed grain (and lots of antibiotics to fight the infections that such a diet gives rise to). Also, range-raised beef is not as susceptible to BSE (mad cow disease).

Restaurants and retailers are required by law to indicate that their meat is processed, but the print tends to be tiny and obscure. This could cause problems, however, since ingredients used to process the fat can include dairy and soy products, which many people are allergic to. Parents of at-risk children know to look for the fine print, but restaurants are supposed to ask customers if they have any food allergies when people call on the phone for takeout. If the person says yes, then “real” beef will be substituted for the usual processed kind.

In stores, however, it’s quite easy to determine which meat is real and which is processed without having to squint. Just look at the price. According to Asahi Shimbun, one kilogram of unprocessed grade A3 (highest: A5) Japanese sirloin is at least ¥5,000 per kilogram, whereas one kilogram of processed sirloin is between ¥1,400 and ¥2,000. Seikei cuts of meat are only ¥700-¥800 per kg. What’s interesting is that while fat-injection has been a common practice since the early 1980s, it was always thought of mainly as an economic measure. The purpose was to make beef affordable on an everyday level, but the Asahi reports that many restaurants now say that their customers prefer the taste of cheaper processed beef to more expensive genuine cuts of beef, even when that genuine beef is sufficiently marbled.

Government wondering how to tap burgeoning ebook market

Saturday, October 12th, 2013

No waiting

No waiting

It’s official. The consumption tax goes up to 8 percent in April, and the government is anxious to plug any loopholes. The most bothersome one is for ebooks. Though domestically sold ebooks, meaning those distributed by Japanese vendors from physical addresses in Japan, are already taxed, those sold from overseas are not, and the tax bureau is wondering how to correct this problem, especially now that the price gap between an ebook purchased from a foreign-based agent and one purchased from a Japan-based seller will widen, thus setting up a disadvantage for the latter. Market research company Daiwa Soken reports that in 2012 the government missed out on ¥24.7 billion worth of tax revenues from the purchase of ebooks from abroad.

Legally, sales transactions that occur outside of Japan are not subject to consumption tax, and the place of the transaction is determined by the address of the seller. So if you go to Amazon.co.jp and look at various books, you’ll notice that those which are sold by Amazon Japan have consumption tax included in the price, while ebooks sold by Amazon Services International do not. What the government wants to do is change the law so that the place of the sales transaction is not the place of sale but rather the place of usage, a tactic that some American local governments have tried with regard to sales tax. But sales taxes are paid at the retail stage, while consumption taxes are incurred at every step of distribution, so a Japanese importer adds the tax after the item arrives in Japan.

If a customer in Japan buys the book directly from overseas, no tax is imposed, but when the law is changed customs could add it because the imposition location is the user’s address, not the seller’s. However, since ebooks, as well as music tracks and software, tend to be purchased over the net it’s more difficult to monitor, if not downright impossible.

According to Tokyo Shimbun, the Finance Ministry’s plan is to strike deals with tax agencies abroad so that the consumption tax is added on when sales are made. Overseas sales companies who do business in Japan would have to register with the Japanese tax bureau. For large-scale companies with widespread presence in Japan and sales units overseas, like Amazon and Rakuten, which in 2011 bought the Canadian ebook seller Kobo, that shouldn’t be a problem, but there are dozens if not hundreds of smaller content vendors who will fall through the cracks.

Already, some Japanese language ebook sellers and other net vendors have set up operations overseas to exploit this loophole, thus causing concern for domestic companies like Yahoo Japan, whose president compared such competition to a boxing match in which Japanese companies “have to fight opponents who are three weight classes above them.” Eight percent can make a big difference, especially since Japanese ebooks tend to be priced high anyway compared to ebooks in other countries.

In that regard, buyers of non-Japanese language books have an even greater advantage in Japan, since Japanese publishers still enjoy government-sanctioned fixed prices for all first-sale books and magazines, regardless of when they were printed. Japanese bookstores cannot set their own prices and industry distribution rules discourage remainders. With the rising popularity of ebooks in the West — 20 percent of all books now sold in the U.S. are electronic as opposed to 8 percent in Japan — print books have actually benefited since people can seek out remainders and used books through Internet sales agents, and usually they purchase them for less money than an ebook, even with shipping included. That’s not the case in Japan, except for used books. But if Japanese ebook sellers set up agencies abroad they can corner the market.

RSS

Recent posts