Archive for the ‘Retail’ Category

With refrigerators, bigger is better in more ways than you think

Wednesday, June 19th, 2013

High end: a 603-liter refrigerator with a five-star rating and 244 percent energy efficiency that uses ¥5,500 of electricity a year

High end: a 603-liter refrigerator with a five-star rating and 244 percent energy efficiency that uses ¥5,500 of electricity a year

Over the past decade or so our diet has changed slightly. We almost never eat meat at home and have gradually eliminated most dairy products. Consequently, the volume of food in our refrigerator has decreased over time, and since we bought it in 2002 it is already considered obsolete, inefficient even. Refrigeration technology has improved markedly in the past 10 years to the point that devices made now use as little as one-fourth the amount of energy used by an equivalent sized refrigerator made in the ’80s or ’90s. And since we are contemplating moving sometime in the future we decided it might be a good idea to buy a new, smaller model when we do in order to take advantage of this greater efficiency.

So we went to our local discount electronics store and looked at all the models. Of course, smaller refrigerators cost less than larger ones, but when we looked at the energy consumption specifications we became confused. The bigger the volume of the refrigerator, the less energy it used. In some comparisons the difference was startling. If you look on the inside of the main compartment door of a refrigerator there is a sticker with the pertinent specifications, one of which is the average amount of kilowatts the appliance uses in a given year when operating continuously. We saw one 500-liter model that used only 40 percent of the energy that a 350-liter model used. The manufacturers make the comparison even easier by printing the average amount of money you will pay in electricity for a year on the outside of a given model. Moreover, there are star ratings, from one to five, that indicate energy efficiency in relative terms, with five stars indicating the most efficient.

We asked a salesman if there was a smaller refrigerator that was as efficient as a large one and he quickly said there wasn’t. The difference he said was that larger refrigerators used inverters to control the operation of the compressors in a smoother fashion, while smaller refrigerators used conventional compressors that simply went on and off to control interior temperatures. The inverter, however, also makes the refrigerator itself more expensive. When we said our present refrigerator was 415 liters and that we wanted something smaller, he said rather presumptuously, “I can tell you which size you need.”

Since we aren’t newlyweds and found his manner condescending we decided to look into the matter ourselves. The star system is administered by the Energy Conservation Center of Japan, a government organ, and is based on the energy savings achievement rate (sho-ene taseiritsu) established by the 2006 Energy Conservation Law. The unit used for comparison’s sake is Annual Performance Factor, a means of measuring energy efficiency. In order to come up with an efficiency rating, the ECCJ currently uses “the most efficient product” on the market in terms of energy consumption in 2010. The efficiency percentages on the store sticker are based on APF and thus only indicate relative values. For instance, an energy efficiency finding of 110 percent means that the model is 10 percent more efficient than the 2010 model chosen by the ECCJ as the standard, and which is not publicly disclosed. The stars are more or less a means of making these comparisons even easier. However, comparing refrigerator prices against money saved on electricity bills may require a certain algebraic capability that most consumers don’t possess or, if they do, probably don’t want to bother with.

Conventional compressors, which use electricity and chemicals to cool the interior of the refrigerator, turn off when the desired temperature is reached and then turn on again when the temperature rises above that level. It takes a lot of energy to turn a compressor on. The inverter works on a kind of fuzzy logic principle. It keeps the compressor working all the time but at variable levels, using less energy in the process. It also produces much less noise since conventional compressors tend to get loud when they start up again. That’s why an older refrigerator, or a smaller new one, suddenly kicks into high gear whenever you open the door. An inverter will add at least ¥20,000 to the price of a refrigerator, and according to one website we saw electronics manufacturers don’t think people will buy smaller refrigerators if the price is above a certain threshold, so they don’t bother putting inverters in them.

Of course, some people simply think that the small-big energy-saving paradox is a scheme by these manufacturers to compel consumers to buy refrigerators that may be too big for their homes or their needs, since profit margins rise almost exponentially with the price of the unit. If that’s the case then it seems to be working. Last year, the only household appliances whose recycling rates increased were air conditioners (up 0.8 percent) and refrigerators (2.7 percent).

Bargain sales aren’t always what they appear to be

Wednesday, May 1st, 2013

Half price today or twice as much tomorrow?

Half price today or twice as much tomorrow?

On April 25 the Consumer Affairs Agency sent notices (pdf) to 12 nationwide retailers regarding sales of frozen foods. The CAA thinks that the way these sales are advertised purposely misleads shoppers and thus violates the Price Indication Law. The cited stores, which include supermarkets, drug stores and discount chains not named in the media, have regular bargain sales on frozen foods at savings of 30 to 50 percent off “the manufacturers’ suggested retail prices,” but as the CAA points out there is no such thing as a price suggested by the manufacturer when it comes to food. In essence, the stores are “fabricating” discounts.

Frozen food bargain sales have been commonplace for more than decade. In fact, every supermarket and discount drug store has them. They take place on a weekly basis, usually Tuesdays or Wednesdays, and regular patrons thus come to expect them, which means they rarely buy frozen food the rest of the week.

What the CAA is pointing out is that these retailers have convinced shoppers that on those days when frozen foods are “half-price” or “one-third-price” they are cheaper than they “normally” are, but what is normal in this case? The CAA only seems to have cited retailers who use the phrase “suggested manufacturers’ retail price” (kibo kagaku or kori kagaku) in their ads, but even those stores that don’t use the phrase are being cagey with the semantics: Half of what price?

According to the business magazine Toyo Keizai, wholesale prices for merchandise sold in supermarkets and discount drug stores are determined through negotiations between individual retailers and their suppliers, and no retail reference prices are mentioned, must less “suggested,” by the respective manufacturers. Traditionally, bargain sales are carried out to clear excess inventory, but that’s not the case here.

For all intents and purposes the ostensible “sale” prices are the standard ones, since the bulk of a store’s frozen foods are sold on those specified sale days. It’s the other days, when the products cost twice as much, that are the exception. The reason this strategy is applied to frozen food is because consumers are more willing to buy frozen food in bulk since they can be kept for long periods of time in the freezer. So on sale days, shoppers buy more frozen food than they would if there were no bargain sales; it’s just that they do it only once a week.

Uniqlo has applied this same strategy to clothing. Last year the chain expanded its weekly bargain sales from two days to four. Previously, the weekly sales took place on Saturday and Sunday, but now sale periods also include Fridays and Mondays, which means there is a “bargain sale” four days a week. But if you look at the matter a different way, you could simply say that on those four days Uniqlo is selling merchandise at their normal price and on the other days it is selling it at “premium prices.” It’s all in the terminology, and the thinking.

Deflation watch: gyudon

Monday, April 15th, 2013

Before the fall

Before the fall

Good news for beef lovers. On April 10 gyudon (beef bowl) chain Yoshinoya announced it would cut the price of its standard namimori serving by ¥100 to ¥280 starting April 18. Sukiya, the No. 1 gyudon chain, was selling its namimori version for ¥250 until April 12, and No. 3 in the race, Matsuya, was doing the same thing until April 15.

At the press conference where Yoshinoya made the announcement, company president Shuji Abe told reporters that Yoshinoya felt it could not reach its desired sales target “with prices as they are,” and since “price is the biggest factor affecting sales,” they decided to cut it by more than a fourth. Though Yoshinoya’s two rivals are ending their own price-cut campaigns this week, they carry them out on a fairly regular basis, so it’s likely they will react in kind to the announcement.

In reporting the announcement, the Asahi Shimbun reporter remarked that, although consumers will certainly appreciate the lower price, how can Yoshinoya hope to make a profit after such a drastic cut? Moreover, what does the move say about the government’s strategy of boosting inflation? Yoshinoya’s Abe stressed that the business environment has become “even more difficult” owing to the decrease in the yen’s value, which makes importing beef more expensive. But he also said that the company will still be able to turn a profit because it plans to import even more beef and thus can expect cheaper wholesale prices now that the regulations with regard to beef imports have changed.

In 2004, imports were restricted due to the BSE scare, but those restrictions have now been lifted, and beef from older animals can be sold in Japan. In addition, Yoshinoya plans to cut its retail personnel by “making the work routine in restaurants more efficient.” So even if the prices for the main product drop by 25 percent, according to company projections based on past experience the number of customers should increase by 30 percent, and if that happens sales will increase 15 to 20 percent.

A food industry analyst pointed out something else to the Asahi: Fast food in general has become cheaper in the past 10 years or so, and consumers have just become accustomed to the fact. There seems to be an upper limit to what they will pay, and chain businesses know this. What that means is that these businesses will fall into a permanent state of price competition, even as the cost of ingredients goes up. That means personnel costs will not rise; if anything they’ll have to be cut. And restaurants that don’t belong to chains will be squeezed out. For a while Yoshinoya tried to compete in terms of quality and selection by adding new products to their line, but obviously they’ve abandoned that strategy and returned to price competition.

This is not the kind of outcome the government wants, but consumers have become so used to lower prices they probably won’t spend more except for basic necessities, and the retailers who can keep their prices down will make profits through volume. Much has been made in the media of how department stores are suddenly enjoying better sales, but their customers tend to be people with larger amounts of discretionary income through investments in stocks and foreign currencies, both of which are going up. Such people spend their windfalls on expensive watches. They are not representative of the general public, much of which still decide their spending regimens based on wages and salaries, and despite the government’s hopes and efforts those aren’t likely to rise any time soon.

Japan has become a nation of coupon clippers and bargain hunters. It’s a hard habit to break.

Convenience store companies boost employee income, engage in one-upmanship

Thursday, March 14th, 2013

No raises here: Recently shuttered convenience store

No raises here: Recently shuttered convenience store

If Prime Minister Shinzo Abe’s plan to boost inflation and the economy along with it is to succeed, companies will have to raise employee salaries and wages, otherwise there will be no increase in consumer spending. Earlier this week, a number of automotive companies and electronics makers said they would go along with this plan and announced bigger bonuses, seemingly as a gesture of support for Abe’s scheme. However, one company got the jump on all of them, the #2 convenience store chain Lawson. The company’s president, Takeshi Ninami, who happens to also serve on the government’s Advisory Panel on Industrial Competitiveness, said earlier this month that employees “in their 20s to their 40s” would be eligible for a pay hike of 3 percent, or one percentage point higher than Abe’s inflation target.

Ninami told Nihon Keizai Shimbun that Lawson employees in this age group account for 70 percent of the company’s workforce. It should be noted that the vast majority of Lawson employees who interface with the public, meaning clerks at Lawson’s stores, are not eligible, since they are either hired by the franchise owners or, if the store is company-owned, employed as part-time help (arubaito). Ninami admitted this to Nikkei, but said that Lawson would try to “secure higher incomes” for these workers by implementing “activities to increase profits for our franchisees, starting in March.”

In response, Seven and i Holdings, which runs the No. 1 convenience store chain 7-11, and Family Mart, which operates the No. 3 chain, will also boost pay to stay competitive, since there’s a danger some of their regular employees might bolt to Lawson if they don’t. Ostensibly, however, or at least according to Tokyo Shimbun, the convenience store industry believes it needs to support the Abe plan because retail “is very close to the consumer” and thus must provide an example that could help open tightly closed wallets. Because convenience stores have continued to do well even during the recession, and retail workers tend to be paid less per hour than workers in other industries, CS companies need to take the lead in the hope that other distribution-related firms will also increase wages and, as a result, boost consumption in general.

Domestic consumption accounts for 60 percent of Japan’s GDP. That’s why Abe stood in front of the Japan Business Federation (Keidanren) and two other business associations in February and bowed deeply, asking them to increase salaries. They reacted “cautiously,” saying that the business situation is “still difficult,” but Abe probably expected that. He made sure cameras were there to record it so that the public would know that he was trying and other business leaders might be shamed into going along. Then Ninami, who is basically part of the Abe team, announced Lawson’s wage plan. In addition, Family Mart announced its wage hike right after economic reconstruction minister, Akira Amari, told reporters that he hoped the company would do exactly that.

Specifically, Lawson will increase bonuses for 3,300 of its 3,500 regular employees for an overall 3 percent boost in employee income. The 54 group companies of Seven & i Holdings comprise 53,500 regular employees, who will receive a “base up“ — meaning all affected receive a uniform raise — in addition to regularly scheduled individual salary increases (teikishoku) based on position, age and number of years at the company. Family Mart will give 2,700 of its 3,100 regular employees a 1.5 percent raise in teikishoku and a 0.7 percent bonus increase.

As Tokyo Shimbun points out these measures are mostly cosmetic. Since more and more workers are non-regular employees of the people they work for, there is no chance for a boost in inflation unless they get wage increases as well, and except for Ninami’s vague promise to “increase profits for franchises,” no one has said anything about non-regular and part-time workers, including major media. To give some idea of the scale involved, there are more than 13,000 7-11 franchises and 400 company-owned stores; the respective breakdown for Lawson is about 9,300 to 1,000; and for Family Mart its 7,500 to 450. Franchise employees are paid by the franchise owner, not the company whose name is on the store.

Uniqlo not as different as its workers thought it would be

Thursday, March 7th, 2013

Stock til you drop: Uniqlo branch in northern Chiba

Stock til you drop: Uniqlo branch in northern Chiba

The highest ranking Japanese person on Forbes’ most recent Billionaires List is Tadashi Yanai, the president of Fast Retailing Co., which operates the huge discount clothing chain Uniqlo. Yanai placed 66th on the list with $13.3 billion. His inclusion in the world’s most prestigious business magazine’s prestigious list is appropriate in that Fast Retailing has promoted an image of being more internationally oriented than other major Japanese companies, with its insistence that management be fluent or at least conversant in English and employment policies that have resulted in one of the highest percentages of female management of any company in Japan. When recruiting new talent, Fast Retailing pushes its global outlook and hints that ambitious new employees could see themselves transferred to Paris after only 18 months on the job. Consequently, the company has became a top draw for university graduates, who see it as a forward-looking company that rejects the insularity Japanese firms are known for.

Coincidentally, the weekly economics magazine Toyo Keizai recently ran a cover feature critical of Fast Retailing titled “Hihei suru shokuba” (“The worn-out workplace”). The article describes the company as a different sort of employer than its image would have you believe, dwelling on labor practices that follow all the worst stereotypes of Japanese corporations. Apparently, this isn’t news. Fast Retailing is suing Bungei Shunju for publishing an unflattering book about the “Uniqlo Empire,” asking for ¥200 million in damages and halting sales of all remaining copies. Toyo Keizai seems to have gotten Uniqlo’s cooperation up to a point. In addition to talking to a number of former and current employees (anonymously, of course), they interviewed executives who gave them some startling statistics, such as the turnover rate. In 2007, 37.9 percent of all new regular employees quit the company within three years. This portion rose to 53 percent by 2009. Moreover, 43 percent of employees who take sick leave cite mental stress as the reason. It’s common for new grads to become disillusioned with company life, but that’s pretty high for a company with Uniqlo’s appeal.

The problem is the workload. Company policy prohibits (more…)

Annals of cheap: Don Don Down on Wednesday

Wednesday, February 27th, 2013

We all know Japanese people prefer new stuff — new homes, new rice, new prime ministers every 12 months — which may explain why the used clothing business isn’t as big here as it is in other countries. According to the Asahi Shimbun, 50 percent of discarded used clothing in America is recycled, either commercially or as contributions, and the portion in South Korea is 80 percent. In Japan, it’s only 20 percent, meaning that the rest is simply trashed. But that may change with the advent of a new model for used clothing stores.

Don Don's website

Don Don’s website

Don Don Up Co. Ltd., headquarted in Morioka, Iwate Prefecture, opened its first used clothing store, called Don Don Down on Wednesday, in Hachinohe, Aomori Prefecture, eight years ago. The company now commands a chain of 60 outlets nationwide, with more to come. Don Don, an onomatopoeic word expressing a process of steady progression, came up with an ingenious pricing system that not only saves the company overhead and personnel costs, but draws customers on a weekly basis by turning shopping into a “game,” as its promotional literature puts it.

All the merchandise is affixed with price tags, but the tags don’t display yen amounts. Instead they have pictures of fruits and vegetables, 10 in all. The pictures represent prices, which range from a high of ¥5,250 (i.e., ¥5,000 for the item plus 5 percent consumption tax) to a low of ¥105. These prices are listed on charts alongside their corresponding symbols and posted throughout the store. The price tag on a particular item never changes as long as it remains in the store.

The charts are changed weekly. For instance, this week, perhaps, all the strawberry items cost ¥5,250, but next week, all the remaining strawberry items will be priced at ¥4,200. Each week, the line of a particular fruit or vegetable goes down one pricing rank until it reaches ¥105. The following week all the items previously priced at ¥105 are removed from stock and exported to Southeast Asia in bulk, which means no item stays in the store for more than ten weeks. The weekly price changes take effect on Wednesdays, thus explaining the name of the store. Not surprisingly, that’s the day they do their biggest business.

This system adds a touch of drama to the shopping experience. If a customer likes a particular item she can buy it right away or take a chance and wait til the following week when it’s cheaper, but then she risks the possibility that someone else will buy it. The president of the company told Asahi, “I want our customers to enjoy shopping as if playing a game. I wanted to change the image of the used clothing store, which tends to be dark.”

At first, the scheme was to try to replace the inventory as often as possible to keep people coming, but that meant changing price tags on a continuing basis to weed out unpopular items. It wasn’t until management hit on the fixed price tag system that they figured a way to not only streamline operations but make the process interesting for consumers.

As for procuring merchandise, Don Don’s method is similar to Book Off’s, Japan’s pioneer in used merchandise, which boasts 900 outlets. It bases the price it pays for a book on its condition and then places a seal on each volume that indicates how long is has been in the store. Every book that remains on the shelf for three months automatically gets reduced to ¥105.

When those don’t sell, they’re pulped. With the exception of some brand items, Don Don buys clothing from anyone by the kilogram: ¥500 for “very popular” items, ¥50 for “popular” items, and ¥10 for “useful” items. And they pay 50 percent more on Mondays and Thursdays. More significantly, they refuse very little that is wearable, since they can always sell it, again by the kilogram, to wholesalers in Southeast Asia. Just like produce.

Deflation watch: Retort curry

Thursday, January 24th, 2013

Just add rice.

The newly elected Liberal Democratic Party government and the Bank of Japan have set an inflation target of 2 percent as a means of reviving the economy. It’s a plan that has been met with as much skepticism as approval, but what sort of impact will it have on the average person? According to an analysis in the Asahi Shimbun, inflation has only exceeded 2 percent several times in the last 25 years. In 1989, when the consumption tax went into effect, and 1997, when the tax was raised, consumer prices spiked for obvious reasons. In the early 90s, after the bubble burst, it went up due to an increase in the global price of oil, but during that period wages also went up by 4.8 percent, so the increase wasn’t that noticeable. In the summer of 2008, just before the subprime crisis, consumer prices went up by 2.4 percent, also due to a rise in energy costs, but wages actually decreased by 0.3 percent. It’s this dynamic between consumer prices and wages that determines how the public “feels” inflation. According to Japan’s Tax Bureau, the average income of salaried workers in 1997 was ¥4.67 million, and in 2011 it was ¥4.09 million. In terms of total money, Japanese salaried employees earn ¥25 trillion less than they did at the peak of the bubble era. Some of this loss in buying power has been offset by the attendant decrease in retail prices. Anyone who lived in Japan during the bubble will tell you that consumer prices were very high, especially when compared to those in other countries, so the subsequent drop doesn’t seem unnatural.

All of which is to say that we plan to post occasional observations about price changes over time as a means of putting Abenomics — whose core strategy is to boost inflation — in perspective. First up: retort curry, meaning prepared curry topping in a pouch that is heated in a pan of boiling water. Except for noodles, it’s the most common instant meal in Japan and there are dozens of retort curry product lines. The volume of a single serving package is usually 200-210 grams, with higher end products topping out at ¥300 retail per piece. However, above the ¥100 price line, there really isn’t that much difference from one brand to another except maybe in terms of meat volume.

Below ¥100 is where the competition lies, and in that price range the most representative brand is House’s Kariya. Though the recommended retail price is ¥120, after the turn of the millennium Kariya usually retailed for about ¥98 in line with the “one coin” marketing strategy that said people tended to resist a product once its price floated above ¥100. Following deflationary patterns over the course of the decade, Kariya’s price actually dropped, first to ¥88 and then to ¥78, in discount and drug stores that specialized in bulk sales. The spread of such stores put pressure on regular supermarket chains to also reduce the price of Kariya, since it was so popular. Last weekend, we found it on sale at our local discount drug store for ¥68. That’s even cheaper than generic brands, which usually go for ¥296 for a set of four pouches. More significantly, the price of other brands of retort curry has also come down, and while none are as low as ¥68, more have drifted below the ¥100 line. This means a curry meal can actually cost less than two convenience store onigiri (¥200), the standard model for a cheap lunch, since a microwave package of prepared white rice is ¥80-¥90. Of course, non-instant curry, made from packaged roux, costs less per serving, but retort curry will likely become even more in demand with the projected increase in single-person households, and so we predict it will resist any inflationary pressure.

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