By Ritsuko Shimizu
TOKYO, Oct 7 (Reuters) – Cashmere sweaters at Uniqlo.
Gourmet coffee and ice cream at 7-Eleven. These incongruously
premium offerings by two of Japan’s biggest retailers are part
of a strategy to lift profit margins by enticing thrifty
shoppers to splurge on little luxuries.
Uniqlo brand owner Fast Retailing and Seven & I
Holdings Co Ltd plans to boost spending per customer
are being challenged as Prime Minister Shinzo Abe’s aggressive
economic stimulus has done little to loosen the purse strings of
Japan’s traditionally frugal consumers.
While Abe’s policies have lifted the stock market and
spurred spending on luxury goods, overall retail sales have
grown only tepidly since he was elected last year.
A sales tax increase could also dent consumer spending once
it takes effect in April. After luring customers through
discounts and promotions, Fast Retailing and Seven & I hope to
counter a further slowdown in spending through their
value-for-money offerings.
“When it comes to day-to-day spending, people are still in
penny-pinching mode. We can’t see any impact from Abenomics,”
Seven and I Holdings President Noritoshi Murata said after the
company reported a record high operating profit for the first
half.
“Japan has a lot of people with money to spend,” he added.
“If we make things of quality, of value, and at a reasonable
price, we can breathe some life into the market.”
Uniqlo in Japan accounts for two-thirds of the sales and 80
percent of the profit of Fast Retailing, which is expected to
report a record high operating profit for the full-year to Aug.
31.
Profit margins, however, are likely to have been squeezed.
Uniqlo, the company’s biggest brand, saw sales and customer
traffic in Japan grow during the second-half at double-digit
rates, but spending per customer fell more than 5 percent.
The cashmere V-necked sweaters and cardigans are aimed at
changing this pattern. Priced at 5,990 yen ($62) and 7,990 yen
($82) respectively, the items are pricey by Uniqlo standards but
come at a fraction of the cost of luxury designer wear.
Whether customers will buy, however, remains uncertain.
Taketo Yamate, a Credit Suisse analyst, believes shoppers
accustomed to Uniqlo’s discounts will be unwilling to pay more
for premium items.
“It’s possible that the pricing policies will face bigger
challenges than the market’s optimism suggests,” said Yamate. He
forecasts an 8 percent drop in Fast Retailing’s operating profit
in the current financial year.
The success of Seven & I’s premium brands may have
encouraged Fast Retailing. The operator of Japan’s biggest
convenience store chain sells luxury home-brand food and drinks
made by well-known firms such as Meiji Holdings Co and
Kirin Holdings Co.
It has also rolled out “Seven Cafe”, a freshly brewed coffee
similar to the daily brew offered by Starbucks, that has boosted
sales of accompanying sandwiches and snacks.
Seven and I estimates sales of its private brand, “Seven
Premium”, will account for more than 10 percent of total sales
this year and rise by 50 percent over the next two years.
Other retailers have also taken notice.
“The economy has improved but wages haven’t gone up. It’s
said that expensive goods are selling, but that’s not fashion
wear, it’s luxury watches and such,” said Masato Nonaka,
president of low-price casual clothing chain Shimamura Co Ltd
.
“The preference for low-priced clothing isn’t really fading
but there’s a move towards buying slightly better things, so
we’ll add products that are one are two notches above low-priced
goods.”
($1 = 97.2700 Japanese yen)
(Writing by Edmund Klamann; Editing by Miral Fahmy)
