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Japan's retailers struggle to raise prices, even as economy gains momentum

By Sam Nussey and Stanley White

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© Thomson Reuters 2018.

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" profits are at record levels and companies are poised to raise wages"

Sure they are. Let's get some clarification in this:

"So far, a handful of companies have signaled they will."

The article starts out with an unfounded assertion, then goes on to undermine that assertion by indicating that only a few companies have signaled there will be wage increases. Very well written.

On to the crux of the issue:

"Many consumers are holding back because their wages have not been rising very much - even though companies are sitting on mountains of cash thanks to robust profits"

Companies need people to spend so inflation can occur. People need wage increases to spend, but companies are choosing to sit on "mountains of cash" created by "record profits."

Let's add one more piece of info:

"Companies that have hiked prices in recent months are often doing so to stem losses coming from higher labor costs, and have seen mixed results."

Companies are more worried about maintaining record profits than promoting growth, which leads to sustainable profits. Companies need to make the first move through wage increases, but they are worried about the permanency of those:

"But many companies . . . may fatten bonuses, as they have in the past, because those are much easier to reduce in the future."

Companies have poles of cash, but are trying to increase prices before they increase wages so they can maintain those piles of cash. Can I have my cake and eat it too?

10 ( +13 / -3 )

Profit is profit, whether it's a "record" or not. Seems to me that unless these large businesses report higher profits every single year they have somehow failed. That's BS.

Ok they made 10 billion instead of 20 billion, they still are 10 billion in the black!

4 ( +7 / -3 )

This isn't rocket science ... if they really want to create inflation ... there are basic steps that need to be taken. But that would require change which is the problem ... 1st of all... things are already over-priced.... so ... lower the prices to reality then raise them modestly.... 2nd.... include food prices in the scheme... 3rd... exclude the price of oil ... food prices are always referred to here as "volatile." No ... they are insanely over priced ... 150¥ for 1 tomato ... 400¥ for a head of lettuce... just to name a couple ... meat prices are off the chart ... TPP failed because the Japanese people would've seen how bad they've been getting hosed for years ... but if inflation is what they really want ... it can be created in 1 quarter...

2 ( +4 / -2 )

Prices may not have increased, but I know for certain that package sizes have decreased, so it is a hidden cost increase. Things like the size of a bar of chocolate, or potato chips. Almost any packaged food has decreased the size, but retained the same price.

I also agree that Uniqlo got gready a few years ago and thought they had become Banana Republic and that they could really sock it to the customer, for nothing special clothing

9 ( +9 / -0 )

The “record profits” that this article is trumpeting are the result of currency manipulation and political ties. In no way, shape or form has the economy improved for the average person. Rising prices would be suicide for the majority of companies.

1 ( +1 / -0 )

I agree, the companies want their cake and eat it too. Abe and others should have predicted this when their reforms involved prodding Japanese companies to adopt a stronger pro-shareholder orientation. What did they expect?

4 ( +5 / -1 )

Prices may not have increased, but I know for certain that package sizes have decreased, so it is a hidden cost increase. Things like the size of a bar of chocolate, or potato chips. Almost any packaged food has decreased the size, but retained the same price.

I noticed that as well. Have you seen that 900ml, instead of 1L, milk box?

so we can't be too optimistic," CFO Takeshi Okazaki said.

Says the CFO of the biggest and more profitable company in Japan.. whiners! They just keep the profits for the top, shareholders, not the bottom, the workers.

6 ( +7 / -1 )

@Tommy Jones - right on the mark. Wages need to go up for people to feel secure about spending. It all comes back to what the businesses do. Ideally it shouldn't be the government forcing some action but sometimes they need to. Bottom line is employees should be put before anything else including shareholders. Without them a company has nothing.

5 ( +6 / -1 )

"Raised economy" doesn't not translate to masses. Just like in the USA the stock market is at record high yet most people are feeling finiancl pain. Credit card debt is also at a record high. And what do we all know about Japan and its wages? They haven't moved up in decade. So it's a no brainer, Japan's economy being up doesn't effect store prices because the average joe's pay check is EXACTLY the same.

7 ( +7 / -0 )

Let’s call a spade a spade shall we. Companies don’t want to increase wages because it cuts into their profits. If their labour force continues to work for them without an increase, why increase the wages? What’s the incentive? What’s that you say? “look after your labour force” Is that actually a known concept for Japanese companies in general? I think not, but please do enlighten me if I am wrong. Japanese companies abuse the fact that Japanese workers here are generally loyal and obedient to their employers. No one is going to raise their heads in the middle of the office and decry the poor salaries or working conditions, it just ain’t Japanese!

I bet the same companies with offices overseas manned by foreigners don’t get treated the same way as back in Japan. If they did, they would likely have nobody in them. Plus, the labour laws are probably far stricter and actually enforceable without victimisation.

5 ( +5 / -0 )

Simple government solution, change the nature of corporate taxes to target profits over revenue. This encourages that trickle down economy we hear so often about.

But seriously, prices in Japan are already ridiculously high compared to, well everywhere.

2 ( +3 / -1 )

Consumers held back from spending and companies cut prices, which led to a vicious cycle of expectations that prices would continue to fall.

This is the great deflation myth, that people put off expenditure in the expectation of future falling prices. It was never anything more than a theory and an unproven one at that. But it has wormed its was into business journalism as the technical explanation for deflation.

It is demonstrably untrue. Did you stop buying beer in the expectation that it would drop 50 yen in price? Postponed a jeans purchase in the hope they'll be 200yen cheaper? Inflation is never anything more than the average of all prices, some of which rise and some fall - no one really knows which. You might not make a purchase because something is too expensive and then buy it when it comes into your price range, but that is a different thing.

The only price that everyone does know falls in value consistently is consumer electronics. So this is the one area where we would all be forever postponing purchases, yet we all buy electronic stuff despite knowing that it will be cheaper next year.

Sorry to drone on about this point. I should get out more. But I hate reading our hearing this from financial journalists

8 ( +8 / -0 )

This isn't rocket science ... if they really want to create inflation ... there are basic steps that need to be taken. 

What a random list you gave. It would probably be impossible to achieve but if implemented, more likely to be deflationary rather than inflationary.

The one guaranteed way to get some inflation in the system would be to start the printing presses and lower taxes for the masses.

2 ( +2 / -0 )

The farmers/supermarkets seem to have no problem raising prices on vegetables by way more than the government's inflation target. It's rained/hasn't rained/was sunny/too sunny etc. is all we hear.

6 ( +6 / -0 )

Thank you Ah_so for that. I have railed for ages about that pearl of wisdom about how people are always putting off purchasing things waiting for a lower price. It is such a falsehood. People put off purchasing because they didn't have the money. As taxes are ever increasing, and other costs, medical and elderly, they just didn't have the cash for the outlay, unless it was necessary, such as a broken refrigerator or heater. As I've said countless times, Canada has raised its wages, just recently Ontario raised its minimum wage to $14 per hour, but prices also have increased, but people don't feel like they are being squeezed. Which is what Japan should do, but they won't, and that drives me crazy.

6 ( +6 / -0 )

The profits and the distribution of it has been too uneven.

The majority still look for cheaper prices since the majority still make the same wages while prices have already gone up.

4 ( +4 / -0 )

as economy gains momentum

Eh? Where? Japan? Is there a parallel universe these economists gain these fictional facts from?

2 ( +2 / -0 )

Well no pay rises in 20 years, foods either shiking in size or cost up. Company's share holders making record profits. The golden shower not quite working as a trickle down. Think this social experiment has proven a failure. Yet the idea is a core belief of those born into money and their crumbs are considered a benifit to lesser humans.

4 ( +4 / -0 )

Well, um, it's the broader economy. Most people are doing the same or even worse under Abenomics. Well you do have the Asian tourists coming who may pay more...

0 ( +0 / -0 )

"Consumers held back from spending and companies cut prices, which led to a vicious cycle of expectations that prices would continue to fall." I agree with the many people who said they are tired of seeing this untruth.

2 ( +2 / -0 )

In the restaurant business cost of goods have gone up. Restaurateurs are reluctant to increase menu prices to off set their increased cost - because of customer rejection.

There are restaurants that have gone in the red to pay bonuses to their employees. No profits for the restaurant owners, yet they took care of their employees.

3 ( +3 / -0 )

When the "bubble" collapsed back around 1991, just about anything you bought in the retail sector was over priced and made in Japan. Ever since then Japan has slowly remade its domestic retail market doing away with thousands of mom an pop stores of all types and incorporated many of them into larger chain style retail stores and outlets. Of course, in addition to that many companies started production overseas and also started importing more. I've been watching Japan's domestic retail market for years and I now believe that Japan has hit rock bottom.... when I say that I mean Japan is now about as efficient as it could possibly be and from here on pricing will definitely start to increase. Retailers will start to raise prices because they're all on a level playing field now. One upping the other guy with better distribution or lower costs is over.

3 ( +3 / -0 )

Tommy JonesToday  07:01 am JST


Very astute analysis.

0 ( +0 / -0 )

Japan has let their manufacturing go-look at the Chinese!

They are thriving and coming here buying up all the things that the Japanese make.

STILL no wage increases for the drones here....what a fraud!

3 ( +3 / -0 )

Companies like Uniqlo have maintained cheap prices, but the quality of their merchandise has declined (lots of thin fabric and things fade and get holes easily). I'm guessing this would be the case for quite a few retailers out there who are trying to turn a profit.

4 ( +4 / -0 )

More to the greedy I can tell you.

Less Japanese full time workers is indeed making impossible official inflation.

Everyone agrees that profits are made.

If so, it should have been shared with employees. Which is not the case because of inconsiderate employee's loyalty. The top managers get all.

I have known so few Japanese to change company for salary increase ! (One of my brother in law did once...)

In fact there is hidden inflation by keeping same price for much less product.

The cake is shrinking but not for top managers (riding in a Rolls Royce with another brother in law who would not raise wages a single yen to his employees although massive profits kicked in), nor politicians/civil servants, nor bankers.

Have you noticed product price hardly ever change even if gas/oil skyrocketed or dropped massively? It shows price manipulation by most companies.

Conclusion : nothing's going to change if no reaction from Japanese. Not my issue at the same time.

5 ( +5 / -0 )

I think the next time I'm back in the states I'm going to hit the 2nd hand shops. The t shirts these days are so thin, most not 100% cotton, and for 20 bucks or more, No thanks! Garage sales are great for finding some nice used heavy cotton shirts and especially sweatshirts, but are held mostly in the spring and summer. The only clothes I buy at full price anymore are jeans, socks, underwear, and dress shirts/turtle necks for the sweaters my wife knits. Never thought I'd see the day where I had to spend hours searching for heavy 100% cotton sweatpants with elastic at the ankles, and in the end couldn't find the elastic ones but the wife put them in. I actually feel sorry for those who are obsessed with fashion and brand new clothes.

Welcome to the corporatocracy!

1 ( +4 / -3 )

Staff can't aford the products they sell that's a sure indicator that the economy has tanked.

3 ( +3 / -0 )

Pity Old Navy closed down.

I buy a lot of clothing at GU now no need to adjust leg length, most J-pants are too short(ditto for sleeve length). Track suits, etc are the worst for length.

Socks & Underwear I get at the 100Yen shop, local Inageya is cheap for GT Hawkins sweat shirts(like GU from 600yen upwards).

Shoes I buy in the local arcade at a Tobbaco/Shoe shop, generally between 1.200-3.000yen and they stock up to size 28(GU does as well).

Uniqlo is just not worth it anymore (j-friends agree), there is a 7story Uniqlo but hardly see customers in it.

3 ( +3 / -0 )

Shoes I buy in the local arcade at a Tobbaco/Shoe shop, generally between 1.200-3.000yen and they stock up to size 28(GU does as well).

You are lucky mate, I have to pay at LEAST 20,000 for a decent pair of shoes, and between 50,000 to 100,000 yen for a suit!

It isn't easy having 33CM feet and stand over 193 CM in Japan!

1 ( +1 / -0 )

Yabaru, have you tried looking on the internet to buy them from another country, or get a friend to post some to you from XXX country?

As for companies having a surplus cash in the bank, you could pay out a one off bonus, this way staff have a bit more cash to spend, but if the company has a bad month, you could withdraw the next bonus, or hand out more or less to compensate/offset the companies profits/cash flow.

1 ( +1 / -0 )

@Yubaru The PE teacher where I work is 204 cm tall, he gets his gear from eBay. Shipping can be reasonable if you shop around.

1 ( +1 / -0 )

Government propaganda , the economy is a mess! The record profits are only being made by a hand full of big companies that employee something like less than 2% of the nation.

1 ( +3 / -2 )

Yes, Japan is not as expensive as the US is now. A great meal in Japan is about 1/2 the cost of a mediocre meal in the US.

Sure, gasoline is less, but that’s about it.

2 ( +4 / -2 )

For good quality fresh restaurant food in Japan prices are most reasonable. Rose Garden Okinawa.

1 ( +1 / -0 )

It isn't easy having 33CM feet and stand over 193 CM in Japan! yeah I take a 31~32cm shoe, get most of them from Ebay seem to have the largest selection. Even bought SKi boots there at a reasonable price. fuuny enough last two sets of sneakers I boughtwere from Aeon and they had my size and even wide width! So I bought two pairs! LOL

0 ( +0 / -0 )

I don't think there's a sense that prices at supermarkets and such are about to rise.

With broccoli at ¥250, butter at ¥420 and sad, limp lettuce at ¥500, how much higher do they want prices to rise?

3 ( +3 / -0 )

The way to increased inflation could be short term painful. First you need a more efficient employment system. There is chronic over employment in Japan which leads to the lowest level of productivity in the industrialized world. Long hours of 2 people doing the work of one person in many other countries is the primary issue. The people of Japan have traded lifetime employment for long term poorer financial upside, though I am sure most had no idea.

Until companies have the flexibility to cut dead weight and pay overachievers proportionally more than average, then things will not change.

As soon as a young hot shot salesman, is making 50% more than the 55 year old coasting to retirement, then you will see inflation because performance will be incentivized AND rewarded. Then folks will be working long hours for much bigger pay and they will spend their new found wealth, thus driving up prices.

As it stands hard work is an investment in your future career that might not pay off for a decade or more. You want inflation now or not?

1 ( +1 / -0 )

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