Industrial Reports

(c) JETRO, 2007

Retail Trends in Japan

Japanese Economy Division

Summary
Retail sales in 2005 rose for the first time in nine years due to increased retail prices for petroleum products because of the higher crude oil prices. While the number of businesses decreased, sales-floor space per establishment rose as retail stores continued to grow in size. Restructuring remained active among general type supermarkets. Aeon, Seven & i Holdings and Daiei are setting trends. The number of foreign companies entering Japans retail industry increased.

1Market Overview
Retail sales in 2005 increased for the first time in nine years to 130 trillion yen, or 1.1% over 2004, according to the Index of Sales Statistics of the Ministry of Economy, Trade and Industry (Fig. 1). Personal consumption continued to slump, a trend that began in the mid-1990s, but retail petroleum product prices rose on higher crude prices.
Fig. 1 Retail Sales in Japan
(trillion yen) 150 146 145 146 145 143 145 146 145 143 142 140 138 137 135 131 130 129 130 128 139

125

120

115 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Ministry of Economy, Trade and Industry

2Industrial Structure
Japans large retail chains generally buy stock from wholesalers, since retailers do not deal directly with manufacturers for the most part (Fig. 2). The basic functions of wholesalers are to 1)

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buy products from manufacturers for resale to retailers; 2) warehouse products for division into smaller lots and ship them to retailers; 3) finance purchases by retailers by supplying them with credit; and 4) provide manufacturers with POS information on sales channels and new products. The merits of going through wholesalers are that retailers can 1) lower the costs of lineup diversification, warehousing and unsold inventory, and 2) utilize their shipping services and product-management know-how.
Fig. 2Basic Distribution Route in Japan

Manufacturer

Wholesaler

Retailer

Consumer

As retailers develop their businesses on a nationwide scales, wholesalers are pursuing mergers, acquisitions and alliances to supply wide product lineups to general supermarkets, convenience stores and other companies in fields such as processed foods and pharmaceuticals, etc. (Fig. 3). The aim is to expand product lines and build relationships beyond conventional sector boundaries. In the food industry, for example, wholesalers are building nationwide networks of subsidiaries and tying up with wholesalers in differing sectors, such as alcohol and confectionaries, to expand their product lines and evolve into general wholesalers.

Fig. 3 Representative M&As

Sector Food Acquiring firm Acquired firm Date Oct. 26, 2006 Dec. 21, 2005 Mar. 3, 2006 Nov. 21, 2006 Ito En FoodX Globe Co. Royal Holdings Co. R & K Food Service, Co. Dampharma Co. Pharmaceuticals Ain Pharmaciez Sugi Pharmacy Co. Japan Co. *Includes capital tie-ups. Data as of Nov. 30, 2006. Source: Thomson Financial Announced value* (US$ million) 56.4 3.5 8.5 58.4

3Major Trends
<Fields> The number of retail establishments in 2004 decreased 4.8% from 2002, according to METIs Index of Sales Statistics for 2004 (Fig. 4). Reductions were common in most fields. Department stores decreased due to closures brought on by restructuring. Among drugstores and similar fields, decreases centered on small establishments. Increases in stores were noticeable among convenience stores and home centers, which also raised their sales and employment.

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Fig. 4 Retailers and Employees, by Type of Business

Locations Against previous survey 2004/2002 -4.8 -14.9 -14.6 -17.9 0.4 -2.2 -5.3 4.5 -9.8 9.3 2.3 -10.7 -13.5 -6.3 -10.0 -6.6 -5.4 -0.9 20.2 Employees (Persons) Against previous survey 2004/2002 -2.6 -14.7 -13.6 -34.2 4.1 4.6 -3.0 8.7 -4.8 9.7 1.4 1.3 -14.2 -6.9 -11.3 -6.0 -6.7 3.1 17.7

1999

2002

2004

1999

2002

2004

Total

1,406,884 1,300,057 1,238,049 394 362 308 Department stores 365 323 276 Large department stores 29 39 32 Other department stores 1,670 1,668 1,675 General supermarkets 33,381 37,035 36,220 Specialty supermarkets 4,780 6,324 5,991 Apparel 18,707 17,691 18,485 Food 9,894 13,020 11,744 Home products DIY stores 2,911 4,358 4,764 39,561 41,770 42,738 Convenience stores 10,917 14,664 13,095 Drug stores 77,667 65,011 56,211 Other supermarkets Specialty stores 921,801 775,847 726,825 Apparel 134,329 106,134 95,497 Food 249,287 204,171 190,788 Home products 538,185 465,542 440,540 Quasi-specialty stores 318,161 361,470 358,297 Other retail stores 3,332 2,230 2,680 Source: Ministry of Economy, Trade and Industry

8,028,558 168,343 165,289 3,054 320,422 996,008 52,755 742,991 200,262 83,154 536,429 69,288 452,890 4,188,124 423,411 1,063,048 2,701,665 1,280,899 16,155

7,972,805 143,527 135,980 7,547 379,549 1,134,294 77,694 782,804 273,796 125,733 596,339 113,937 429,724 3,668,988 344,563 947,300 2,377,125 1,495,784 10,663

7,762,301 122,390 117,424 4,966 394,937 1,186,706 75,333 850,599 260,774 137,898 604,560 115,432 368,627 3,415,173 305,623 890,902 2,218,648 1,541,926 12,550

<Sales> Retail product sales in 2004 amounted to 133.28 trillion yen, down 1.4% from 2002, according to the Index of Sales Statistics. Specialty stores registered sales of 49.97 trillion yen and quasi-specialty stores 27.58 trillion yen, together accounting for about 60% of total retail sales (Fig. 5). While specialty and department store sales shrank, convenient store and supermarket (food) sales grew, the latter perhaps reflecting lengthened business hours.
Fig. 5 Annual Sales Share, by Type of Business
Department stores Convenience stores General supermarkets Specialty stores Apparel supermarkets Quasi-specialty stores Food supermarkets Other Home-product supermarkets

2004

6.0

6.3 1.2

12.8

4.1

5.2

37.5

20.7

6.2

2002

6.2

6.3 1.2

11.8

4.5

5.0

38.8

19.4

6.8

1999

6.7

6.2 0.9

11.6

3.5

4.3

43.6

16.7

6.6

1997

7.2

6.7

0.8

10.0

3.1 3.5

40.4

21.3

6.9

1994

7.4

6.5 0.6

9.2

2.1 2.8

42.6

22.7

6.0

1991

8.0

6.0 0

7.9

1.42.2

47.2

20.4

6.4

0%

Specialty stores are commercial outlets where 90% or more of products are in single category. Quasi-specialty (excluding specialty) stores are commercial outlets where 50% or more of products are in a single category. Source: Ministry of Economy, Trade and Industry

20%

40%

60%

80%

100%

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<Average Sales-Floor Area> Sales-floor area per store in 2004 increased 2.5% over 2002 as large retail chains, such as general supermarkets and home centers, opened up many new stores (Fig. 6). The average (total sales floor area divided by number of locations) was 116 m2, which was up 7.6% over 2002, and the 13th consecutive increase since METI introduced the Index of Sales Statistics in 1972. Increases were common in most fields, meaning that stores in general are getting bigger. Department stores increased 8.7% to 21,013 m2 (Fig. 7). Drug stores, which continued to open up large outlets, recorded a remarkable increase of 27.6%.
Fig. 6Retail Sales Floor Area 1991 Total sales floor area (m ) Locations
2

1994

1997

1999

2002

2004

109,901,497 121,623,712 128,083,639 133,869,296 140,619,288 144,128,517 1,605,583 1,499,948 81 1,419,696 90 1,406,884 95 1,300,057 108 1,238,049 116

Average area per location 68 2 (m ) Source: Ministry of Economy, Trade and Industry

Fig. 7 Average Sales Floor Area, by Type of Business (2004) Department stores General supermarkets Specialty supermarkets 21,013 9,069 1,033 Other supermarkets Specialty stores Quasi-specialty stores 126 59 74 Source: Ministry of Economy, Trade and Industry

(square meters)

(m ) Drug stores 281

Convenience stores 110 Other retail outlets 120

4Topics
Large Department Stores Plan Aggressive Investment Department store sales are recovering. Operating profits for each of the four largest department store chains in fiscal 2005 increased over the previous year (Fig. 8). With the exception of Mitsukoshi, whose operating profit grew only minimally due to the closure of four unprofitable stores, the other three chains posted double-digit increases in excess of 30 billion yen each. These chains also announced plans for large investments in central Tokyo and Osaka (Fig. 9). For example, Takashimaya will renovate its entire Shinjuku store, refurbish its Tokyo store and build a new main building in Osaka in 2007. Mitsukoshi plans to open a new store at JR Osaka Station in 2011. The competition to draw customers is expected to intensify.
Fig. 8Consolidated Ordinary Profits of four Largest Department Store Chains (100 million yen) FY2001 FY2002 FY2003 FY2004 28,996 15,214 26,136 19,192 FY2005 32,755 15,272 30,678 30,061 Against previous year (%) 13.0 0.4 17.4 56.6

Takashimaya 18,929 16,444 25,360 Mitsukoshi 16,582 15,140 12,339 Daimaru 19,283 18,714 23,345 Isetan 22,332 18,008 16,856 Source: Prepared from stock reports of each company.

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Fig. 9Capital Investment Plans of Large Department Store Chains Plans Renovation of Shinjuku store Takashimaya Opening of new store in Osaka Redevelopment of Tokyo store Development of Diamond City Tachikawa/Musashimurayama shopping center Mitsukoshi Development of Diamond City Sendai Natori shopping center Construction of new store in Osaka Opening of Osaka Umeda store Opening of Daimaru LaLaport Yokohama store Daimaru Opening of Daimaru Urawa Parco store Opening of Jinan store Isetan Renovation of Urawa store Sources: Information from each company.

Amount 13 billion yen 34 billion yen 30-35 billion yen 40 billion yen or less 20-25 billion yen 15 billion yen 14 billon yen -

Opening Spring 2007 Fall 2009 2015 Fall 2006 March 2007 Spring 2011 Spring 2011 Spring 2007 Fall 2007 September 2007 March 2006

Active Restructuring among General Supermarkets Tie-ups and mergers are taking place amongst general supermarkets, which sell clothing home products as well as food. By retail sales in fiscal 2005, Aeon was tops, followed by Seven & i Holdings and Daiei in that order (Fig. 10). The industry is keeping a close eye on how these three companies pursue restructuring. Seven & i Holdings was jointly established by Seven-Eleven Japan and Dennys Japan in September 2005. It formerly was a subsidiary of general supermarket giant Ito-Yokado, but the roles were reversed and now Ito-Yokado is a subsidiary, reflecting Seven-Eleven Japans substantial earnings power and high stock value.
Fig. 10Consolidated Sales of Top 30 Retailers in Fiscal 2005
Ranking Company Business 1 Supermarket Aeon Co., Ltd 2 Seven & i Holdings Co. Holding company 3 Daiei Supermarket 4 Yamada-Denki Co. Specialty store 5 Uny Co. Supermarket 6 Seiyu Co. Supermarket 7 Takashimaya Company Department store 8 Mitsukoshi Department store 9 Daimaru Department store 10 Isetan Company Department store 11 Edion Corporation Specialty store 12 Yodobashi Camera Co.* Specialty store 13 Marui Co. Department store 14 Kojima Co. Specialty store 15 Seibu Department Stores* Department store 16 Sogo Co.* Department store 17 Izumi Co. Supermarket 18 Bic Camera Specialty store 19 Gigas K's Denki Corp. Specialty store 20 Life Corp.* Supermarket 21 Heiwado Co. Supermarket 22 Fast Retailing Co. Specialty store 23 Hankyu Department Stores Department store 24 Izumiya Co. Supermarket 25 Shimamura Co. Specialty store 26 Best Denki Co. Specialty store 27 Matsuzakaya Co. Department store 28 Tokyu Department Store Co. Department store 29 Daiso IndustryCo.* Specialty store 30 Maruetsu Supermarket *nonconsolidated sales. Source: Nikkei Marketing Journal , June 28, 2006, and company websites Sales Headquarters (million yen) 4,430,285 Chiba 3,895,772 Tokyo 1,675,127 Hyogo 1,283,961 Gunma 1,202,640 Aichi 1,034,586 Tokyo 1,031,150 Osaka 842,009 Tokyo 822,584 Osaka 760,038 Tokyo 714,697 Aichi 601,235 Tokyo 561,539 Tokyo 498,040 Tochigi 482,938 Tokyo 474,731 Osaka 436,825 Hiroshima 433,186 Tokyo 399,791 Ibaraki 398,319 Osaka 394,620 Shiga 383,973 Yamaguchi 381,285 Osaka 367,112 Osaka 362,936 Saitama 361,378 Fukuoka 343,936 Aichi 338,425 Tokyo 330,000 Hiroshima 329,791 Tokyo

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Restructuring amongst general supermarkets can be roughly divided into internal restructuring aimed at strengthening tie-ups within a group, and acquiring outside companies in order to expand group business. Two examples of internal group restructuring are how Seven & i Holdings made York Benimaru supermarket into a wholly-owned subsidiary in September 2006, and how Aeon did the same thing in May 2006 with Diamond City, which plans, develops and operates large shopping centers. As for the acquisition of outside companies, Seven & i Holdings purchased Millennium Holdings department stores in June 2006 and Aeon bought Origin Toshu, a boxed lunch and prepared meals chain, in March 2006. By purchasing companies from differing sectors, these companies aim to diversify with food-supply operations, technology and know-how. Daiei had sought the help of the Industrial Revitalization Corporation Japan because of business troubles, but general-trading giant Marubeni stepped in to support its restructuring. Marubeni is also considering assisting other retailers. Elsewhere, sixth-ranked Seiyu became a subsidiary of Wal-Mart Stores, the largest retailer in the United States. Foreign companies continue to take aggressive steps to increase their presence in the Japanese market (Fig. 11).
Fig. 11 Selected Foreign Firms that Entered Japan's Retail Market
Business Convenience stores Food/Communications Department stores Food Acquiring firm MAC Asset Management Pte Ltd Credit Suisse (Hong Kong) Ltd Wyoming Holding GmbH (Wal-Mart Stores Group) Olympus Capital Holdings Asia Country Singapore Hong Kong Switzerland (USA) Hong Kong Acquired firm Circle K Sunkus Co. Keiozu Co. Seiyu Atom Corp. Date May 16, 2006 Feb. 21, 2006 Nov. 2, 2005 May 20, 2005 Announced value* (US$ million) 109.9 10.1 577.60 47.2

*Includes capital tie-ups. Data from Jan. 1, 2005 to Nov. 30, 2006. Source: Thomson Financial

5Investment Laws
There are roughly 17 laws governing the entry of foreign businesses into Japan (Fig. 12).
Fig. 12Laws Governing Investment in Japan
1 2 3 4 5 6 7 8 Law Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade Act Against Unjustifiable Premiums and Misleading Representations Unfair Competition Prevention Law Specific Commercial Transactions Law Law Concerning the Measures by Large-Scale Retail Stores for Preservation of Living Environments Pharmaceutical Affairs Law Liquor Tax Law Law for the Promotion of the Utilization of Recyclable Food Resources Purpose Promote free competition in business and life. Prohibit unjustifiable premiums and misleading representations. Authority Japan Fair Trade Commission Japan Fair Trade Commission URL www.jftc.go.jp www.jftc.go.jp www.meti.go.jp www.meti.go.jp www.meti.go.jp www.mhlw.go.jp www.nta.go.jp www.maff.go.jp www.meti.go.jp www.env.go.jp www.meti.go.jp www.mhlw.go.jp www.maff.go.jp www.maff.go.jp www.meti.go.jp www.mlit.go.jp www.cao.go.jp www.cao.go.jp www.meti.go.jp www.meti.go.jp www.maff.go.jp www.moj.go.jp

Protect intellectual property rights and maintain order in competition. Ministry of Economy, Trade and Industry Protect buyers against damage from specific business transactions. Ministry of Economy, Trade and Industry Preserve living environments in areas around large retail stores. Ensure quality and safety of pharmaceuticals, cosmetics, etc. Ensure stable alcohol tax and prevent youth drinking. Prevent waste and promote recycling. Manage and regulate exports/imports. Prevent food-related hazards. Prevent animal-based epidemics. Quarantine plant exports/imports. Develop inner-city areas and stimulate local business. Regulate sound development and order in cities. Resolve consumer contract issues. Protect personal rights when personal info is used for practical purposes. Prevent illegal dumping and protect domestic industry. Reduce waste volume and promote recycling. Identify responsibility for harm caused by product defects. Integrate corporate laws and deregulate. Ministry of Economy, Trade and Industry Ministry of Health, Labor and Welfare National Tax Agency Ministry of Agriculture, Forestry and Fisheries Ministry of Economy, Trade and Industry Ministry of Environment Ministry of Economy, Trade and Industry Ministry of Health, Labor and Welfare Ministry of Agriculture, Forestry and Fisheries Ministry of Agriculture, Forestry and Fisheries Ministry of Economy, Trade and Industry Ministry of Land, Infrastructure and Transport Cabinet Office Cabinet Office Ministry of Economy, Trade and Industry Ministry of Economy, Trade and Industry Ministry of Agriculture, Forestry and Fisheries Ministry of Justice

9 Foreign Exchange and Foreign Trade Control Law Food Sanitation Law 10 Domestic Animal Infectious Diseases Control Law Plant Protection Law Law on Improvement and Vitalization of City Centers 11 City Planning Law 12 Consumer Contract Act 13 Act on the Protection of Personal Information 14 15 16 17 Study of antidumping duties and countervailing duties Law for Recycling of Specified Kinds of Home Appliances Product Liability Act New Corporate Law

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6Industrial Organizations
Industrial Organizations Name Shop System Study Society National Association of Super Markets Japan Council of Shopping Centers Japan Self-Service Association Japan Specialty Stores Association Japan Direct Marketing Association Japan Franchise Association Japan Voluntary Chain Association Japan DIY Industry Association Japan Retailers Association Japan Supermarkets Association Japan Consumers' Co-operative Union Japan Chain Stores Association Japan Association of Chain Drugstores Japan Department Stores Association URL www.ssss.or.jp www.super.or.jp www.jcsc.or.jp www.jssa.or.jp www.jsa-net.or.jp www.jadma.org/ jfa.jfa-fc.or.jp www.vca.or.jp www.diy.or.jp www.japan-retail.or.jp www.jsa-net.gr.jp jccu.coop/ www.jcsa.gr.jp www.jacds.gr.jp www.depart.or.jp

7. References
JETRO, Japanese Market Report No. 72: Retail Business. Ministry of Economy, Trade and Industry, Index of Sales Statistics. Ministry of Economy, Trade and Industry, Commerce in Japan 2005. Nihon Keizai Shimbun Nikkei Marketing Journal