Business / Economy | YEN FOR LIVING

Stores struggle to adjust in a shrinking Japan

by Philip Brasor and Masako Tsubuku

On April 16, McDonald’s Japan announced it would be closing 130 stores this year. Add to this the franchises that don’t plan on renewing their contracts, and the number of lost outlets tops 190.

The fast food giant has 3,000 in Japan, so maybe that 190 doesn’t sound like much, but when you look at the company’s recent performance, it’s obviously in trouble: a 14.4 percent annual drop in revenue, putting it ¥38 billion in the red. So far the company hasn’t announced which stores will be closed, thus causing anxiety for workers as well as customers in remote areas where, for what it’s worth, McDonald’s may be the only fast food restaurant available.

The firm plans to turn its fortunes around by remodeling outlets, changing menus and encouraging regular employees to consider early retirement. Some media have been saying that the problem has to do with the bad publicity surrounding the out-of-date chicken McDonald’s Japan was buying from a Chinese supplier last summer. As it happens, McDonald’s is also not doing well in its home market, the U.S., but the reason there is said to be changing consumer tastes, which now demand “healthier” fare. Japan’s drop in sales is markedly greater than it is in the U.S., which is especially surprising considering how well the Japanese arm was doing only a few years ago.

The downward trend may have more to do with general circumstances in Japan, since other restaurant chains are having similar problems. Watami, the nationwide chain of izakaya (pub-restaurants), announced last November that it was closing 102 outlets, or 15 percent of its total. The reason is not just the drop in sales, but also difficulty in finding workers. Watami was accused some years back of being a “black kigyō” — a company that exploited workers, mainly by making them work overtime for no pay.

Some, like the Nihon Keizai Shimbun, have found the job situation encouraging from a macro standpoint — when workers are scarce, wages increase, which means more spending in the long run — but that idea assumes demand remains basically the same or increases. As the population drops, so will consumption. At any rate, according to the labor ministry, average wages have gone down by 2.8 percent in the last year despite the worker shortage.

Last week the internal affairs ministry announced that the number of children under the age of 15 has reached a record low, a statistic that will also affect restaurants in the long run, since eating out is less common among older people. Only 12 percent of two-or-more-person households made up of people over 70 eat out, while 26 percent of households with people under 30 eat out with any sort of regularity. The percentage of people who consume takeout food is constant for all age groups at 10-11 percent.

The downward trend extends to retail. According to the Ministry of Economy, Trade and Industry, the number of retail outlets in Japan peaked in 1982 at 1.72 million. By 2007, the total had dwindled to 1.14 million. During this same period, the number of people working in retail dropped by 2.4 percent, so the trend is hardly new. Much of this change has to do with the rise of online shopping, but METI estimates that the total retail sector will shrink by ¥28 trillion before 2030. The contraction has already reduced the number of retail businesses run by individuals, as evidenced by the demise of shopping arcades in smaller cities throughout Japan. Between 1982 and 2007, the number of retail businesses with less than five employees fell by half to 750,000.

In a special publication by the magazine Takarajima about the decline of regional cities, department stores are presented as the most graphic example of shrinkage. The department store market has decreased by 70 percent since its peak years in the mid-1990s. Eleven department stores went out of business in 2010, and since then some of those remaining have merged with competitors to survive. Much has been made lately of how Chinese tourists are propping up department store business, but it’s only in the major cities. At present, the department store market is valued at about ¥6 trillion, and this will fall to ¥5 trillion by 2030.

The so-called big store law, passed in the 1990s, allowed for larger retail chain outlets and led to an increase in the number of suburban shopping malls. There were 312 stores with floor area of at least 1,500 sq. meters in the six northernmost prefectures of Honshu in 2001. The number increased to 493 by 2013, but the combined sales for all big stores in the region only went from ¥1.2 trillion to ¥1.25 trillion during the same period.

Takarajima predicts that by 2020, convenience store revenues will have surpassed those of supermarkets, thanks to the former’s ability to diversify goods and services for a wider range of customers. That said, even convenience stores are seeing a drop in sales. At present, they are addressing the problem by trying to meet the needs of seniors and single-person households — the two demographics with the most potential right now.

Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see blog.japantimes.co.jp/yen-for-living.

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