Although regulations demand that powerful major retailers don’t force suppliers to absorb the coming consumption tax increase, the same rules cannot be easily applied where private brands are now the norm. In the past couple of weeks, multiple companies have come out to say they will keep prices static and some will even reduce prices after 1 April in order to counter the general perception that everything in the shops is more expensive.
The government is keen to stop powerful retailers pressurising suppliers to keep prices down after the April Consumption Tax increase, but regulations to enforce this policy look increasingly unworkable. The regulations are, of course, targeted at the major retailers selling national brands, especially in packaged goods and foods where the biggest and most politically powerful suppliers insisted such rules be introduced. The fact is, however, there’s no longer any real way to stop retailers competing on price and especially for private brands – the ones they themselves control outright from development through production to final shelf-price.
In apparel the problem is a non-issue as most product in the major chains is own label anyway. If the likes of Uniqlo or even Zara choose to absorb all or part of the 3% tax increase in order to keep prices down, then there’s nothing that anyone can do about it. Most of them won’t – margins are already too thin to cut out 3% – but as their supply chains are their own, there’s plenty of scope for some price adjustment to remain competitive, and especially if competing chains also keep prices low.
Honeys and Shimamura have already confirmed that this is exactly what they will do: prices will remain the same after 1 April. Now Marui has said it will do the same.
Marui is not in quite the same market, operating multi-tenant stores, a cross between department store and shopping centre. It is, however, one of the country’s most astute retailers. From April Marui will restructure pricing for own brand apparel and footwear, with the specific aim to hold prices at or below the level of 1 April 2014.
Other department store chains are now ramping up private brand ranges, as is Marui. For the year to March 2014, around 5% of the group’s sales, roughly ¥20 billion, were from private brands. From April, 30% of these lines, such as Rakuchin, will see prices held static with a further 10% actually becoming cheaper. To pay for this, production has been switched to lower cost factories in Myanmar and Marui has also reduced logistics costs.
Other companies are looking at similar moves. Both Sogo & Seibu and Takashimaya have said they’ll introduce cheaper, more directly sourced lines in the months from April, while Honeys’ decision to set its own prices is also based on a shift in production from China to Myanmar. Aeon, while hamstrung by the regulations for some of its supermarket ranges, will follow suit at its apparel specialty chains. Spokesmen at Aeon’s G-Foot footwear chain said that although it plans to maintain prices for many products, the general increase is going to make consumers assume everything is more expensive, a real problem when disposable income is being squeezed. To counter this perception, it also plans to actually reduce prices further on private brand lines selling at ¥5,000 or less.
This will be good news for all those households suffering from the collapse in disposable income in the last few years (see Focus JC1402) but will be yet another headache for the Abe government. Many analysts are saying imported inflation induced by a cheap Yen will taper out over the next few months too, and with so many retailers also expected to hold prices down or even reduce them, Abe’s hopes of forcing inflation look less likely of being fulfilled. Once again the government’s plans are being scuppered by the realities of wages and a shrinking working age population.
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