April and May retail sales steady

Retail sales fell in April as expected, and by marginally more than in 1997, but the industry still performed well and the extreme decline feared by many did not happen. Indeed, many chains were reporting that sales were back to levels seen in 2013 by the end of the month and others were already back on track in May.

The expected downturn in retail sales in April following the consumption tax increase looks to have been a non-event. While overall retail sales fell, the shortfall was just 4.4% year on year. Most chains reported a drop in the first half of April, but many say that sales were back to 2013 levels by the end of the month.

The drop made headlines as the first decline in retail sales for nine months, but economists had long been predicting much worse. In 1997, the last time the tax was raised by just 2%, sales fell by 3.8% in the following month, but took longer to recover.

Two factors appear to have contributed to the relatively minor dip. First, consumer confidence is high. Companies look set to reward employees with relatively large bonuses in June/July, and many people feel their jobs are at least secure. While there are still serious concerns over medium term prospects for income growth, government policies and even the winning of the 2020 Olympic bid are encouraging optimism for now. Savings are falling, however, and lower income households could go into debt if incomes don’t rise.

Secondly, retailers in 2014 are very different from the ones that faced the last tax increase. The top chains are now in control of their own supply chains and in touch with customer demand – in short retailers have become effective marketers in their own right. A series of new brands have entered Japan in recent months too, and along with new local chains have helped maintain consumer interest and excitement. Retailers like Aeon, Ito-Yokado and Seiyu have all cut prices too, helping customers feel that prices haven’t really changed much.

Not every retail sector was untouched. Consumer electronics was down 12.3% and cars by 10.2%, but several major luxury brands such as Louis Vuitton and Chanel confirmed that any downturn was minor and that sales had picked up again by the end of the month.

Large store sales, including department stores and supermarkets, were down 6.1%, with supermarkets seeing household and apparel sales drop significantly – chain store furniture sales and restaurant sales actually rose in April. Japan Chain Store Association (JCSA) members recorded sales down 2.1%, but 5.4% on a same store basis, while Japan Supermarket Association (JSA) members dropped 1.5% and 3.6% on a same store basis. April results were largely down due to lower inherent demand – toilet paper and household cleaning items were weak in April due to hoarding in the previous month. Vegetables, meats and deli items were all up on April 2013.

The Japan Franchise Association reported sales down 4.2% to ¥811.3 billion, although the major convenience stores reported strong sales of ready to eat foods (up 11.9%), and the early hot weather meant beverages were also selling well. Same store sales were relatively strong, down only 2.2% among the leading 10 chains. Footfall dipped by just 0.4% and sales per customer by just 1.8%.

As expected, department stores suffered the most in April, with sales for JDSA members down 12%, the first fall for six months. Equally this sector was the strongest in March, up 25.4%, and department stores did better than in 1997 when sales dropped 14% in the first month after the previous, smaller tax increase. The fall in department store sales varied by region, with Osaka the only area where the drop wasn’t in double digits, thanks largely to newly upgraded stores. Jewellery and art fell 38.9%, high end bedding and kimonos and ‘other’ apparel by 24.2%, and furniture by 18.3%. The core apparel category was down 12.2% and food down 4.7%.

By May, however, a few department store chains posted higher sales over 2013 led by Matsuya up 6.7%, and Hankyu Hanshin by 1.3%. Others posted respectable results too; Isetan-Mitsukoshi was down only 2.7% and Sogo & Seibu 2.9%.

Retailers in other sectors also suggested a quick recovery in May, including United Arrows up 5.4% and Adastria up 5.8%, and continued bouyancy for others such as Uniqlo, up more than 7%.