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Industrial Reports (c) JETRO, 2007

Retail Trends in Japan Japanese Economy Division

Summary

1．Market 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

138

146 146

143145 145

146145

143

142

139

137

131

129128

130

115

120

125

130

135

140

145

150

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

(trillion yen)

Source: Ministry of Economy, Trade and Industry

2．Industrial Structure

Japan’s 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)

• 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 Japan’s retail industry increased.


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. 2　Basic Distribution Route in Japan

ConsumerRetailerWholesalerManufacturer

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.

Sector Acquiring firm Acquired firm Date Announced value*(US$ million)

Ito En FoodX Globe Co. Oct. 26, 2006 56.4Royal Holdings Co. R & K Food Service, Co. Dec. 21, 2005 3.5Ain Pharmaciez Dampharma Co. Mar. 3, 2006 8.5Sugi Pharmacy Co. Japan Co. Nov. 21, 2006 58.4

*Includes capital tie-ups. Data as of Nov. 30, 2006.Source: Thomson Financial

Food

Pharmaceuticals

Fig. 3 Representative M&As

3．Major Trends <Fields>

The number of retail establishments in 2004 decreased 4.8% from 2002, according to METI’s

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.


Againstprevioussurvey

（2004/2002）

Againstprevioussurvey

（2004/2002）Total 1,406,884 1,300,057 1,238,049 -4.8 8,028,558 7,972,805 7,762,301 -2.6

Department stores 394 362 308 -14.9 168,343 143,527 122,390 -14.7Large department stores 365 323 276 -14.6 165,289 135,980 117,424 -13.6Other department stores 29 39 32 -17.9 3,054 7,547 4,966 -34.2

General supermarkets 1,670 1,668 1,675 0.4 320,422 379,549 394,937 4.1Specialty supermarkets 33,381 37,035 36,220 -2.2 996,008 1,134,294 1,186,706 4.6

Apparel 4,780 6,324 5,991 -5.3 52,755 77,694 75,333 -3.0Food 18,707 17,691 18,485 4.5 742,991 782,804 850,599 8.7Home products 9,894 13,020 11,744 -9.8 200,262 273,796 260,774 -4.8

DIY stores 2,911 4,358 4,764 9.3 83,154 125,733 137,898 9.7Convenience stores 39,561 41,770 42,738 2.3 536,429 596,339 604,560 1.4Drug stores 10,917 14,664 13,095 -10.7 69,288 113,937 115,432 1.3Other supermarkets 77,667 65,011 56,211 -13.5 452,890 429,724 368,627 -14.2Specialty stores 921,801 775,847 726,825 -6.3 4,188,124 3,668,988 3,415,173 -6.9

Apparel 134,329 106,134 95,497 -10.0 423,411 344,563 305,623 -11.3Food 249,287 204,171 190,788 -6.6 1,063,048 947,300 890,902 -6.0Home products 538,185 465,542 440,540 -5.4 2,701,665 2,377,125 2,218,648 -6.7

Quasi-specialty stores 318,161 361,470 358,297 -0.9 1,280,899 1,495,784 1,541,926 3.1Other retail stores 3,332 2,230 2,680 20.2 16,155 10,663 12,550 17.7

Source: Ministry of Economy, Trade and Industry

Fig. 4 Retailers and Employees, by Type of Business Locations Employees (Persons)

2002 20041999 2002 2004 1999

<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

8.0

7.4

7.2

6.7

6.2

6.0

6.0

6.5

6.7

6.2

6.3

6.3

0

0.6

0.8

0.9

1.2

1.2

7.9

9.2

10.0

11.6

11.8

12.8

1.4

2.1

3.1

3.5

4.5

4.1

2.2

2.8

3.5

4.3

5.0

5.2

47.2

42.6

40.4

43.6

38.8

37.5

20.4

22.7

21.3

16.7

19.4

20.7

6.4

6.0

6.9

6.6

6.8

6.2

0% 20% 40% 60% 80% 100%

1991

1994

1997

1999

2002

2004

Department stores General supermarkets Apparel supermarkets Food supermarkets Home-product supermarkets

Convenience stores Specialty stores Quasi-specialty stores Other

Specialty stores are commercial outlets where 90% or more of products are in single category. Quasi-specialty (excluding specialty) stores are commercial outlets where50% or more of products are in a single category.Source: Ministry of Economy, Trade and Industry


<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. 6　Retail Sales Floor Area1991 1994 1997 1999 2002 2004

Total sales floor area (m2) 109,901,497 121,623,712 128,083,639 133,869,296 140,619,288 144,128,517

Locations 1,605,583 1,499,948 1,419,696 1,406,884 1,300,057 1,238,049

Average area per location(m2)

68 81 90 95 108 116

Source: Ministry of Economy, Trade and Industry Fig. 7 Average Sales Floor Area, by Type of Business (2004) (square meters) (m2)

Department stores General supermarkets Specialty supermarkets Convenience stores Drug stores21,013 9,069 1,033 110 281

Other supermarkets Specialty stores Quasi-specialty stores Other retail outlets126 59 74 120

Source: Ministry of Economy, Trade and Industry 4．Topics 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. 8　Consolidated Ordinary Profits of four Largest Department Store Chains

(100 million yen)

Against previous year (%)Takashimaya 18,929 16,444 25,360 28,996 32,755 13.0Mitsukoshi 16,582 15,140 12,339 15,214 15,272 0.4Daimaru 19,283 18,714 23,345 26,136 30,678 17.4Isetan 22,332 18,008 16,856 19,192 30,061 56.6Source: Prepared from stock reports of each company.

FY2002FY2001 FY2005FY2004FY2003


Fig. 9　Capital Investment Plans of Large Department Store ChainsPlans Amount Opening

Renovation of Shinjuku store 13 billion yen Spring 2007Opening of new store in Osaka 34 billion yen Fall 2009Redevelopment of Tokyo store 30-35 billion yen 2015Development of Diamond City Tachikawa/Musashimurayama shopping center - Fall 2006Development of Diamond City Sendai Natori shopping center - March 2007Construction of new store in Osaka 40 billion yen or less Spring 2011Opening of Osaka Umeda store 20-25 billion yen Spring 2011Opening of Daimaru LaLaport Yokohama store 15 billion yen Spring 2007Opening of Daimaru Urawa Parco store 14 billon yen Fall 2007Opening of Jinan store - September 2007Renovation of Urawa store - March 2006

Sources: Information from each company.

Daimaru

Isetan

Takashimaya

Mitsukoshi

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 Denny’s 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

Japan’s substantial earnings power and high stock value.

Ranking Company Business Sales(million yen)

Headquarters

1 Aeon Co., Ltd Supermarket 4,430,285 Chiba2 Seven & i Holdings Co. Holding company 3,895,772 Tokyo3 Daiei Supermarket 1,675,127 Hyogo4 Yamada-Denki Co. Specialty store 1,283,961 Gunma5 Uny Co. Supermarket 1,202,640 Aichi6 Seiyu Co. Supermarket 1,034,586 Tokyo7 Takashimaya Company Department store 1,031,150 Osaka8 Mitsukoshi Department store 842,009 Tokyo9 Daimaru Department store 822,584 Osaka10 Isetan Company Department store 760,038 Tokyo11 Edion Corporation Specialty store 714,697 Aichi12 Yodobashi Camera Co.* Specialty store 601,235 Tokyo13 Marui Co. Department store 561,539 Tokyo14 Kojima Co. Specialty store 498,040 Tochigi15 Seibu Department Stores* Department store 482,938 Tokyo16 Sogo Co.* Department store 474,731 Osaka17 Izumi Co. Supermarket 436,825 Hiroshima18 Bic Camera Specialty store 433,186 Tokyo19 Gigas K's Denki Corp. Specialty store 399,791 Ibaraki20 Life Corp.* Supermarket 398,319 Osaka21 Heiwado Co. Supermarket 394,620 Shiga22 Fast Retailing Co. Specialty store 383,973 Yamaguchi23 Hankyu Department Stores Department store 381,285 Osaka24 Izumiya Co. Supermarket 367,112 Osaka25 Shimamura Co. Specialty store 362,936 Saitama26 Best Denki Co. Specialty store 361,378 Fukuoka27 Matsuzakaya Co. Department store 343,936 Aichi28 Tokyu Department Store Co. Department store 338,425 Tokyo29 Daiso Industry　Co.* Specialty store 330,000 Hiroshima30 Maruetsu Supermarket 329,791 Tokyo

*nonconsolidated sales.

Fig. 10　Consolidated Sales of Top 30 Retailers in Fiscal 2005

Source: Nikkei Marketing Journal , June 28, 2006, and company websites


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 Acquiring firm Country Acquired firm Date Announced value*(US$ million)

Convenience stores MAC Asset Management Pte Ltd Singapore Circle K SunkusCo. May 16, 2006 109.9

Food/Communications Credit Suisse (Hong Kong) Ltd Hong Kong Keiozu Co. Feb. 21, 2006 10.1

Department stores Wyoming Holding GmbH(Wal-Mart Stores Group)

Switzerland(USA) Seiyu Nov. 2, 2005 577.60

Food Olympus Capital Holdings Asia Hong Kong Atom Corp. May 20, 2005 47.2

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

5．Investment Laws There are roughly 17 laws governing the entry of foreign businesses into Japan (Fig. 12).

Law Purpose Authority URL

1 Act Concerning Prohibition of Private Monopolization andMaintenance of Fair Trade Promote free competition in business and life. Japan Fair Trade Commission www.jftc.go.jp

2 Act Against Unjustifiable Premiums and MisleadingRepresentations Prohibit unjustifiable premiums and misleading representations. Japan Fair Trade Commission www.jftc.go.jp

3 Unfair Competition Prevention Law Protect intellectual property rights and maintain order in competition. Ministry of Economy, Trade and Industry www.meti.go.jp4 Specific Commercial Transactions Law Protect buyers against damage from specific business transactions. Ministry of Economy, Trade and Industry www.meti.go.jp

5 Law Concerning the Measures by Large-Scale Retail Stores forPreservation of Living Environments Preserve living environments in areas around large retail stores. Ministry of Economy, Trade and Industry www.meti.go.jp

6 Pharmaceutical Affairs Law Ensure quality and safety of pharmaceuticals, cosmetics, etc. Ministry of Health, Labor and Welfare www.mhlw.go.jp7 Liquor Tax Law Ensure stable alcohol tax and prevent youth drinking. National Tax Agency www.nta.go.jp

Ministry of Agriculture, Forestry and Fisheries www.maff.go.jpMinistry of Economy, Trade and Industry www.meti.go.jpMinistry of Environment www.env.go.jp

9 Foreign Exchange and Foreign Trade Control Law Manage and regulate exports/imports. Ministry of Economy, Trade and Industry www.meti.go.jpFood Sanitation Law Prevent food-related hazards. Ministry of Health, Labor and Welfare www.mhlw.go.jpDomestic Animal Infectious Diseases Control Law Prevent animal-based epidemics. Ministry of Agriculture, Forestry and Fisheries www.maff.go.jpPlant Protection Law Quarantine plant exports/imports. Ministry of Agriculture, Forestry and Fisheries www.maff.go.jpLaw on Improvement and Vitalization of City Centers Develop inner-city areas and stimulate local business. Ministry of Economy, Trade and Industry www.meti.go.jpCity Planning Law Regulate sound development and order in cities. Ministry of Land, Infrastructure and Transport www.mlit.go.jp

12 Consumer Contract Act Resolve consumer contract issues. Cabinet Office www.cao.go.jp

13 Act on the Protection of Personal Information Protect personal rights when personal info is used for practicalpurposes. Cabinet Office www.cao.go.jp

14 Study of antidumping duties and countervailing duties Prevent illegal dumping and protect domestic industry. Ministry of Economy, Trade and Industry www.meti.go.jp15 Law for Recycling of Specified Kinds of Home Appliances Reduce waste volume and promote recycling. Ministry of Economy, Trade and Industry www.meti.go.jp16 Product Liability Act Identify responsibility for harm caused by product defects. Ministry of Agriculture, Forestry and Fisheries www.maff.go.jp17 New Corporate Law Integrate corporate laws and deregulate. Ministry of Justice www.moj.go.jp

11

Law for the Promotion of the Utilization of Recyclable FoodResources

Fig. 12　Laws Governing Investment in Japan

Prevent waste and promote recycling.8

10


6．Industrial Organizations

Industrial OrganizationsName URL

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