REPEAT:MNI INTERVIEW: Japan Offl: Structural Shift Hits Retail

--METI Official: Need for Retail Transformation in Aging Economy

By Max Sato

     TOKYO (MNI) - The latest rain storm disaster that killed more than 200

people and destroyed homes and roads in southwestern Japan may be dampening both

production and consumption this month, but greater structural forces are at play

in slackening retail sales, according to a senior Ministry of Economy, Trade and

Industry official.

     Kazuhiko Manaka, director of METI's Office of the Current Survey for the

Service Industry, told MNI in an interview that spending by middle-income

earners is losing steam while that department store sales have been shored up by

purchases of high-end goods by wealthy consumers and continued strong spending

by visitors from overseas.

     "Salaries have continued to rise but not strong enough to entice consumers

to spend more. People are buying quality goods but we haven't seen a steady

recovery in retail sales," he said.

     --MIDDLE-INCOME BLUES

     The structural slump in department store sales of women's and children's

clothing -- consumers prefer more specialized retailers -- has been aggravated

by weather factors as bad weather is becoming a permanent, rather than temporary

factor to dampen consumption in Japan, he added.

     "While the depreciation of the yen and higher share prices are working as a

tailwind, department store chains must figure out how to develop new business

models," Manaka said.

     Large home hardware chains, which once dominated retail forces in Japanese

suburbs and rural areas, also need to transform, he said.

     --COMPETITION AMONG RETAILERS

     "Until several years ago, large-scale roadside home centers were doing

well, offering a wide range of products for home improvements and daily use,"

Manaka said. "But as the population has aged and demand has declined, those

stores are now in direct competition with smaller-scale drug store chains that

are located closer to consumers."

     "We've heard from the home center industry that they are trying to

customize their services to meet the changing needs because just being big is

not enough any longer," he said.

     Supermarket chains are also struggling in stiff competition for market

share, with some offering discounts amid rising energy and labor costs. Manaka

said middle-income earners are also shifting purchases to more specialized

retailers from supermarkets.

     Last week, the Nikkei newspaper reported that Walmart plans to sell its

Japanese unit Seiyu for up to Y500 billion as the U.S. retail giant reviews its

global operations amid intensifying competition from online retailers,

particularly Amazon.com.

     Japan's retail sales were sluggish in May due to fewer public holidays

compared to a year before and cooler weather after unusually high temperatures

boosted demand for summer clothing in April.

     Retail sales rose 0.6% on year in May for the seventh straight year-on-year

rise but the pace of growth decelerated from +1.5% in April and was much slower

than the recent peak of +3.6% in December 2017.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com