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

Repeats Story Initially Transmitted at 11:16 GMT Jul 17/07:16 EST Jul 17
--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

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