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Business trends

Cracks emerge in Japan's brick-and-mortar economy

Population decline hits even big chains like Uniqlo, Nikkei analysis shows

People are seen reflected in a shopping mall mirror at a busy intersection in Tokyo's Harajuku district.   © Getty Images

TOKYO -- Retailers and restaurants in Japan are shrinking their chains as a combination of e-commerce and population decline forces changes to business models that had relied on constant new openings to drive earnings growth.

The country now has just under 118,000 retail and restaurant locations, down 1% from the total at the end of 2018, a Nikkei analysis based on trade group data finds.

And the decline threatens to quicken as Japan catches up to the U.S., where once-proud chain stores are dying off, in the extent of online shopping.

"The retail industry as a whole is suffering from a glut of stores," said President Takashi Sawada of FamilyMart, under FamilyMart Uny Holdings. Japan's second-largest convenience store chain has cut locations for two straight years.

Restaurants in Japan have decreased 2.4%, dropping for the first time in three years, the Nikkei analysis shows. Department stores are down 1.8% in an 11th straight annual decline, while the number of supermarkets has fallen 0.3%.

The data sheds new light on the sector as demographic changes push even its biggest players make previously unthinkable strategic shifts. Seven & i Holdings, the parent of leading convenience store chain Seven-Eleven Japan, is reconsidering its use of 24-hour locations as it slows net store openings to the lowest level in four decades.

Convenience stores have barely grown, eking out a 0.1% increase since the end of 2018, according to the Nikkei analysis, which covers figures as recent as May.

The data also includes four big companies that do not belong to retail and restaurant trade groups publishing monthly store counts: Uniqlo parent Fast Retailing, rival apparel chain Shimamura, footwear seller ABC-Mart and furniture store operator Nitori Holdings. Together, these four companies managed only a 0.6% increase in stores, failing to offset the overall decline.

A study by the Ministry of Economy, Trade and Industry shows that retail stores, including owner-operated businesses, shrank nearly 4% between 2014 and 2016. Closings have spread from small proprietors to big corporations.

Among restaurants, Mos Food Services is trimming its Mos Burger chain in Japan by 1% this fiscal year, even as it moves into the Philippines.

As the value of existing stores declines, retailers are taking bigger write-downs. Aeon, Japan's largest retail group by sales, booked 62.7 billion yen ($578 million) in impairment losses for last fiscal year, up around 30% on the year. Impairment losses at companies with February book-closings -- many in the retail and restaurant industries -- totaled roughly 260 billion yen last fiscal year.

The situation is more dire in the U.S., where e-commerce accounts for a little more than 10% of the retail market, compared with 6% in Japan.

Announced U.S. retail store closings this year through early June totaled 7,222, already surpassing the 5,864 recorded for all of 2018, according to Coresight Research. Closures will reach 75,000 locations by 2026, forecasts UBS, which sees apparel hit hard at 21,000, or 17% of existing stores. The U.S. is said to have about 4 million retail establishments.

E-commerce penetration in Japan is expected to rise. As a declining population erodes consumer spending and the labor force, the country faces a threat of retail disruption more severe than the U.S.

There, the ability to adapt has made the difference between such winners as Walmart, which has rapidly built up its online presence and turned its stores into fulfillment centers, and bankrupt Sears.

Japan has seen moves that link online shopping with physical stores to better reach consumers. Amazon Japan will start offering groceries from supermarket chain Life in certain parts of Tokyo by the end of the year, Nikkei has reported. Demand for refrigerated lockers is up as more people have food delivered to their homes.

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