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Business

Japan's domestic demand-led companies seeing diverse results

Experience-oriented consumption buoys some, others suffer from cost pressure

Tokyo DisneySea's popular seasonal show based on the "Pirates of the Caribbean" film franchise has boosted the company's revenue for the first six months of the current fiscal year. (Photo by Sachiko Kishida)

TOKYO -- Business remains brisk for Japan's manufacturers, such as semiconductor and machinery makers, whose earnings derive mostly from overseas operations, but domestic demand-oriented companies, such as those in the service and retail sectors, have seen diverging results in the first six months of the current fiscal year.

In the domestic-demand sectors, consumption driven by pursuit of experiences, such as spending at theme parks and cinemas, has proven particularly strong, bumping up profits at related companies. Meanwhile, foreign visitors have shown a resilient level of spending on goods, which has also driven demand.

By contrast, some companies suffered from labor shortages and consumers' reluctance to spend. Some retailers, including supermarket operators, and transportation companies appear set to see their profits fall.

The brisk experience-oriented consumption has driven sales at Oriental Land, the operator of the Tokyo Disney Resort theme park complex. Its revenue is getting a boost from the popularity of its seasonal events, such as a show that recreates the fantasy world of the "Pirates of the Caribbean" film franchise at Tokyo DisneySea, a part of TDR.

"I find myself visiting here to see the shows again and again because I like how they make me feel like I'm a member of the pirates," said a man in his 30s who visited Tokyo DisneySea, a theme park in Urayasu, east of Tokyo, in August.

Oriental Land's net profit for the first six months of the current fiscal year from April grew 11% from a year ago to 42.4 billion yen ($373.4 million), defying the company's prior expectations of a drop.

Experience-oriented consumption also buoyed earnings at Shochiku, which engages in theater production and film studio management. The company has seen brisk sales of its own films. Cinemas operated by its subsidiary are also enjoying increased attendance thanks to a number of films distributed by other studios that have proven blockbusters. In kabuki theater production, titles featuring star actor Ebizo Ichikawa have been especially popular. The company booked 2.6 billion yen in net profit, up 13% from a year ago, for the April-September period.

Dalton Capital (Japan) senior fund manager Fumio Matsumoto said Japan's job situation is "not bad" and that hourly pay is on the rise.

"Individuals are strongly motivated to spend. They don't hesitate to pay for things they want," Matsumoto said.

Transport smiling

There is also healthy growth in profits among companies that move people and goods.

ANA Holdings and Japan Airlines have both upgraded their earnings estimates for the current fiscal year. JR East and JR West, the main railway operators covering eastern and western Japan, respectively, have seen their passenger traffic grow. Passenger numbers also increased for Tobu Railway's train line linking Tokyo and Nikko, a popular tourist spot north of the capital, sending the company's April-September net profit to all-time high.

Some companies are benefiting from strong spending by foreign visitors. Thanks to increased tourist traffic and their spending after more discount carriers entered service on routes to the Kansai International Airport, earnings have risen at H2O Retailing, which operates department stores in Osaka. For the same reason, tax-free sales of Takashimaya jumped 50% in the first six months of the current fiscal year that began in March, led by the Osaka outlet.

The combined total of net profit at all listed companies in Japan is expected to renew its record high for the second consecutive year in the year ending next March. The significant earnings are being driven by manufacturers, of which electronics, machinery and chemicals makers, which all earn profits overseas, lead the way. Among the nonmanufacturing sectors, general traders are gaining in earnings momentum, but their earnings growth appears set to be smaller than that of manufacturers.

On the other hand, supermarket operators have suffered rising costs.

"Rising costs are pressuring our operation," said President Takaharu Iwasaki of supermarket operator Life.

Cost pressure comes from rising hourly pay for part-timers, which has increased labor and distribution costs. The combined total of net profit at key retailers for the first six months of the year from March increased 49% compared to a year ago, led by department store operators, but supermarket companies have struggled.

Many retailers end their fiscal year in February.

Rising labor costs have thrown delivery and logistics company Yamato Holdings into net loss for the April-September period. The company is hiring more delivery staff, but new staff training has proven time-consuming, resulting in a declining number deliveries per delivery staff.

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