TOKYO -- Japanese retail stocks are facing downward pressure as investors expect the consumption tax increase April 1 to temporarily cool consumer spending, hurting retailers' earnings at the beginning of fiscal 2014.
With the broader Japanese market losing ground for a fourth session Monday, the Nikkei Average Subindex for the retail industry sank to 2,456, the lowest since last September.
Aeon suffered the day's steepest drop of 4.26%, falling to a level not seen since June. Investors punished the supermarket operator for its Friday downgrade of earnings guidance for the year ended Feb. 28.
The selling spread to other stocks in the retail sector, with furniture chain Nitori Holdings heading south for a second session and supermarket and convenience store firm Seven & I Holdings sliding for a sixth day.
"It is unclear how much consumption will soften in April and beyond, so investors are hesitant to pour money into retail stocks," says Masayuki Kubota, chief strategist at Rakuten Securities.
"The government policy of levying more tax on individuals and less tax on businesses is weighing heavily on retail shares," says Masafumi Shoda, research analyst at Nomura Securities.
Even in the retail industry, supermarket operators such as Life Corp. and Aeon have tumbled nearly 10% since the end of February while the declines in specialty stores such as Nitori and Shimamura have been limited to around 6%.
Meanwhile, department store stocks are remaining firm. H2O Retailing and Isetan Mitsukoshi Holdings are up more than 4% and about 3%, respectively, since the end of last month -- outperforming the benchmark Nikkei index, which slid 4%.
Department store shares had faced selling ahead of the current downtrend on speculation that they would be more susceptible to the tax hike's impact, so their bargain prices are attracting investors now. They are also enjoying robust sales of high-priced goods amid the economic recovery.