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Retail

Don Quijote's vaunted discounts win over shoppers ahead of tax hike

Japanese retailer scores 30th year of profit growth as families join core

Don Quijote specializes in appealing to customers with eye-turning discounts. (Photo from Don Quijote's Facebook account)

TOKYO -- Upon entering a Mega Don Quijote Uny supercenter in Yokohama this month, customers immediately notice the ostentatious displays flaunting unbeatable prices.

"No competitor can match our prices!" screamed one sign.

"Go and compare these prices!" said another.

The Don Quijote outlet in the residential neighborhood of Oguchi is within 100 meters of a supermarket, a drugstore and a consumer electronics seller -- all in direct competition with the supercenter.

"In order to win in an area, having an unwavering focus on discounts is important," said Toshimasa Kuboi, the manager in charge of outlets for the greater Tokyo area.

That strategy has served Don Quijote for much of its history. Parent company Pan Pacific International Holdings reported Tuesday a 22% rise in consolidated operating profit to 63.1 billion yen ($599 million) for the year ended in June. That marks the 30th consecutive increase in black ink, a record that dates to before the company went public in 1998.

Don Quijote specializes in appealing to customers with eye-turning discounts. The company is emphasizing that strategy as it prepares for the rise in Japan's consumption tax rate to 10%, scheduled for October. The chain has been "temporarily sacrificing gross profit since around spring," a Pan Pacific executive said.

Don Quijote has built a strong reputation as an outlet of choice among young shoppers. But families have underpinned Pan Pacific's growth, with the support stemming from the last consumption tax hike in April 2014.

Back then, the tax rate was raised to 8% from 5%, which turned consumers thrifty. Don Quijote intensified its competitive pricing, mainly with daily necessities. The retail chain broadened selections in both the low-price and midprice ranges, attracting new shoppers in the family demographic.

During the fiscal year ended in June 2015, same-store sales climbed 4.6%. Since then, annual same-store sales have never performed below the previous year. Don Quijote's record contrasts sharply with that of superstores and other rivals struggling with the loss of customer traffic.

Pan Pacific looks to repeat that outcome after the October rate hike. Though food will carry a lower rate of 8%, retailers face a heated fight for customers. Don Quijote will rely not on grandiose outside ads for individual discounts, but instead use the imagery of people shopping regularly at its stores in order to influence purchasing behavior.

"We're engaging in price appeal in advance, impressing upon the consumers' deep psyche that Don Quijote is the place to cheaply purchase daily necessities," the Pan Pacific executive said.

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