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Japanese retailers stuck in soft patch

Supermarket in Tokyo

TOKYO -- Many of Japan's biggest retailers are still crawling out of a gaping hole in consumer spending left by the April 1 consumption tax hike.

     Of 77 retailers that had reported March-August results as of Thursday, 46 saw pretax profit fall from year-earlier levels in the June-August quarter, and 32 suffered revenue drops as well.

     Japanese crammed in all sorts of purchases before the tax increase. At first, the ensuing lull seemed less severe than had been predicted. Many figured stores would see business begin picking up around June.

     But the June-August quarter brought a 9% decline in pretax profit for the 77 retailers that have reported results. Torrential rains and other nasty weather was partly to blame. Profit had been flat in the preceding three months, with the last-minute rush of sales offsetting the slump that followed the tax hike. All told, profit for the March-August half fell 5% on the year.

     Seven & i Holdings reaped a record-high half-year profit but saw pretax earnings slip 1% in the June-August quarter after a 5% gain in the preceding three months. Business was slack at the group's general merchandise stores, while its convenience stores had trouble moving drinks and other summer staples. Sales are recovering more slowly than after the 1997 consumption tax increase, President Noritoshi Murata says.

     Many groups that saw revenue and profit growth in the March-May quarter -- including department store operator J.Front Retailing and DIY store operator DCM Holdings -- were disappointed on both counts in the next three months.

     Others, notably specialty retailers selling private-label products, were able to maintain their momentum. Nitori Holdings reports brisk business in sofas priced at nearly 80,000 yen ($740). Ryohin Keikaku, the company behind the minimalist Muji chain, says pricey apparel is selling well. Although frugality is generally on the rise among Japanese consumers as wages fail to keep pace with inflation, some are clearly willing to shell out a bit more for the things they want.

     Consumer spending also seems to be recovering at a different speed in the greater Tokyo area than in small-town Japan. Supermarket operator Maruetsu, which has a big presence in and around the capital, booked higher profits in both quarters as pricey cuts of beef sold particularly well. Not so for Izumiya, whose stores are located mostly in western Japan.

     Although the outlook for full-year earnings has dimmed somewhat -- on average, the 77 retailers are now forecasting a 6% pretax profit gain, compared with around 9% early on -- three-quarters of them expect growth.


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