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Japan drugstore chains ailing as tourists turn frugal

Drugstore chain Matsumotokiyoshi is gearing up to serve foreign shoppers.

TOKYO -- Thriftier spending habits by foreign tourists visiting Japan are weighing down earnings at three of the nation's biggest drugstore chains.

Matsumotokiyoshi Holdings, Sundrug and Cocokara Fine all undershot sales outlooks for the six months ended September, reveal earnings statements released through Friday. Demand by foreign tourists has peaked amid the strong yen, forcing all three to go back to the drawing board.

"The bulk purchases by visitors coming to Japan suddenly vanished from sight this year," said Sundrug President Kimiya Akao. The chain has struggled to move items that foreigners can buy tax-free, and same-store sales at drugstores dropped despite growth forecasts. Tax-free products at Cocokara also failed to reach the sales target.

Consumption by inbound tourists first waned at department stores and other locations that sell high-end products. Drugstores remained resilient since they offer cheap everyday products and cosmetics. However, the demand from foreign visitors has shifted away from shopping and toward experience-based options such as sightseeing and dining. Those trends have also impacted drugstores.

Group net profit at Matsumotokiyoshi actually jumped 21% on the year in the first half to 9.3 billion yen ($87.1 million), while the black ink at Sundrug climbed 6% to 11.1 billion yen. Both are records for the April-September period. Cocokara plunged 23% to 2.9 billion yen.

Sales at Matsumotokiyoshi edged up to 266.4 billion yen, 1% short of forecasts. Sundrug's 260.7 billion yen and Cocokara's 188.4 billion yen in sales both missed guidance by 2%. Cocokara downgraded full-year earnings projections.

Now that the shopping sprees have hit a ceiling, the three chains are carving out separate strategies.

"Moving forward, we will continue to interact with our visitors to Japan in a meticulous fashion," said Kiyoo Matsumoto, president of Matsumotokiyoshi. The company is busy creating outlets that target foreigners, opening locations in tourist spots like Osaka's Dotonbori district and Tokyo's Ueno section.

Matsumotokiyoshi is also using passport data to analyze hot sellers based on age and nationality. The results are utilized to display products matching the tastes of inbound travelers

Meanwhile, Sundrug is pivoting back to domestic consumers. The chain is busy remodeling stores and developing product lineups priced competitively. Cocokara is merging more pharmacies with outlets, seeking to firm up sales of medications, which are profitable.

(Nikkei)

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