Bargain cashmere tests thrifty Japan's taste for little luxuries

Sun Oct 6, 2013 7:53pm EDT
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By Ritsuko Shimizu

TOKYO (Reuters) - Cashmere sweaters at Uniqlo. Gourmet coffee and ice cream at 7-Eleven. These incongruously premium offerings by two of Japan's biggest retailers are part of a strategy to lift profit margins by enticing thrifty shoppers to splurge on little luxuries.

Uniqlo brand owner Fast Retailing (9983.T: Quote) and Seven & I Holdings Co Ltd (3382.T: Quote) plans to boost spending per customer are being challenged as Prime Minister Shinzo Abe's aggressive economic stimulus has done little to loosen the purse strings of Japan's traditionally frugal consumers.

While Abe's policies have lifted the stock market and spurred spending on luxury goods, overall retail sales have grown only tepidly since he was elected last year.

A sales tax increase could also dent consumer spending once it takes effect in April. After luring customers through discounts and promotions, Fast Retailing and Seven & I hope to counter a further slowdown in spending through their value-for-money offerings.

"When it comes to day-to-day spending, people are still in penny-pinching mode. We can't see any impact from Abenomics," Seven and I Holdings President Noritoshi Murata said after the company reported a record high operating profit for the first half.

"Japan has a lot of people with money to spend," he added. "If we make things of quality, of value, and at a reasonable price, we can breathe some life into the market."

Uniqlo in Japan accounts for two-thirds of the sales and 80 percent of the profit of Fast Retailing, which is expected to report a record high operating profit for the full-year to August 31.

Profit margins, however, are likely to have been squeezed. Uniqlo, the company's biggest brand, saw sales and customer traffic in Japan grow during the second-half at double-digit rates, but spending per customer fell more than 5 percent.   Continued...

A woman checks cashmere clothes at Fast Retailing's Uniqlo casual clothing store in Tokyo October 4, 2013. REUTERS/Issei Kato