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Sunday, Jan. 10, 2010
Fast fashion is not what's ailing Japan's economy
Last fall outspoken economist Noriko Hama caused a fuss with an essay about deflation in the magazine Bungei Shunju. She said that the trend of yasuuri kyoso (low price competition) was "destroying society," and not just in Japan. However, in Japan she singled out the clothing retailer Uniqlo as the main representative of this "self-strangling" movement.
Tadashi Yanai, the chairman of Uniqlo's parent, Fast Retailing, didn't mention Hama's essay when he gave an interview to Asahi Shimbun last month, but he's obviously sensitive to such charges. He said the real cause of deflation isn't competition but rather sluggish consumer spending.
That sounds logical, but it's not as if the two phenomena aren't related. During the bubble era of the 1980s, Japan was notorious for its high consumer prices and in the two decades that have elapsed since then these prices have come down. At the same time, the consumer base has shrunk as the population aged and niche markets became more dynamic.
Consequently, the most intractable problem for the retail sector is that the majority of Japanese have everything they need. There are fewer new Japanese taking the place of older consumers, and those who are coming of consumption age are facing poorer employment opportunities, thus giving them less guaranteed disposable income than their parents had when they entered the work force. This new layer of consumers grew up during a time when low price competition became the norm. They have been conditioned to seek out bargains and gain personal satisfaction from saving money.
It's not a novel idea, but thanks to years of gleeful media coverage of anything labeled gekiyasu (extremely cheap) — from rock-bottom supermarket sales to celebrities devising ways to live on ¥100 a day — retailers are being forced to offer lower and lower prices just to stay in business. Gekiyasu is practically a philosophy, and many TV series are built around the concept. Despite the attention paid to the Michelin restaurant guide, the majority of food shows focus on "B-class gourmet" tours and home cooking on the cheap. Gorgeous meals are only covered if they have an economical angle, and while this is a welcome change from the old model of TV personalities gobbling expensive melons and partaking of 50-year-old wines that viewers could never hope to sample, it indirectly puts pressure on businesses that may not be able to offer bargains every day of the week.
Even retail sectors that were traditionally excluded from price considerations have been affected. Two months ago, the retailer Seiyu was running TV ads for its yearend gift selection with actor Koji Ishizaka saying, "I didn't spend less money for your present, but I did get more for my money." Gekiyasu has become a kind of devil's bargain for the media. Programs about cheap consumption get high ratings and magazine articles about saving money sell well, but in the long run deflation undermines companies' ability to buy advertising. Several weeks ago, Tomoaki Ogura, the host of Fuji TV's wide show, "Toku Da Ne," remarked during a report about deflation that his occupation may be complicit in its own demise.
Yanai can be called the godfather of this philosophy, since he found a way of convincing consumers to buy stuff they didn't really need. If the jeans are only ¥990, you can buy a pair for every day of the week. That is what Hama is referring to when she talks about "Uniqlo-style deflation." She isn't blaming Yanai for the problem. She is simply holding the store up as it's prime example. Once Uniqlo was the upstart. Now it's the norm.
But as Hama said in a recent conversation in Aera, if things proceed as they are future new consumers won't even be able to afford Uniqlo. "People who work in automobile factories can't buy automobiles," she points out, "and people who build houses can't buy homes." So even though things are becoming cheaper, wages and salaries are dropping just as steadily if not faster.
The problem is structural. Japan's legendary expansion in the 1960s and then the repeat growth spurt in the 1980s were the consequences of life changes for the generation called dankai sedai, usually translated as "postwar baby boomers" but representing a narrower range of ages than that represented by the same term in the West. This group entered the work force in the 1960s and were encouraged to buy everything, since they had nothing and their parents had less. Then in the 1980s they were encouraged to buy homes, thus priming the real-estate bubble.
The "dankai juniors," meaning the children of the boomers, came of age in the early 1990s, and though they had fewer job opportunities than their parents, their ranks were large enough to keep consumption levels high. But in the last decade the subsequent generation of workers hasn't been able to keep consumption at the same level, which is ironic because 2002-2007 marked the longest period of expansion in postwar Japan. If the average person didn't feel the benefits, it's because it was all tied to exports. Japanese companies remained competitive overseas by downsizing domestic work forces and keeping a lid on wages. Older people have everything they need, but younger people simply don't have the money to buy what they need or want. The Japanese economy may be suffering due to excess competitiveness, but it's not retail competitiveness, it's the competitiveness of companies that say they have to keep salaries low to survive.
The solution is to give young people more money. If they have cash to spend, population contraction won't be as much of a problem, but Japanese businesses say they can't do it. If these companies really wanted to help the country, they would pay workers wages they could live on. They'd also encourage their older workers to retire, thus forcing them to spend their savings, the sooner the better.