Head Of Asia's Largest Clothing Retailer: "I Don’t Have An Optimistic View About Consumption In Japan"

Tyler Durden's picture

Previously we observed that when it comes to discretionary spending, if not so much staples, Japan's sales tax hike has been an absolute disaster, sending sales at some department stores such as Takashimaya plunging by 25% in the week since the April 1st roll out  of the tax many think could unleash Japan's next recession.

Today we get some more on the ground perspective on the abysmal (second) reign of Abe, where the stock market may be approaching bear market territory (after everyone was convinced the Nikkei was set to soar in 2014), but it is really the economy which is about to get it, most likely resulting in Abe's second premature evacuation stage left (with the now traditional Imodium scapegoat) well before the work of Abenomics is completed, in the process sending the USDJPY once again back into double digit territory.

As Bloomberg reported overnight, Fast Retailing, Asia's largest clothing retailer was crushed in Friday trading, dropping 8% after it cut its profit forecast, citing higher costs and weak demand.

The company’s billionaire President Tadashi Yanai pared the profit outlook after spending more on salaries and expanding overseas, opening Uniqlo stores in New York, Paris, Shanghai and Jakarta to boost sales as a consumption tax increase begun April 1 in Japan damps demand. Costs for part-time workers, distribution and warehousing rose in the first half.


Fast Retailing’s net income dropped 15 percent to 23 billion yen in the second quarter ended February, as calculated from first-half earnings the company reported yesterday. Sales climbed 26 percent to 375.3 billion yen in the three-month period, while operating profit fell to 39.2 billion yen from 40 billion yen a year earlier, the company said.


The company’s operating margin slumped 23 percent from a year earlier to 10 percent in the second quarter, according to data compiled by Bloomberg. The margin was 17 percent in the second quarter of 2012, the data show. Operating income at the domestic Uniqlo business will probably be 100 billion yen this year, the company said yesterday, 13 percent less than previously forecast.

The reason for the margin collapse - Abe's much vaunted wages increase (which as we showed previously prevalently amounts to about Y1000 per month, or enough to buy 4 BigMacs).

Sales are expected to slow in the fiscal second half, while costs for labor, transportation and warehouses will increase, Chief Financial Officer Takeshi Okazaki said yesterday, without elaborating.


The retailer said last month it plans to change 16,000 part-timers’ contracts at Uniqlo in Japan to full time to maintain a stable workforce. 


“The rising labor cost concerns me a little,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co.

Surely Fast at least benefited from surge spending ahead of the April 1 tax hike? Nope.

A last-minute surge in sales before the tax increase failed to materialize, the company said yesterday.

So an 8% correction should at least make the stock cheap? Wrong again.

Fast Retailing’s price fell to about 37 times estimated earnings per share, still the highest multiple among the 10 largest global apparel retailers, according to data compiled by Bloomberg.


“The multiple is just too high” for Fast Retailing, Dairo Murata, an analyst at JPMorgan Securities Japan Co. said by phone today. He rates the shares neutral, the equivalent of hold.

What about the broader economy:

A gauge of economic expectations of people such as taxi drivers and restaurant workers tumbled to 34.7 in March from 40 a month earlier, according to the Economy Watchers survey released April 8 by the Cabinet Office in Tokyo.

The bottom line: “I don’t have an optimistic view about consumption in Japan,” Yanai told reporters yesterday in Tokyo. He said he had yet to see an effect on sales from the tax increase. He will quite soon, and he won't be happy with what he sees.

And as Bloomberg conveniently points out what we started with, "The last time Japan increased the consumption levy, in 1997, the economy fell into recession." This time won't be different.

Bottom line: non-core prices soaring courtesy of Japan's QE crushing discretionary purchases even as stocks - that much vaunted "wealth effect" transmission mechanism about to enter a bear market, slammed corporate margins meaning CEOs are about to once again lower salaries after having followed Abe's misguided directive to boost wages, and an economy that is about to recontract and resume its recessionary status quo, even as the BOJ is set to hold Japan's entire GDP on its balance sheet in as little as two years.

All of the above leads us to conclude that someone simply mistook a p for a b in Abenomics.

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jbvtme's picture

what might be a good seller is a hoodie that is resistant to nuclear radiation...

Anusocracy's picture

If he's talking about the pathological wasting disease, Japan definitely has it in spades.

DoChenRollingBearing's picture

I was in Osaka, Japan briefly in 2012.  Horrifically expensive!  It is hard for me to see how the quality of life is even there with prices of so many things so high.

Japan was much more expensive than S Korea was.

zaphod's picture

I think there is a big price differential between the cost structure visitors or brief residents see and what the locals see.

I lived in Seoul for a few years, and at first it seemed much more expensive than NYC or SF, but after awhile you learn how to go where 99% of the locals go and how to get off the tourist path. Then things become cheap. From my brief time in Japan that seemed to hold up there as well, it was stupidly expensive until we met up with a native friend, then the costs seemed to magically drop. 

DoChenRollingBearing's picture

That may be it.  How else could the locals live otherwise?  Your explanation is the only one I see now that makes sense.


Yet, I do not pay really high prices (like Korea, or worse, Japan) when I visit NYC.  I guess that if you cannot read the signs nor speak the language, well, I guess the visitors pick up that cost differential...

Jimmy Carter was right's picture

Long term expat here, yes some things are horribly expensive, like beef and transport. But others are incredibly cheap , up until now that is. Opening a business and insuring it are cheap. Income taxes and healthcare are cheap for now. Living simply and eating real healthy food is easier than some think.

Mr Giggles's picture

Two economies, same every where.

toadold's picture

I've heard the same from long term visitors.  You get off the main drags were the priceist real estate is and walk a block or two and you find the inexpesnive stores and resturants that the locals use. Lately though meat prices are supposedly getting bad everywhere and you get tired of "flavored" noodles.


Mr Giggles's picture

Cooorrr you dont say.

813kml's picture

The future for Japanese clothiers lies in alterations.  Birth defects from Fukushima radiation will create bodies in all shapes and sizes.

Not Too Important's picture

All the Japanese children are in the Fukushima crosshairs. Here's a documented look at what has already started in Japan, from a much smaller disaster 28 years ago:

Chernobyl Heart Movie; How Children Are Affected By Low Level Radiation

Soon coming to a neighborhood near you across the North American continent, in real time.

Mr Giggles's picture

One long bottom red line from Abe, shit that must be a bastard.

Bam_Man's picture

The future consumption trend in Japan will be led by sales of adult diapers and incontinence products and denture adhesive.

Not Too Important's picture
"Herman J Mueller discovered in 1927 the following: ARTIFICIAL TRANSMUTATION OF THE GENE by radiation (Nobel Prize in Physiology or Medicine in 1946) There was the Geneva Summit 1955, about the "peaceful" use of nuclear energy. Mueller wanted to present his report in which he had calculated that people in 200 to 300 years – by the current radiation – will have genetic damage as the most affected survivors of Hiroshima. These people, in 10 generations, would have to work only for one thing: To obtain the means to take care of their suffering. This is what Mueller wanted to tell, BUT the AEC (Predecessor of the NRC) gave him no talk permission. [cut for brevity]" http://www.sunypress.edu/p-513-mans-future-birthright.aspx We're already 3 generations in, and now add the Fukushima radiation. It won't take 10 generations in Japan. They've already started.

If one was to graph the increase in radiation-induced mutations in the global population, at this point the line would go straight up.

Anusocracy's picture

Mueller was a liar.

He ignored conflicting research because he was trying to get atmospheric nuclear tests banned.

The linear no-threshold model is bogus.

Not Too Important's picture

Oh, I don't know:

'Worldwide Cancer Incidence Predicted to Rise 75% by 2030'

"The worldwide incidence of cancer is expected to increase 75 percent by 2030, with a projected increase of more than 90 percent in the poorest nations, a new study reveals."


How much of this will be from radiation, who knows. There are now diagnostics to determine any radiation markers, and even where the radiation came from, but this will never be widely implemented.

So are you saying we should have continued atmospheric nuclear testing? Actually, don't bother. Fukushima, over three years in, is comparable to over 2.3 million Hiroshima bombs going off in the atmosphere.

I don't know if Mueller was right with his statistics or not, but he was sure right about what was coming.

buzzsaw99's picture

The BoJ will buy the entire Nikkei before it's over just as the fed will own the entire russell some day.

Duke Dog's picture

I would immediately open up a department specializing in designer body bags - that's where the growth is going to be in Japan and everywhere downwind.

A_Nejad's picture

You've got an idea there...IPO or bust!

Chuck Knoblauch's picture

After 20 years of a rigged market, he's finally caught on? Dumb little shit.

Duke Dog's picture

"....opening Uniqlo stores in New York, Paris, Shanghai and Jakarta to boost sales...." - You have got to be shitting me!

Truth is stranger than fiction. LMFAO, "OK, Everybody Now, Let's GLO together".

Jimmy Carter was right's picture

In japan uniqlo is known as the cheapy place for clothes, not very long lasting stuff. I was shocked to see a uniqlo on fifth ave in manhattan, it's like seeing a Burger King on rodeo drive.

Smegley Wanxalot's picture

Japan should just do its own ACA - the Affordable Clothing Act - and mandate everyone spend 17% of their income on clothing each month, or pay a tax.

Then everything will work right.

syntaxterror's picture

Gee, ya think? Your dumbfuck leaders devalued the currency 30%. Guess that means they're buying a lot less of your shit aren't thery?

BigInJapan's picture

When I first moved to Japan, ten years ago, the quality of UNIQLO's clothes was incrdible, as evidenced by the 10 year old jeans and t-shirt that I wore yesterday. Both pieces cost me around $10 each. Nowadays, a UNIQLO short isn't likely to make it through a year without pilling, the silkscreening cracking, or just outright falling apart. UNIQLO dug its own grave when they bought up the glut of Chinese denim fabric that was dumped onto the market 3 or 4 years ago. It has become, quite simply, a place to spend too much money on shit that belongs at the Compton Swap Meet.