Industryweek 6487 Luxury 1

Japanese Consumers Shun Luxury Goods after Tax Hike

April 10, 2014
As the national levy rose to 8% from 5% on April 1, luxury items and appliances suffered as one major department store reported a 25% drop in sales.

TOKYO -- Consumers in Japan are keeping their wallets firmly closed after the first sales tax rise in 17 years, with luxury items and appliances suffering as one major department store reported a 25% drop in sales.

The precipitous plunge comes after millions of shoppers made a last-minute dash to stores before the national levy rose to 8% from 5% on April 1, a rise that sparked fears of a drop in consumer spending in turn derailing Japan's nascent economic recovery.

Like many retailers, department store Takashimaya had seen a big jump in sales last month, with demand particularly brisk for handbags and other luxury items ahead of the rate hike -- seen as critical for containing Japan's spiraling national debt.

On Wednesday, it said sales were down about one-quarter in the first week of April compared with a year ago.

Other major department stores including Mitsukoshi and Sogo have seen sales drop off between 10% and 20%, while Bic Camera -- Japan's biggest consumer electronics and appliance chain -- said demand was stronger than expected, although sales were still down as much as one-fifth in some cases.

At the Daiei supermarket chain, sales were down about 8% from a year ago as shoppers scooped up staples including rice and toilet paper ahead of the tax rise.

"Many customers have made provisions for about one-and-a-half or two months, so the drop should not last beyond that," a company official said Wednesday.

Some were less affected with convenience stores weathering the rise, while the head of Uniqlo said Thursday there was no pre-tax shopping rush at the cheap chic clothing retailer -- and no drop after the hike.

The modest tax rise this month might not register in places with much higher levies.

But not so in Japan, where the economy has long been locked in a deflationary spiral and consumers are used to paying pretty much the same prices year after year for their haircuts, televisions, beer and sushi.

The last time Japan rolled out a higher sales levy, in 1997, it was followed by years of deflation and tepid growth that defined the country's protracted slump.

The latest rise has presented a huge challenge for Prime Minister Shinzo Abe since he swept to power in late 2012 on a ticket to drag the world's number-three economy out of a cycle of falling prices and tepid growth.

Copyright Agence France-Presse, 2014

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