Japan's Miserable Consumers

Stymied by bungling leadership and sluggish wage growth, Japan's shoppers are gearing up for a downturn

by Ian Rowley and Kenji Hall

The Louis Vuitton department store was designed by Matsuya Ginza to attract year-end shoppers. AFP PHOTO TOSHIFUMI KITAMURA

It sounds almost as absurd as navigating Tokyo's narrow streets in a Hummer: cramming an American-size refrigerator into a cramped Japanese kitchen. Yet in recent months, jumbo fridges have been among the fastest-selling appliances at Yodobashi Camera, a nationwide electronics and appliance chain. Sales are up 10% in the past three months from a year ago, outstripping even compact sizes, which have slumped. Overall, domestic retailers' big fridge sales are up, on average, more than 30% in the same period, according to marketing researcher GfK Japan. "Normally, during this time of the year, we see single-digit gains in sales," said Noriyuki Michizuka, who works in Yodobashi Camera's appliances division.

One reason for the sudden rush to get a bigger icebox is angst about the economy. As the Japanese brace for a looming economic slowdown, many want a big fridge so they can load up on cheaper frozen groceries before supermarkets and food companies, hit by rising commodity costs, jack up prices.

That's a reality check for consumers in a country that's lived through years of falling prices. The Agriculture Ministry, which has controlled wheat prices since the post-World War II U.S. occupation, says it will raise prices at which it sells imported wheat to mills by 30% next month. In December, Yamazaki Baking increased the price of white bread for the first time in 24 years. The company's Special Selection Super Mellow bread now sells for $1.85, up 12% from $1.65, and its Double Soft bread sells for $2.14, up 10% from $1.94. In Tokyo, ramen restaurants have taken to displaying signs apologizing to customers who rarely saw price hikes during the years of deflation. And since January, newspapers like the Asahi Shimbun have featured feedback from readers about how to cut back on electricity costs at home, such as doubling up on curtains, switching the fridge to low, and turning down the thermostat.

Consumer Confidence at Four-Year Low

Despite the gloomy sentiment, Japan looks to be in decent shape when compared with many industrialized countries. Economic growth hit a surprisingly high 3.7% annual rate in the last quarter. And the current expansion started in February, 2002, the longest in the postwar period. Unemployment stands at 3.8%, down from a peak of more than 5.4% in 2002, and Japanese blue chips such as Toyota (TM), Honda (HMC), Matsushita (MC), and Sony (SNE) all posted best-ever quarterly results in the three months to December (see BusinessWeek.com, 1/31/08, "How Sony Can Keep the Momentum" and 2/5/08, "Recession Worries Weigh on Toyota"). And Japan's banks have been relatively free of the subprime write-offs that have slammed their U.S. and European rivals. As of the end of December, combined subprime losses for all Japanese banks were $5.6 billion (BusinessWeek.com, 2/21/08)—a third of the $18 billion written off by Citigroup (C).

But don't talk to Mari Shibayama about the good times. The 43-year-old architect from Tachikawa, a Tokyo suburb, can't remember the last time she made a big purchase, and has taken to monitoring gas stations to find the lowest price. "I've been keeping down extra expenses," she says, even though she and her husband both work full time.