Weak yen may be existential threat to Japan's iconic dollar stores like Daiso

TOKYO (BLOOMBERG) – The supremacy of Japan’s 100-yen shops, long a symbol of an economy stuck with flat to falling prices for almost three decades, is beginning to crumble.

A weaker yen pushing up the cost of imported goods, spiking energy prices and climbing raw material costs are making it harder for Daiso Industries, Seria Co and other 100-yen store operators to operate in an inflationary environment.

Daiso in Singapore raised its prices in May, citing the rise in raw material costs and logistics. From a flat price of $2 for all its products, it switched to a 15-tier pricing system with prices ranging from $2.14 to $25.47.

In Japan, the 950 billion yen (S$9.8 billion) 100-yen shop market is struggling to figure out how to pass on increased costs without turning away an entire generation of consumers accustomed to deflation. It’s an especially tough challenge because wages aren’t increasing. The Bank of Japan’s efforts to kick-start inflation for more than a decade hasn’t delivered a healthy economic cycle of rising incomes and prices for goods and services.

“One yen cheaper” is what Minoru Akaike and other consumers are looking for when they visit 100-yen shops. The 40-year-old service-industry worker was recently at a Daiso shop in Mitaka in western Tokyo, hunting for a dish sponge at a cheaper price than the local supermarket.

Like dollar stores in the US, Japan’s 100-yen establishments emerged as a convenient way to shop for items while keeping track of the total at the cash register. Unlike their American counterparts, however, Japan’s outlets cater to a wide range of income levels and offer everything from cosmetics and stationery, to cooking utensils and cat food.

Suppliers have been seeking to raise the prices of goods they provide to B-One, a 100-yen store in Tokyo’s Kanda area. The weak yen and rising energy and material costs are making it difficult to sustain a business model that depends on slim profit margins and a high sales volume, according to the store manager, who asked not to be identified because the information isn’t public.

One supplier for garbage bags recently raised its prices, so instead of passing that along to consumers, the manufacturer reduced the quantity in each package by five items, the B-One manager said.

Seria, which operates about 1,700 stores nationwide, is forecasting a 4.2 per cent rise in sales for the fiscal year through March, while warning that operating profit will decline by 16 per cent to 17.5 billion yen.

Can Do, another listed 100-yen shop operator, said in its recent financial statement that “conditions remain challenging due to rising global material costs and the situation in Ukraine.”

In the United States, where inflation is more rampant, dollar stores are no longer selling items for a buck. This year, Dollar Tree boosted its standard price point to US$1.25 for a majority of products, abandoning the approach that gave the discount chain its name.

In the past, 100-yen shops were able to respond to yen weakness and higher material costs by changing the size and quantity of packaging, but that’s now becoming more difficult because suppliers aren’t used to sudden price changes after a long period of stability, according to Kuni Kanamori, retail analyst at SMBC Nikko Securities.

Japanese companies say they can pass on just 44 per cent of higher costs to customers on average, according to a June survey by researcher Teikoku Databank. About 15 per cent of those surveyed across a range of industries said they can’t pass on cost increases at all.


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