THE DEFLATION DILEMMA FACING BOJ
Convenience stores struggling with profit, tight labour market turning to automation
TAKANORI Sakai works the graveyard shift four nights a week at the FamilyMart store he owns in Himeji, central Japan, because he can’t afford the higher pay employees demand these days.
“More and more stores can’t secure a profit,” said the 57-yearold.
Problem is, with competition just down the street, raising prices to cover higher wages risks turning off customers who’ve become accustomed to steady prices for a generation.
Sakai and his fellow convenience-store owners are on the front lines of Japan’s battle with a “deflationary mindset”, one compounded by a declining population.
As the Bank of Japan (BoJ) repeatedly urges businesses to fatten paycheques to help stoke inflation, convenience-store chains are turning to automation and other means to absorb higher labour costs.
The reluctance to pass on those costs to customers, says the BoJ, is a key reason inflation remains well below its two per cent target despite years of extraordinary monetary stimulus.
“It’s very hard to predict when companies will stop absorbing these costs,” according to Izumi Devalier, head of Japan economics at Bank of America Merrill Lynch. “The short answer is, when the deflation mindset changes.”
Yet with the unemployment rate at 2.4 per cent, the labour market is getting so tight that wages and prices are beginning to budge.
Workers were moving into better-paying jobs and permanent, full-time employment, said Bank of America Merrill Lynch in a recent report.
Meanwhile, the minimum wage that serves as something of a benchmark among retailers rose by around 11 per cent between 2013 and last year, part of the government’s efforts to improve paycheques overall.
And that’s where productivity comes in. If workers are more productive, companies can absorb higher wages without denting profits, salary earners spend more and the BoJ’s two per cent inflation target becomes a reality. But if the deflationary mindset never changes, the risk is those productivity increases fail to trigger broad wage gains or stronger inflation.
Convenience-store franchisees in cities such as Osaka and here have already turned to foreign workers, housewives and the elderly to staff their stores, which are ubiquitous in metropolitan areas and suburbs, providing services such as package drop-off and bill payment, and selling everything from underwear to fresh foods.
Now, big chains FamilyMart UNY Holdings Co, Seven and i Holdings Co and Lawson Inc are investing in automation and other labour-saving measures to help their franchisees keep stores running and offset rising wages.
Five major operators are working with the economy ministry to place electronic tags on all 100 billion products in their stores by 2025. The tags, called radio frequency identification devices, enable automated price tabulation and inventory processes.
Last month, a FamilyMart store in the ministry’s basement introduced the RFID tags and an unmanned cash register for a limited test run. Ministry officials browsed rows of drinks, rice balls and sandwiches — all plastered with small stickers holding the tags.
“With demographic decline becoming a major problem, this is something we have to address with speed,” said Yotetsu Hayashi, a senior ministry official overseeing the initiative, which is meant to improve the nation’s logistics system and productivity.
FamilyMart last month finished installing a new point-ofsale system to simplify cash register operations, at a cost of around 11 billion yen. Over the longer term, it says, it will focus on comprehensive operational reforms and utilise advanced technology, including artificial intelligence, with the goal of cutting workloads by half.
The short-term benefit for store owners is likely to be limited, say analysts. “The problem with technology is that if you install something that doesn’t demand labour like a cash register, you still have to teach the customer how to use it,” said Jefferies LLC analyst Michael Allen. “It takes years for the impact to be seen.”
Meanwhile, franchisee Sakai has formed an association of store owners that’s lobbying lawmakers for a franchise law that, among other things, would allow them to pay a lower share of profits to their corporate partners. Until then, he says, he has gotten used to working nights.
“I haven’t had a real day off from the store in 13 years — not one day,” he said. “That’s something I can say for sure.”