BIG IS BECOMING BEAUTIFUL:
Consumers Return to Their Spendthrift Ways
AUGUST 22, 1996
A change is appearing in Japanese consumption patterns. In housing and such consumer durables as cars and electrical appliances, shoppers are taking a step upmarket and opting more for bigger items. Also enjoying popularity are imported luxury-brand goods.
Automobiles symbolize this trend. In the first four days after a new luxury car model went on sale in June, orders hit around 3,500 units, well in excess of the monthly sales target of 2,500.
The auto company says it will strive to meet the order by having workers come in on their days off between July and September.
The entire market seems to be moving toward bigger autos. A glance at this year's new-car sales from January to May shows that smaller cars (displacements of 2,000 cubic centimeters or less) are in the slow lane, having slid 1.5% compared with the same period last year to around 1.2 million units. But sales of standard-size cars (displacements of over 2,000 cc) rose 5% in the same period to 339,000 units. As a result, standard-size vehicles accounted for 23.7% of all new-car sales in the first five months of this year, after managing only a 20.0% share during 1993. This contrasts sharply with the situation following the collapse of the bubble economy, when many people replaced their larger cars with smaller models.
Big is also beautiful in the television industry, where models boasting 32-inch screens are the hot ticket. Wide-screen sets accounted for only 3.7% of all domestic shipments of TVs in 1993, but their share leaped up to 25.5% in the first four months of 1996.
Many of the buyers appear to be replacing their 28-inch sets, the predecessors to the 32-inch TV. The industry is predicting that unit sales of 32-inch wide-screen TVs will outpace those of 28-inch models during the current fiscal year ending March 1996.
Similar influences seem to be at play in the market for condominiums. To keep prices down, developers concentrated on units with floor space of around 60 square meters after the bubble's collapse. But from around last year, they shifted their focus to units measuring 70-80 square meters in response to growing demand for larger dwellings.
According to one private polling organization, the average per-unit floor space in condos sold in May 1996 was 69.82 square meters. It says unit space has been increasing year on year for the last 26 months.
In the fashion sector, sales of foreign luxury-brand goods can also be said to have reached boom proportions. Shops purveying the top names posted double-digit sales growth across the board last year. Some of them reportedly managed sales increases in excess of 40%.
Symbolic of this trend is the colonization of two streets--Namiki-dori in Ginza and Kioicho-dori near Akasaka--since last year by outlets operated by famous brands. These two upscale shopping areas of central Tokyo are increasingly becoming known for their brand-name shops.
The right price--not the lowest price
The Japanese economy entered a recessionary phase at the beginning of 1991 after the collapse of the bubble economy, which prevailed during the latter half of the 1980s. Since autumn 1993 the economy has been enjoying a modest recovery, but personal spending has remained languid amid extreme consumer caution following the bubble's collapse.
One factor underlying the recent upturn in consumer sentiment is the fact that people are gradually growing impatient after keeping their wallets fastened for so long.
The experience of the automaker that was inundated with orders for its new luxury model is illustrative of this trend. The model first hit the market in 1988 at the height of the bubble economy and was a showroom hit. The sales slump thereafter seems to have had much to do with the fact that owners held off buying replacement vehicles. Many people regarded the marketing of an upgraded version as an excuse for rushing back to the showrooms. A similar phenomenon seems to have lifted sales of wide-screen TVs.
And there is another factor at work. Consumers are discarding the bargain-basement mentality that has come to characterize their buying habits; they are now seeking value for money and product satisfaction. Because of the drop in land prices and construction costs, per-unit sales prices have also fallen for new upscale condos in metropolitan Tokyo. According to the private polling organization, the average cost of 1 square meter of condominium space on the market in April was 629,000 yen (5,879 dollars at the rate of 107 yen to the dollar), nearly 100,000 yen (935 dollars) less than three years ago.
The extent of the drop is such that buyers are getting more interested in size than price. This is connected with the increase in space of units for sale in condominiums.
It is a similar story with brand-name goods. Thanks to such factors as the yen's appreciation, the difference between overseas and domestic prices has generally shrunk to the point where a brand-name product costs at most 1.3 times more in Japan, rather than 1.5 to 2 times more, as before. More consumers seem now to want to make long-term purchases of what they consider to be reasonably priced products in the range above what they own now.
In response to this change in the consumer mindset, companies have begun to alter their product strategies after the all-out price-war that broke out in the wake of the collapse of the bubble economy. In this connection, it is instructive to look at the books of a major supermarket chain for the term ended February this year.
By rearranging the product lineup, the company pushed the price per product down by 10% from year-ago levels in the first half, but brought it back up to a level only 3% lower in the second half. And since March, the price per product has more or less climbed back to the levels of the same period the previous year. Many in the retail and distribution sector now say that there is unlikely to be another wide swing in consumer sentiment and that consumers will likely support the recovery with hefty purchases.