View from Tokyo: Price cuts could change the face of shopping

It had become an old joke that Japanese tourists arriving in Hong Kong or Singapore were amazed - and not a little angered - to discover that goods made in Japan were cheaper overseas than they were back home. For years the Japanese consumer has been paying the highest prices for goods in the world, underwriting company profits and an archaic and inefficient distribution system in which the consumers' interests rank last on the list. But since it is not very practical to get on an aircraft and fly three hours to do one's household shopping, for a long time nothing changed.

Then came the current recession, and a retail revolution began to ferment on the fringes of the established department stores and traditional retail network. Discount shops began springing up in Tokyo and the other main cities, offering goods at 'unbeatable' prices. The goods may have been presented in unsightly cardboard boxes, and there may not have been any neatly attired sales assistants to bow to the honourable customers and bid them welcome but, with money tight, the low prices attracted crowds of shoppers.

Up to now, however, the discount shops have existed in a grey world: they are not actually doing anything illegal, but to cut their prices they have had to circumvent established practices between suppliers and retailers, in which the suppliers had traditionally been dominant. Discounts on foreign goods have been made possible by parallel importing, under which the shop imports foreign liquor directly from a wholesaler in Hong Kong or elsewhere, rather than buying at an inflated price from the official agent in Japan. Discounts on Japanese goods have been possible only by buying in bulk and cutting profit margins, a practice the manufacturers have been trying to discourage.

But now the chairman of one discount chain, Kawachiya Co, has decided to challenge head-on the old system where suppliers determine what prices retailers should sell their goods for. He may be about to start an avalanche of price cutting that will change the face of shopping in Japan.

Yukio Higuchi, a self-acclaimed 'discount pro' who runs a chain of 10 discount shops in Tokyo and the surrounding area, told a news conference this week that he wanted to 'challenge whatever regulations there are on prices, to bring them down as much as possible'. Such a statement would sound almost superfluous from a retailer in Europe or the US, but in Japan, where beer costs pounds 10 a pint and one apple goes for pounds 5, a pledge to lower prices has a whiff of heresy about it.

Last month Mr Higuchi filed a complaint with the Fair Trade Commission (FTC) against the two largest cosmetics companies in Japan, Shiseido and Kanebo, claiming they have tried to stop Kawachiya from selling their products cheaply. Analysts think Mr Higuchi has a good chance of winning, and say that a decision against the cosmetics companies would open the way for a wide- scale reduction in retail prices and the end of the old price-fixing system manipulated by manufacturers.

Mr Higuchi set up his Kawachiya discount chain selling cheap liquor. But he moved on to selling cosmetics after the Ministry of Trade and Industry earlier this year indicated that the old practice of price-fixing should be phased out. In June Mr Higuchi began selling cosmetics 25 per cent to 30 per cent cheaper than the prices 'recommended' by the manufacturer. But in July Shiseido refused to supply his shops with any more goods, saying he had broken a sales agreement by cutting prices. It was this that persuaded Mr Higuchi to go to the FTC.

'I cannot allow (Shiseido) to generate so much profit at the expense of consumers and tiny retail shops,' he said. 'The system has given Shiseido the power to bend any chain store to its will.'

Mr Higuchi also claims that one of the company officials offered him a bribe of Y120m ( pounds 750,000) a year in 'public relations costs' if he stopped selling discount cosmetics. The company denies this charge.

The FTC is due to issue its ruling before the end of the year, and if, as expected, it rules in favour of Mr Higuchi and his discount chain, a price war could break out that would not be confined to cosmetics but could sweep through the entire retail market. Not only would such a shake-up benefit consumers, it could also make it easier for foreign importers to sell their goods without being caught up in the red tape and restrictive practices of the established trading companies.

Salarymen's pocket money problem

Japan is awash with indicators showing that despite the continuing optimism from government agencies the economy is still in recession. One interesting sign of the tough times came from a survey of the amount of pocket money men are being given by their wives, and the rate of increase over last year.

In Japan, as in many Asian countries, the woman controls a household's money. The man's salary is paid into the bank, where the wife keeps track of it, and each month gives him a cash sum to spend on himself. Traditionally the man bargains with his wife about a raise in his pocket money immediately after the annual wage negotiations are completed in spring.

This year in the midst of the recession the average salaryman in Tokyo won a rise in his monthly wages from his company of just Y13,510, a 3.9 per cent increase, and one of the lowest raises in years. But according to a survey by Daihyaku Mutual Life Insurance Company, he fared even worse in the pocket money stakes, gaining a mere 3.3 per cent raise from his wife. The miserly attitude of the spouses, it seems, comes from a general feeling of economic malaise, and the expectation that bonuses, paid twice a year, are likely to remain small for the near future.

And so out of an average monthly salary of Y346,410, the salaryman is getting a mere Y52,800 to spend on himself: not a lot of money in the world's most expensive city. But none the less husbands are still able to save some money without telling their wives, according to the same survey. The average secret savings of the surveyed salarymen amounted to Y309,000 - enough for even an expensive rainy day in Tokyo.