INTRODUCTION
D. Attending the Court Hearing
X. FURTHER DELAY IN REFORMS
Prospect of retail deregulation caused a temporary rush of applications for open- ing large-scale retail stores during the 1990–1991 period. However, economic recessions and saturation of the retail market slowed down store openings in 1992.68 Despite the simplified formal application procedure, informal ‘‘root- binding’’ with local merchants continued. At the same time, department stores and supermarkets, which had already opened stores in key strategic locations, switched their focus to relaxation of the regulations on operation hours/day rather than demanding abolition of the LSRSL, which would invite further competition from other large retail chains and specialized stores.69
In summer 1993, the LDP lost majority in the House of Representatives,
allowing a coalition of former opposition parties to place, as Prime Minister, Hosokawa Morihiro of the Japan New Party. The Hosokawa cabinet launched a series of economic deregulation programs, including revision of the LSRSL. The CCI, CIM, and other groups of small retailers insisted that there was no need for change.70The JFEO (keidanren), on the other hand, moved toward deregulation, demanding relaxation of the floor size limitation, abolition of the restrictions on business hours and days, and eventual abolition of the LSRSL.71During the SII talk in 1991, the United States and Japan had agreed on revision of the LSRSL within two years, including possible removal of specific cities from the applica- tion of the LSRSL. The Economic Reform Study Group, an advisory body of Prime Minister Hosokawa, was to recommend abolition of the LSRSL by 1998.72 Nevertheless, resistance from the bureaucracy and several LDP members blocked such initiative, and the reform implemented in May 1994, for cities defined by an ordinance, was limited to raising the lower limit of the store size under regula- tion to 1000 m2 (previously 500 m2) and relaxing the regulations on business hours and days.73Still, the deregulation for stores between 500 and 1000 m2and the extended business hours/days contributed to a rush of new store opening applications and increased sales for existing stores.74
The Socialists left the coalition in early 1994 and eventually allied with the LDP. Although deregulation had become an irresistible political trend, the LDP was reluctant to rock the boat on the retail issue as its support was declining among its major support groups: urban salaried workers, rural farmers, and small retailers. Socialists were in a worse position as they failed to attract support among urban workers and their reliance on the shrinking population of organized farmers and small retailers increased. As Japan’s economy struggled through re- cession, further relaxation and/or possible abolition of the LSRSL was not in- cluded in the deregulation plan in 1994 and 1995.75Decline in efficiency among department store establishments after the 1991 relaxation, measured through sales per square meter and sales per employee, also seemed to have contributed to the government reluctance for further deregulation (see Table 1).
Nevertheless, both internal and external pressure for the abolition intensi- fied. As a large number of municipal regulations remained, the supermarket in- dustry was shifting toward total abolition of the large-scale retail regulations.76 Capping on the length of adjustment discussions in the 1991 reform did not elimi- nate local small retailers’ resistance in the process, but prevented them from stalling it. Nevertheless, municipal regulations of stores below 500 m2could not be invalidated, since the LSRSL did not clearly preempt local municipalities’
authority to do so.77
Changes in the structure of the retail industry steadily eroded the effective- ness of the regulations. The number of stores under 50 m2has declined. On the other hand, middle-size stores, not regulated by MITI or prefectural governor (between 50 and 500 m2), as well as the larger stores regulated by the LSRSL,
Table 1 Department Stores in Japan
Floor Annual
Year #Establ #Employees sizea salesb Sales/emplb Sales/m2b
1984 360 170,961 6,076 7,643,754 44.1 1.27
1985 360 170,387 6,201 7,982,465 46.8 1.29
1986 365 169,989 6,310 8,416,439 49.5 1.34
1987 368 170,570 6,414 8,879,340 52.1 1.38
1988 371 175,854 6,563 9,551,819 54.3 1.46
1989 377 180,998 6,776 10,516,550 58.1 1.55
1990 378 181,613 6,942 11,456,083 63.1 1.65
1991 416 192,534 6,964 12,085,175 62.8 1.74
1992 421 194,643 7,229 11,930,277 61.2 1.65
1993 424 192,824 7,430 11,263,552 58.4 1.52
1994 428 185,790 7,571 11,024,892 59.3 1.46
aIn thousands of square meters.
bIn millions of yen.
Source: MITI. Monthly Commerce Statistics, adopted from the Distribution Economics Institute of Japan, Statistical Abstract of Japanese Distribution, 1996, 51.
increased in number between 1985 and 1991 (see Table 2). Smaller stores’ share in the total retail sales also declined, as the number of large stores increased (see Table 3).
Efficient sales do not necessarily guarantee cheaper consumer prices. Revi- sion of the LSRSL in the 1990s must, as MITI claims, take into account consumer interests. Larger retailers, taking advantage of the scale merit, play better bargains vis-a`-vis wholesale distributors, or even get rid of the middlemen by directly purchasing from the producers. The supermarket industry was playing this role by cutting into the vertically integrated retail keiretsu organized by the major manufacturers.78Major department stores and general merchandise supermarkets have consolidated buying groups for this goal.79In fact, Japan’s wholesale price index has declined during the 1990s, and this tendency is more true for the im- ported products (see Table 4).
Upham showed his optimism in Japan’s retail reform in the 1990s by point- ing out the increase in parallel imports since the late 1980s, among other factors.80 However, as the large retailers choked the smaller ones, the absolute number of retail outlets has declined, and they are controlled by fewer enterprises. As a result, the Japanese consumer market has become more oligopolistic, and the benefits from the reduced wholesale prices are not shared by the consumers. The largest supermarket chains in Japan, expected in the 1970s to break the hold of the oligopolistic department store industry, have established their own oligopoly (Table 5) and now control the chains of smaller convenience stores, which skill-
Table 2 Number of Retail Outlets by Sales Space Number of establishments
Floor sizea 1985 1988 1991
under 10 85,318 83,510 72,387
10⬃20 308,018 280,761 246,657
20⬃30 287,169 267,077 239,425
30⬃50 376,850 367,266 360,059
50⬃100 263,107 271,227 282,388
100⬃200 88,866 96,260 109,050
200⬃500 36,350 48,423 56,490
500⬃1000 8,161 8,408 8,799
1000⬃1500 3,400 3,888 4,358
1500⬃3000 1,910 2,047 2,269
Over 3000 1,980 2,107 2,371
Unknown 167,515 188,778 206,970
Total 1,628,644 1,619,752 1,591,223
aIn square meters.
Source: MITI. Census of Commerce, adopted from the Distribution Economics Institute of Japan, Statistical Abstract of Japanese Distribution, 1996, 19.
Table 3 Retail Sales by Sales Space
Salesb Sales %
Floor sizea 1985 1988 1991 1985 1988 1991
Under 10 927,803 995,322 1,028,281 0.9 0.9 0.7
10⬃20 4,209,588 4,228,601 4,337,198 4.1 3.7 3.1
20⬃30 5,681,694 5,681,385 5,806,867 5.6 4.9 4.1
30⬃50 11,329,360 11,706,467 12,845,380 11.1 10.2 9.1
50⬃100 13,804,385 15,480,074 18,081,011 13.5 13.5 12.9
100⬃200 8,867,116 10,064,410 12,742,469 8.7 8.8 9.1
200⬃500 8,926,837 11,541,579 15,246,901 8.8 10.1 10.8
500⬃1000 4,651,839 4,811,985 5,452,639 4.6 4.2 3.9
1000⬃1500 3,232,403 3,774,570 4,539,363 3.2 3.3 3.2
1500⬃3000 2,708,741 3,124,023 3,732,774 2.7 2.7 2.7
Over 3000 14,351,668 16,701,795 21,096,550 14.1 14.5 15.0
Unknown 23,027,629 26,729,716 35,728,670 22.6 23.3 25.4
Total 101,721,048 114,839,927 140,638,103 99.9 100.1 100.0
aIn square meters.
bIn millions of yen.
Source: MITI. Census of Commerce, adopted from the Distribution Economics Institute of Japan, Statistical Abstract of Japanese Distribution, 1996, 19.
Table 4 Indexes of Wholesale Prices and Consumer Prices Wholesale price
Domestic Consumer price
products for Imports
Year General domestic demand (yen basis) General
1985 110.4 105.3 152.2 93.5
1986 100.3 100.3 97.7 94.1
1987 96.5 97.2 89.7 94.1
1988 95.6 96.7 85.6 94.8
1989 98.0 98.5 92.0 97.0
1990 100.0 100.0 100.0 100.0
1991 99.4 101.0 91.8 103.2
1992 97.8 100.1 86.2 104.9
1993 95.0 98.6 77.3 106.3
1994 93.1 96.9 73.0 107.1
1995 92.2 96.1 72.9 107.0
1996 92.8 95.3 79.9 107.1
The Bank of Japan; Management and Coordination Agency.
This table has been reconstructed from Management and Coordination Agency of Japan, Statistics Bureau and Statistics Center, Indexes of Wholesale Prices, Consumer Prices, and Land Prices.
fully evaded the tight floor size regulations under the LSRSL during the 1980s (Table 6).
Japan’s consumer price index after the 1991 relaxation of the LSRSL has in fact mostly risen, despite its prolonged recession (see Table 4). A possibility that consumers are buying more expensive brands of the same product category cannot be empirically falsified, due to limited data. However, this does not seem to be the case during the current recession. Even after the additional relaxation of the LSRSL in 1994, most retail products show no price drop, with a few exceptions in furniture, household utensils, and recreational durables (Table 7).
The LSRSL’s floor size–based regulations also face challenge from cata- logue, television, and Internet shopping services, which have no physical stores.
Proliferation of membership stores also effectively demolished the border be- tween wholesale and retail stores, making the LSRSL obsolete.81The American Chamber of Commerce in Japan officially demanded abolition of the law in Octo- ber 1995, and the U.S. government also demanded abolition by the year 2000.82 The Hashimoto cabinet had set the administrative reform as its top priority, and it announced a ‘‘program for Transformation and Creation of Economic Struc- ture’’ on 16 December 1996. In the program, the government promised a start of the preparation toward review of the LSRSL in 1996, but no detail of possible
Table 5 Japan’s Top Retail Enterprises, 1993
General merchandise/
supermarket chains,
Department stores co-ops
Ranking Company Salesf Company Salesf
1 Mitsukoshi 842,372 Daieia 2,015,230
2 Seibu Department Storesb 808,074 Ito-Yokado 1,511,553
3 Takashimayac 788,462 Seiyub 1,103,778
4 Daimaru 569,799 Jusco 1,005,664
5 Matsuzakaya 491,367 Nichii 789,462
6 Isetan 442,895 Uny 569,799
7 Tokyu Department Stored 378,841 Nagasakiya 414,563
8 Hankyu Department Stores 344,729 Izumiya 400,844
9 Kintetsu Department Stores 284,142 Coop Kobe 351,707
10 Sogoe 280,039 Chujitsuyaa 321,911
11 Yokohama Takashimayac 269,489 Maruetsua 321,045
12 Odakyu Department Stores 235,241 Uneed Daiela 298,149
13 Tobu Department Stores 188,686 Kotobukiya 281,347
14 Yokohama Sogoe 167,000 Tokyu Stored 275,691
15 Keio Department Stores 146,801 Heiwado 208,987
aDaiei Group.
bSaison Group.
cTakashimaya Group.
dTokyu Group.
eSogo Group.
fIn millions of yen.
Source: Larke. Japanese Retailing, 178, 200.
revision was included. A senior MITI source was quoted for internal division within MITI.83As the LDP foot-dragged on the issue throughout 1996, the U.S.
government repeated its demand in early 1997. MITI replied that comprehensive review of the law would be done by the end of December 1997, after which immediate actions would take place.
MITI started a joint meeting of the Industrial Structure Advisory Council and the Medium and Small Enterprise Policy Advisory Council on 21 May 1997 to have them report to the MITI minister a plan of revision. A national survey by the Prime Minister’s office and a series of public hearings were planned in June.84Large stores were interested in abolition of the mandated number of clos- ing days (set at 24 days per year by the 1994 revision) and the regulations on operation hours (closing at 8 PM set by the 1994 revision). However, relaxation of the regulation on new store openings did not receive much support from the
Table 6 Leading Convenience Stores Chains and Mini-Markets, 1992 Rank
by sales Store chains Sales #Stores Parent company
1 Seven-Eleven 1,194,913 5,058 Ito-Yokado (1)
2 Lawson/Sun Chain 666,400 4,448 Daiei (2)
3 Family Mart 413,939 2,311 Saison Group (3)a
4 Sun-shop Yamazaki 321,950 2,427 Yamazaki Bread
5 Zennishoku Chain 265,900 1,878 Zennihon Shokuhin
6 Circle K 193,599 1,255 Uny (4)
7 K-Mart 142,640 1,096 Kittaka
8 Sunkusu 137,900 804 Nagasakiya (5)
9 Community Store 84,520 575 Kokubu
10 Monmato 74,718 442 Monmato Suto
11 Mini-Stop 74,279 440 Jusco (6)
12 Hot Spar 69,980 517 Kasumi
13 Seicomart 68,100 425 Nishio Maruyo
14 Coco Store 60,000 483 Izumikku
15 Spar/Hotspar 43,991 190 Tokan
16 3-8/Hi-mart 43,034 253 Hiroya
17 3-F 39,845 239 Fuji Shitio
18 Sebuon 37,770 366 Iseya
19 Spar 33,778 131 Osaka Spar
20 Family Mart 27,955 209 Chubu Family Mart
Bold indicates that the parent company is ranked within top 20 in sales for general merchandise chains.
The number in parentheses indicates GMS ranking.
aSaison Group also includes Seibu Department Stores, ranked No. 2 in sales among department stores.
Source: Larke. Japanese Retailing, 146.
large retailers due to the concern of overcompetition.85Some retailers also thought that total abolition of the LSRSL would lead to a rush of regulatory ordinances by municipalities in the total absence of the preempting MITI regulations.86
The joint meeting of the Industrial Structure Council (MITI) and the Me- dium and Small Enterprise Policy Council (Prime Minister’s office) concluded its report in December 1997, recommending that the LSRSL be abolished. As a related measure, amendment to the City Planning Law (Toshi keikaku ho) was also recommended to enable local municipalities to regulate store opening from the viewpoints of traffic control, environmental protection (including garbage collection), and regional planning. These municipalities would publish zoning and size limits for land use under the new City Planning Law. Then, municipali- ties would evaluate individual applications for store opening in light of their
Table 7 Index of Consumer Prices, Subgroup
Item 1995 1996 1997
Food 100.0 99.9 101.7
Fresh food (fresh fish & shellfish, fresh vegetables & 100.0 100.4 100.8 fresh fruits)
Food, excluding fresh food 100.0 99.8 101.8
Cooked food 100.0 100.5 102.9
Beverages 100.0 99.6 101.3
Alcoholic beverages 100.0 99.6 100.5
Furniture & household utensils 100.0 98.0 97.1
Household durables 100.0 95.8 93.3
Other furniture & household utensils 100.0 99.2 99.1
Interior furnishings 100.0 99.0 98.5
Bedding 100.0 98.0 97.8
Domestic utensils 100.0 100.0 100.6
Domestic non-durables 100.0 97.3 95.4
Clothes & footwear 100.0 101.1 103.4
Clothes 100.0 101.4 103.7
Japanese clothing 100.0 101.8 102.7
Clothing 100.0 101.4 103.9
Shirts, sweaters, underwear 100.0 101.4 104.1
Shirts & sweaters 100.0 101.3 103.8
Underwear 100.0 101.5 104.8
Footwear 100.0 100.1 102.4
Cloth & other clothing 100.0 100.2 102.1
Cloth & thread 100.0 98.9 100.3
Other clothing 100.0 100.2 102.5
Reading & recreation 100.0 98.9 100.4
Recreational durables 100.0 88.9 83.6
Other reading & recreation 100.0 99.9 102.1
Recreational goods 100.0 98.8 100.6
Books & other reading materials 100.0 100.7 102.9
Miscellaneous 100.0 100.4 102.0
Toilet articles 100.0 99.7 99.7
Personal effects 100.0 99.7 102.1
Cigarettes 100.0 100.0 101.7
Other 100.0 107.2 110.0
Based on Management and Coordination Agency of Japan, Statistics Bureau and Statistics Center, Japan in Figures, ‘‘Indexes of Wholesale Prices, Consumer Prices and Land Prices,’’ Subgroup Index for Japan.
Figure 2 Large-scale retail store site law (to be implemented in 2000). (From Nihon Keizai Shimbun, 25 December 1997, p. 10; 24 May 1998, p. 8.)
social impact, and if necessary, issue recommendations of changes, under the Large Store Site Law (see Figure 2). Large supermarket interests, suspicious of subjective and extended regulations by municipalities in the absence of a specific definition of ‘‘serious and irreversible’’ social impact, opposed the plan. Mean- while, small retailers also opposed the plan in the absence of a clear assurance of their participation in the municipal evaluation process.87However, these reform measures passed the Diet in May 1998, and the new law will be implemented in 2000. MITI is to issue guidelines to municipalities, which include uniform criteria for large retailers to consider in opening new stores.88