Foreign stores changing Japan consumer attitudes

Associated Press

CHIBA, Japan — The shoppers at the Costco outlet in Japan come looking for much more than the towering stacks of Doritos chips.

Customers at the Costco outlet in Chiba, east of Tokyo come for a taste of American-style shopping — the no-nonsense approach to prices, packaging, selection and service that is so different from the usual Japanese store. Bloomberg News Service

Costco Companies, based in Issaquah, Wash., is not only part of a rising wave of foreign investment that is reshaping Japan's corporate landscape — it's also helping to change consumer attitudes.

"Shopping at Costco is like taking a trip to America," said Noriko Tsukahara, a 36-year-old clothing company employee, who was throwing a bunch of towels into her cart. "It's big, you choose the items yourself, and it's cheap."

The recent surge in foreign investment is a direct sign of Japan's hard times.

Opportunities are opening up for businesses catering to bargain-hunters. Costco, which runs an international chain of outlets, opened its first Japanese store in 1999 in Fukuoka, southwestern Japan, and added another one late last year in the Tokyo suburb of Chiba.

At the same time, troubled Japanese companies are being forced to accept cash inflow from abroad to stay alive. Nissan Motor Co., the nation's No.2 automaker, is now 36.8 percent owned by Renault SA of France.

In the past, Japan's corporate culture was cautious toward foreign capital. But in the fiscal year ending in March, foreign companies invested a record $25 billion in Japan, up 30 percent from a year ago, and nearly tenfold from five years ago.

Costco doesn't release figures on sales or profits, but Nissan, long in the red, has turned a profit, as has Shinsei Bank, which previously failed and was taken over by backers that include Ripplewood Holdings, a U.S. investment fund.

The economic downturn has encouraged foreign investment by pushing down real estate prices. Distribution and other costs have also declined. It's much easier to attract qualified workers, and other barriers to newcomers are unraveling, such as the practice of companies holding each other's stocks.

Ripplewood is on a shopping spree in Japan, snapping up Shinsei Bank, a seaside resort, an auto-parts supplier and a recording company.

Foreign companies ranging from American Internet retailer Amazon.com to Paris-based fashion house Hermes are expanding here.

Japan still has a long way to go in opening up; foreign direct investment in the United States is more than 20 times Japan's, and is 30 times more in Europe.

"Distressed companies that have nowhere else to go" make up nearly all the deals in Japan, said Nicholas Benes, president of JTP Corp. in Tokyo, which advises on mergers and acquisitions.

But Katsumasa Ogawa thinks consumer demands are changing the way Japanese business thinks, and "There's no turning back even if the economy recovers."

Ogawa, is a senior adviser for Pricewaterhouse Coopers and spokesman for the fledgling Tokyo Star Bank, which was founded after Tokyo Sowa Bank failed in 1999 and was bought out by U.S. investment fund Lone Star this year.

Protected for decades by the government, Japanese banks were slow in offering such services as 24-hour automatic teller machines and international bank cards.

Where foreign businesses are having their biggest social impact is in introducing smart shopping such as discount stores and outlet malls, according to a study by Mitsui Kaijyo Research Institute, a private think tank in Tokyo.

Costco Japan President Mike Sinegal believes these new businesses are starting to shatter old stereotypes about Japanese consumers: That they recoil at buying in bulk because they live in tiny homes; they shun self-service because they have been pampered by sales clerks; they only want name brands because they are obsessed with appearances.

"The conventional wisdom is that Japanese customers will not buy large-pack sizes and that they do not care about prices," Sinegal said. "They want value as much as customers around the world."

Some foreign companies investing in Japan

• U.S. investment fund Ripplewood Holdings PLC has taken over the failed Long-Term Credit Bank, the Seagaia resort in southwestern Japan, auto-parts maker Niles Parts Co. and music entertainment company Nippon Columbia Co. It has set up a $1.2 billion fund to invest widely in Japan.

• British telecommunications giant Vodafone Group PLC raised its stake in Japan Telecom Co. to 45 percent this year. Japan's No. 3 telecom is banking on the alliance with the global partner to give it an edge over the nation's top telecom, Nippon Telegraph and Telephone Corp.

• U.S. wholesale outlet chain Costco Companies opened its second outlet in Japan last year, seeking to woo bargain-hunters looking for no-nonsense shopping. The company is planning to open another outlet near Tokyo next year.

• French automaker Renault SA, which bought a 36.8 percent stake in Nissan Motor Co. two years ago, has returned the automaker to profitability and is winning praise here as a shining example of global management coming to the rescue.

• U.S. insurer American International Group took over Chiyoda Mutual Life Insurance Co. earlier this year.