Sign of the times in Japan

10 cent (10 yen) stores are growing in popularity as deflation continues unabated.

Ten-yen stores capture deflation dilemma

One answer is found in Kawasaki City, about 20 kilometers southwest of downtown Tokyo. There, a 10 yen-shop called Recycle Garden (equivalent to a 10 cent store in the US) is attracting large numbers of customers by word of mouth. The outlet is one of nine Recycle Garden branches operated in the Kanto region centered on Tokyo and including Yokohama, Kawasaki and Atsugi.

At Recycle Garden, 10 yen buys the customer everyday items such as chopsticks, kitchen goods, nail-scissors, hand sanitizers, or air fresheners. A colored plastic hair clasp is also 10 yen. In the Kawasaki shop alone, the product lineup consists of about 1,000 items at 10 yen, with the number of goods totaling around 30,000. It's all there.

Surprisingly, most of those products are made in Japan, not in China, Vietnam or Cambodia, from where usually cheaper and lower-quality goods flow into Japan.

"Everything is incredibly cheap," said Kyoko Yamada, 52, a careworker, who lives in Tsurumi Ward adjoining Kawasaki, who on a recent visit to Recycle Garden bought 10 items such bath agents.

How is such unprecedented price-slashing possible?

The mechanism is this: amid an increasingly fierce pricing war among neighborhood retail shops such as 100-yen convenience stores, Recycle Garden makes bulk purchases of those goods from bankrupt shops and firms as from deceased manufacturing and wholesale merchants. In most cases, on hearing the news about a bankruptcy, Recycle Garden workers dash to the failed firms with large dump trucks, and buy up and take away immediately to their chain store a vast amount of goods.

"We are cutting prices to the bone," said Tadafumi Fukuda, 41, manager at Recycle Garden's Kawasaki outlet. "Since we also sell other items at 88 yen and above, 10-yen goods serve as a crowd puller." The number of customers visiting the shop has increased 20% from a year ago, when the shop started to sell 10-yen goods, he said.

Fukuda said Recycle Garden does not buy goods on credit from bankrupt firms, but pays cash because falling and failed firms more than others need cash on the spot. In a sense, Recycle Garden can be considered a salvage outfit, or sometimes a savior, for a troubled company without access to credit. But it can also be seen as a vulture in how it obtains goods at a substantial discount.

The article goes on to cover the bigger picture in Japan and concludes with this line:

If that is the case, the US may soon see nine-cent shops, instead of 99 cent shops, on the streets of New York, if the Barack Obama administration and the Federal Reserve fail to address properly the issue of deflation.

Note that Japan has been addressing the issue for going on 20 years...