No. 35 — September 15, 2000


Weekly Review


Domestic or foreign, big retailers in Japan have had to learn to navigate a new regulatory regime. Effective June 1, responsibility for determining the conditions under which owners of department stores, supermarkets, specialty shops and similar retail operations can build or expand outlets with floor spaces of 1,000 square meters (10,800 square feet) or more shifted from the Ministry of International Trade and Industry to authorities in the country's 47 prefectures or in 12 major metropolitan regions. The transfer mechanism was the repeal of the 1973 Large Retail Store Law, often dubbed the small retailer protection act, and its replacement by the Large Retail Store Location Law, enacted in May 1998 (see JEI Report No. 21B, June 5, 1998).

Under the new approval process, the relevant subnational government is limited to weighing the impact that a big retail establishment might have on the environment of the neighboring community, particularly in terms of traffic, parking, noise and trash. The likely negative repercussions on small store owners of having a heavyweight competitor nearby are not grounds for turning down a building application or imposing potentially crippling restrictions on the proposed location. Moreover, guidelines published by MITI in June 1999 contain national standards related to traffic congestion, parking requirements, noise pollution and trash removal that local governments can adopt.

Despite what MITI officials argue are the new system's built-in safeguards against abuse by local governments and Tokyo's pledge in the recent report on progress under the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy (see JEI Report No. 29B, July 28, 2000) to ensure consistent, transparent and fair implementation of the Large Retail Store Location Law, many major retailers doing business in Japan worry that the revamped regulatory regime will be applied in a discriminatory manner. A flurry of news stories last spring that prefectural and big-city governments were going to institute their own, tougher rules no doubt was the main source of these concerns. In fact, however, the exceptions have been limited. To date, 41 of the 47 prefectures have decided to follow the national guidelines. The two go-it-alone jurisdictions that have received the most publicity are the cities of Yokohama and Sendai, both of which require big retailers to build parking lots larger than those specified in the MITI-devised standards.

The short time that has elapsed since the Large Retail Store Location Law went into effect obviously makes it hard to judge whether major retail chains have reason to worry that local authorities will use the statute's "environmental factors" test to promote the interests of small businesses over those of more efficient rivals. The serious financial problems of a number of name Japanese department stores, supermarkets and other retailers — the result largely of sluggish consumer spending in recent years and overbuilding earlier — also complicate an assessment. If anything, these companies are retrenching rather than planning to expand operations.

Ironically perhaps, one of the chains that has had some experience with the workings of the new regulatory process is Toys "R" Us, Inc., the retailer credited or blamed — depending on perspective — for the eased application of the Large Retail Store Law during the 1980s and for Washington's drive to have that law repealed. The world's largest toy retailer, which will open its 100th store in Japan in November, is seeking the go-ahead to build three outlets in Yokohama, on Hokkaido and in the metropolitan Tokyo area. Except for meeting Yokohama's requirement for parking spaces, Toys "R" Us reportedly has not found the revised approval procedures to be significantly more demanding or frustrating than the old ones.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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