Japan increased its national sales tax rate to 10% from 8%, effective Oct. 1.
The broad-based tax affects consumer products as well as medical, cellphone services, and business-to-business trade.
There are products that are excluded from the increase; it is a little complicated. For example, the tax rate for food remains at 8%; however, fast food and other prepared meals meant for immediate consumption are subject to the new 10% rate. Meals served and eaten on the premise of restaurants and convenient stores are subject to the 10% tax rate. The bright spot with the tax increase is the influx of sales for big ticket items. Big box stores and car dealers increased their advertising during the weeks leading up to the tax hike, urging consumers to purchase now and save money. Sales at many retail outlets spiked in the days leading up to October. Purchasing managers for many companies took advantage of these savings and increased inventories.
The consumer experience in retail outlets changed over the past few years. Many years ago, the checkout area used a cash register. The new terminology for the old cash register is a POS system. These systems use touchscreens, printers, scanners and credit card readers, and increase the efficiency of cashiers. Self-service options are available at many retail stores, reducing labor costs significantly.
I asked myself if any industry will benefit from the national sales tax increase. Right off the bat, software companies that specialize in retail POS systems will collect coding fees from their retail customer base when they download a patch to change the tax rate.
Retail outlets upgrade their hardware every five years or so, but continue pay monthly subscription fees for their POS system. The fee includes software, support via phone or text, online reports, and credit card processing. Hardware upgrades are moderately priced, but the yearly subscription fee is necessary and never goes away. Retail outlets that do not pay a subscription fee have to go a la carte to download the new patch, and this can be lucrative for software companies.
Equipment sales for consumers and businesses are very different. The market demand varies, businesses require higher reliabilities, and the gross profit from consumers is less than the gross profits from businesses. The spike in sales came directly from the consumer. B2B sales do show an increase, but there are many variables that go into these purchases and timing was essential. There may be money left on the table from business sales, but the consumer had the ability to panic buy during the days leading up to the tax change.
How much did the influx of sales total? We will find out when the large retailers report their quarterly results. Hopefully it’s a huge number that will roll up to domestic manufacturers in Japan.
This upswing in sales is good, but it is only temporary. Let’s hope the holiday season brings the consumer out once again.
DKN Research, www.dknresearch.com
DKN Research Newsletter #1930, Nov. 3, 2019 (English Edition) (Micro Electronics & Packaging)
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