Japanese apparel firm Fast Retailing Co Ltd has a problem: sales are surging, full-year net profits are expected to rise nearly 28 percent but the customers thronging the stores of its popular Uniqlo brand are far too frugal for its liking.
Prime Minister Shinzo Abe would also disapprove. Abe's aggressive economic stimulus measures, aimed at lifting Japan out of two decades of deflation, hinge on a pick-up in consumer spending, but eight months after its launch, "Abenomics" has yet to convince many Japanese to part with their thrifty ways.
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"Customers are clever - they want the more expensive items but they hang on to see if they get discounted," Fast Retailing Chief Financial Officer Ken Okazaki said.
"Shoppers are buying at the cheaper end of our product lines, so spending per customer has fallen," he said after the company maintained its sales and operating profit forecasts for the year, knocking its shares 6 percent lower on Friday.
Abe's policies have boosted Japan's benchmark Nikkei average by two-thirds since mid-November, cheering stock market investors who used their new-found wealth to splurge on luxury goods such as handbags from LVMH-owned Louis Vuitton and jewelry from Tiffany & Co.
But wages have yet to show any real gains and overall consumer sentiment remains lackluster. Consumer confidence weakened in June for the first time in six months, government data shows, and total cash earnings for Japanese employees were flat in May and April from a year earlier.
Even the monthly pocket money Japanese wives traditionally give their husbands has fallen 3.3 percent from a year ago to 38,457 yen ($390), or just half of its 1990 peak, the latest survey by Shinsei Bank Ltd shows.
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"They keep saying the economy is getting better but so far I haven't seen it reflected at all in my day-to-day life," said Ayano Sakuma, 33, a housewife who was shopping in central Tokyo with her son.
"I've heard that things are supposed to be getting more expensive but as far as I can see goods are still cheap."
Abenomics has boosted revenues for luxury department store operators such as Takashimaya and Co Ltd and J.Front Retailing Co Ltd, but even they admit there is little evidence of a pick-up across the board.
"Luxury brands, watches and jewelry have seen double-digit sales growth and have pulled up overall department store revenues," Shigeru Kimoto, managing director of corporate planning at Takashimaya told an earnings briefing last month.
"But we can't see any strength in other parts of the consumer sector."
Like Fast Retailing, the latest earnings reports by Japan's biggest retailers have been riddled with healthy figures that suggest stronger demand but which actually show weak consumer sentiment and entrenched deflation.
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Supermarket operator Aeon Co Ltd and convenience store owner Seven and I Holdings Co Ltd reported record high net profits in the March-May quarter, but growth was largely due to strong sales of their own-label goods which are often cheaper than branded items but carry larger margins.
At 7-Eleven stores, the flagship chain of Seven & I, sales of its own-label items rose 30 percent for the quarter. Spending per customer, however, dropped 0.6 percent for the month of May.
To avoid losing customers, Aeon said it would accept smaller profit margins on its house-brands and absorb the higher costs a weaker yen is wreaking on imports such as bread and ham.
"We'll try to avoid passing higher costs on to retail prices," Aeon's Senior Executive Vice President Yoshiki Mori told an earnings briefing this week. The company's 9.8 percent profit increase was driven largely by its consumer credit operations and not its supermarkets.
To boost the economy, the Bank of Japan has set a 2 percent inflation target to be reached within the next two years, but prices are still falling at a rate of 0.4 percent a year.
Ironically, the prices of flat-screen TVs, long a symbol of Japan's deflation, are bucking the downtrend. Prices, however, are rising because manufacturers are willing to sell less to maintain their margins.
Flat-screen TV prices fell more than 40 percent from late 2010 to 2012 after manufacturers such as Sony Corp and Panasonic Corp offered huge discounts to staunch a slide in sales caused by the drying up of government incentives.
Demand remains weak, and with sales volumes now at less than one-tenth of their peak in November 2010, manufacturers have little to gain by cutting prices further.
"We haven't seen any effects from Abenomics yet," said Hisashi Yamada, the executive in charge of corporate planning at Yamada Denki Co Ltd, Japan's biggest electronics retailer.