Sound Pricing : Tower Records and Other U.S. Exporters to Japan Cash In on Weak Dollar
Not bad timing.
Just two days after the yen hit a new post-World War II peak against the U.S. dollar, Tower Records Inc. opened the world’s largest music store here. Now even the boss, Far East Managing Director Keith Cahoon, can’t believe how fast the money is rolling in.
The Sacramento-based music retailing giant’s unexpected currency exchange bonanza reflects how well-positioned U.S. firms can profit mightily in the Japanese market as a direct result of the dollar’s fall against the yen.
Though the weakened dollar makes it more expensive to get established here initially, that isn’t discouraging many. From high-tech firms to hamburger chains and food exporters, many American companies are knocking on Japan’s door with renewed fervor as imports gain an ever-greater price advantage.
Tower Records is one of the clearest beneficiaries.
At its U.S. stores, Cahoon said, new CD releases often sell for $11.99, while at its 23 directly owned outlets in Japan they had, until lately, sold for the equivalent of $15.90.
But on Friday, as its mega-store opened for business, only 91.20 yen were needed to buy a dollar, compared to 100 yen before the dollar began its recent nose dive. And that meant a typical imported CD now brings in the equivalent of $17.43--a cool $1.53 windfall for Tower Records.
Meanwhile, CDs made in Japan with the identical music but Japanese-language packaging--and offered side by side with imported versions--sell for manufacturer-set retail prices of $24 or more. For consumers, an easy choice.
“The exchange rate change is going to affect a lot of businesses if it stays in the range it’s at now,” Cahoon said. “Right now is an era when a lot more American retailers are coming to Japan. It will make life easier on them in a way. I think a lot of American companies are put off by the start-up costs. Once you start, if you have a successful business here, the profits can be very good.”
As the dollar tumbled against the yen last week, U.S. Ambassador Walter F. Mondale was playing a highly public cheerleading role. He attended trade fairs, jawboned Japan to further ease access for foreign firms, and called on U.S. companies to exploit the new opportunities.
“The retail revolution is under way here,” Mondale declared in a speech at opening ceremonies for the spacious U.S. pavilion at Foodex Japan ‘95, the largest annual food and beverage trade show in Asia, where more than 100 U.S. firms displayed their wares.
“Over the next five years,” Mondale added, “this (Japanese) market for U.S. agriculture products is expected to grow in absolute terms more than any other market in the world.”
Mondale predicted that annual purchases of U.S. food products by Japan will grow to more than $20 billion by the year 2000, up from $13 billion last year.
A key focus of attention at the Foodex show was competition between American and Australian rice exporters. Japan first opened its long-protected rice market to emergency imports last year, due to a crop shortfall. It has agreed in multilateral trade negotiations to import at least 4% of its total rice consumption this year and boost that figure to at least 8% by the year 2000.
“We are excited about the Japanese market because of its size and dependable demand for rice,” USA Rice Federation representative William Farmer told reporters at Foodex. “California rice growers are viewing Japan as an important market and expect Japan to become their No. 1 market.”
McDonald’s outlets in Japan are one place where sharply falling prices for food imports will soon reach consumers.
Den Fujita, president of McDonald’s Co. (Japan), announced Wednesday that the firm expects to enjoy reduced import costs of about $50 million this year due to the yen’s strength, and has decided to pass some of the savings on to customers.
Hamburger prices will be cut from about $2.63 to about $1.65, the firm said, while prices for double cheeseburgers, currently about $3.29, will also be slashed by 30% or more. The Biggu Makku, which costs $4.17 now, will have its price cut later this year.
U.S. cattle ranchers aren’t likely to benefit. McDonald’s hamburgers in Japan are made from Australian beef, a company spokesman said. The potatoes and pickles, however, are American.
At the opposite end of the technology scale, U.S. firms at an American multimedia hardware exhibition in Tokyo last week were pushing for sales as Japan builds its information superhighway.
Firms such as Digital Equipment Corp., Motorola Inc. and AT&T; Corp. participated in the show, which was targeted for a technical audience mainly from large Japanese communications firms.
Most of the U.S. firms were displaying products related to Japan’s plans to build a nationwide optical fiber cable network by the year 2010 at an estimated cost of $320 billion to $515 billion. Winning a significant share of sales for this project has been a major U.S. government goal in trade talks with Japan, and a weaker dollar gives those efforts a big boost.
For inspiration, the technology firms can always look to Tower Records.
Ensconced in its new eight-story 50,000-square-foot store in the heart of Tokyo’s trendy Shibuya district, it illustrates the benefits that can flow from success here. Sales in Japan during the year ending April 30 will be about $250 million, up more than 40% over the previous year, and are projected to rise another 30% or more in the coming year, Cahoon said.
Times researcher Chiaki Kitada in Tokyo contributed to this article.
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Rising Imports
U.S. imports to Japan have been growing steadily. Total imports, in billions of dollars:
1980: $24.4
1994: $62.4
Source: Datastream International
