Cheap sites tempt retail giants to set up in Japan

Tumbling Japanese property prices and lower rents have caught the eye of some of the world's biggest retailers, which are eagerly planning to make the move east.

Tesco, Kingfisher, Wal-Mart and Ahold are all understood to have sent research teams to Japan to seek out the best sites and tap into the huge consumer market there.

Tesco, headed by Terry Leahy, already has a booming presence in South Korea and Thailand, and is known to be keen to set up shop in Japan. It is even thought to be interested in selling its financial services to the Japanese public.

Kingfisher is believed to be looking into setting up a chain of B&Q outlets, and may also be considering the prospect of hitting the Orient with European-style garden centres.

As well as the vast potential of the market, the main attraction is the relative cheapness of a move to Japan. As little as three years ago a move would have been unthinkably expensive, with Tokyo property prices and rents comfortably the highest in the world.

But Japan's recession has finally hit there as well, and even the cost of a large retail site compares favourably with equivalent plots in Britain and Europe.

Easing the process further has been the decision by many cash-strapped local governments to loosen restrictions on land use. Also, many manufacturers have shifted production out of Japan, leaving vacant factory and warehouse space.

Another attraction is that the Japanese consumer, with historically unique tastes and shopping habits, has started to come round to the Western concept of supermarkets.

One of the main drivers of that change has been France's hypermarket chain Carrefour, which opened its first store just six months ago. Although there have been initial difficulties, the company believes it has brought about a change in the way Japanese people shop.

The traditional pattern for food shopping in Japan has been to buy food fresh and on a daily basis. But Carrefour and America's Costco have proved that in these tightened economic times, Japanese shoppers are prepared to buy in bulk and benefit from the sort of savings Western consumers are used to.

The strategy adopted by Germany's largest supermarket chain, Metro, has been to forge an alliance with one of the larger domestic Japanese players.

Its joint venture with Marubeni, to launch a cash and carry chain, is seen by many retail analysts as the ideal way to break through the complexities of operating in Japan.