Global stock markets fell Monday as investors started tallying up the costs of last week’s earthquake in Japan, the world’s third-largest economy.
The Nikkei 225 dropped 6.2 percent to 9,620.49 in Tokyo, where traffic in stores was light and rolling blackouts hurt commerce. The region’s retail stocks took a beating with Takashimaya slumping 10.9 percent as Isetan Mitsukoshi shed 9.5 percent, Fast Retailing dropped 6.7 percent and Shiseido lost 5.3 percent. Textiles firm Onward Holdings’ stock declined 10.4 percent.
Although investors in Hong Kong held steady, pushing the Hang Seng Index up 0.4 percent, Japan’s troubles reverberated in Europe and later the U.S. The DAX fell 1.7 percent in Frankfurt as the CAC 40 dropped 1.3 percent Paris and the FTSE 100 slipped 0.9 percent in London.
The S&P Retail Index fell 1 percent, or 5.03 points, to 503.63, as the Dow Jones Industrial Average slipped below 12,000, declining 0.4 percent, or 51.24 points, to 11,993.16.
Immediately after Friday’s tsunami, investors reasoned that the disaster would lead to a construction boom and pushed blue-chip stocks up mildly. But the sentiment shifted over the weekend as problems at some of the country’s nuclear reactors were punctuated by explosions and the release of at least some radiation.
“At this point, I think the markets are more up in the air about what’s going to happen,” said Andrew Fitzpatrick, director of investments at Hinsdale Associates. “It’s just a general feeling of uncertainty and a feeling that this needs to play out a little bit further before we can really make any kind of estimate of the impact this will have.”
Credit Suisse estimated that economic losses in the disaster area could total 14 trillion to 15 trillion yen, or $170.9 billion to $183.1 billion at current exchange.
Luxe firms in particular are expected to be among those hurt by a slowdown in the country, though many top brands have shifted their focus to China in recent years.
“Clearly, luxury goods are likely to be adversely impacted by the recent tragic events in Japan — periods of mourning and a broken infrastructure are not conducive to luxury goods spending or an increased appetite to travel,” said the Royal Bank of Scotland in a research note Monday.
RBS added that luxury sales to the Japanese consumer have been cut in half over the past five years.
But while luxury stocks like PPR, LVMH Moët Hennessy Louis Vuitton and Compagnie Financière Richemont took a beating on Monday, Luca Solca, senior analyst at Bernstein Research in Zurich, downplayed the likelihood of long-term impact.
“When we look back at what happened at the time of the Kobe earthquake, we see that the negative impact on luxury goods was not long lasting. Stocks were hit, but came back relatively quickly,” Bernstein said. “The scale of devastation is much larger this time, but Japan is much smaller as a percentage of the luxury goods market than it was back then. I therefore remain relatively optimistic, assuming no further disruption is forthcoming — especially from the nuclear power plants.”
In Tokyo, many stores shuttered once again on Monday — or reduced their operating hours — to help offset a serious power shortage in the country.
On this first weekday following Friday’s disaster, foot traffic was light in the city. Numerous train lines cut their service as rolling blackouts went into effect in the outlying areas of the city. Companies encouraged their employees to work from home as much as possible. Many retailers chose to dim their lights or turn off their neon signs to conserve electricity. Brands like Prada, Louis Vuitton, Gucci, Dior, Forever 21, Columbia Sportswear and Zara shuttered some of their locations. Many others cut back on their hours. This situation is expected to persist for at least the next couple days and possibly weeks to come.
Also of note, Japan Fashion Week organizers said they will announce Tuesday whether or not they plan to go ahead with this season’s edition, slated for next week. It has already axed the opening ceremony and closing party. Several individual brands have already canceled or postponed their shows.
“As days pass by, the massive impact [of the quake] is only beginning to be revealed. Needless to say, the fashion industry is suffering great physical and psychological damage,” organizers said.
A relatively minor 6.2 quake shook Tokyo once again Monday morning and news of a second explosion at a nuclear power plant near the quake-affected area rattled citizens once more. But the latest information seems to indicate that radiation levels in the area did not increase after the second blast. The disaster’s estimated death toll has increased to more than 10,000.
Meanwhile, Japanese media reported that there was an explosion Monday morning at the Nakasan department store in Morioka, killing one and injuring 11. It is not clear if the blast is related to the earthquake but the store is located in the prefecture just north of Sendai, the area hit by the temblor.
The economic impact of the disaster — and the most recent power cuts — is coming under increasing scrutiny. The country’s biggest companies and employers have no choice but to shut down during the blackouts.
If Tokyo Electric Power were to cut its supply by 25 percent over its service area through the end of April, it would depress national nominal gross domestic product by 0.02 percent and, considering the ripple effect on other industries, the negative impact would be 0.29 percent, according to economists at Nomura.
“We think Japan’s economy is bound to be adversely affected by power supply cuts,” they wrote Monday in a research note.
Tom Byrne, senior vice president of the sovereign risk group at Moody’s Investors Service, said he thinks the sheer size of Japan’s economy will help it bounce back from the disaster.
“Estimates of the economic damage [will] likely increase in the weeks and months ahead. Already ripple effects beyond the devastated zones are being seen in curtailed electricity supplies and suspended production in some automobile and petroleum refining plants,” he said. “Nevertheless, Japan’s economy has the ability to absorb the shock. In general, large, wealthy economies demonstrate a capacity to absorb localized natural disasters. And Japan’s $6 trillion economy, approximately equal to Germany’s and Italy’s combined, is indeed large. The Bank of Japan has pledged to support exceptional demands in the financial sector, and will maintain economic stability in the weeks ahead: It provided about $55 billion in emergency liquidity to 13 financial institutions over the weekend.”
Meanwhile, retail, luxury and beauty companies are dealing with the disaster’s aftermath.
An Isetan Mitsukoshi spokeswoman said the Mitsukoshi in Sendai has suffered damage but the extent is still not clear and the store has been closed indefinitely. The group has been closing some of its stores and reducing hours in other cases to comply with the blackouts.
A Gucci Japan spokeswoman said all its personnel and customers who were shopping at the time of the quake are safe. She said the Gucci Sendai store suffered some structural damage. “We have sustained some minor structural damage in our Sendai stores — Gucci, Bottega Veneta, Yves Saint Laurent, Boucheron and Sergio Rossi — and very minor damage in some of our Tokyo offices,” a PPR spokeswoman in Paris said. “Our priority is to ensure the safety and security of our people and customers, therefore most of our stores in Greater Tokyo-Kanto area are planning to close until Wednesday. We are monitoring the situation carefully and we are working with our ceo’s to see if it is possible to reopen the stores earlier.”
A Coach spokesman said that few of the company’s stores in Japan — under 10 percent — are in the Sendai region. Japan overall represents about 18 percent of the brand’s total revenues. The spokesman added the company’s Tokyo offices are open and its inventory and logistics systems are operating normally. “Yesterday, the vast majority of our stores were open (only 20 of approximately 165 were closed), though some on reduced staff and shortened hours,” he said. “Of course, as the situation remains changeable, we cannot predict when all of our stores will reopen and when regular operations will resume, but would note that the Japanese people are resilient.”
Adrian Joffe, chief executive officer at Comme des Garçons International, said they have accounted for all its employees in the Sendai area, and they are all safe. “Our stores there have not been damaged but remained closed,” Joffe said. “We still have no news and cannot contact many of the factories with which we work who are located on the north.”
Shiseido is still checking on the welfare of its employees and distribution partners but so far it hasn’t received word of any injuries or missing people, according to a spokeswoman. Some of its buildings were damaged including a toiletries factory in Saitama, which the company is shutting down for about two weeks but it said it doesn’t expect the closure will affect product supplies.
Kanebo said it has still not accounted for all of its employees and it’s investigating. Its Sendai logistics center was partly damaged and it has been closed but all of its employees are safe.
Companies are also reaching out to victims and disaster relief. Fast Retailing said the company and its employees will together donate 1.4 billion yen, or about $17.1 million at current exchange, including a 1 billion yen personal gift from group chairman and chief executive officer Tadashi Yanai. The company is also donating 700 million yen, or $8.5 million, worth of clothing to those displaced by the disaster.
Shiseido is donating 100 million yen, or about $1.2 million, as well as bottles of soap, shampoo and hand disinfectant. Kanebo will also supply similar products to victims.
As reported, Louis Vuitton is also planning to make a donation to quake victims.