What: Are department stores losing touch with reality in Japan?

Why it is important:  The department stores’ woes in Japan are not specifically different from the rest of the world. Are the difficulties experienced by the format in the country specific to the market, or shall they be seen as a warning for foreign companies?

On January 31, 2023, the Tokyu Department Store in Shibuya closed after 55 years of continuous operation, leaving many shoppers with memories. The location will be used to develop a new retail development in partnership with L Catterton, LVMH’s real estate arm. The closure is part of a larger gentrification plan for Shibuya, which seeks to transform it from a place frequented by partying youths with little money to a more inclusive shopping zone for high-spenders.

The decline of Japanese department stores, such as Tokyu, is not a reflection of the overall health of the retail scene in Japan. The retail market grew from JPY 137 trillion to JPY 150 trillion from 2012 to 2021, and other retail outlets have posted strong growth. In comparison, department stores’ sales decreased from JPY 6.15 trillion to JPY 4.42 trillion, including a net loss of 59 doors (a quarter of 2011 total count). Even when compared to the evolution of mall sales, the fate of department stores in Japan seems like an anomaly.

The decline of department stores has resulted in a visually clear replacement of other retail outlets in many provincial towns and cities, causing inner-city decay and suburbanization.

To adapt, department store operators have embarked on corporate reforms that make them less reliant on retail, including diversifying their businesses, including travel, international logistics, telecommunications, entertainment, hospitality and real estate development, in the case of Hankyu. Others, such as Mitsukoshi, are exploring smaller-size formats and closing larger units. As the future of department stores in Japan is uncertain, their operators must continue to reinvent themselves to keep up with the ever-shifting retail landscape.

The changing role of department stores in Japan