What: Tourism and a sustained local demand help Japanese department store to look up.

Why it is important: Department stores are a major distribution format in Japan, and their evolution is heavily scrutinised. We might witness some ’rightsizing’ again in the near future though.

Japan's department stores are leading the retail sales recovery in 2023, according to the Ministry of Economy, Trade and Industry (METI). Despite the declining importance of department stores in Japan's retail landscape over the past two decades, these stores have witnessed a 10.6% sales increase in the first five months of the year. Store productivity also rose by more than 12.9% compared to the same period a year ago.

The recovering tourism sector, with 2 million visitors per month (still below pre-Covid levels), is positively impacting retail sales, particularly department store retailers that rely on foreign high spenders. However, Chinese tourists, a significant portion of pre-Covid visitors, are still only at about 15% of their pre-Covid levels, indicating potential for further growth.

Major department stores like Takashimaya and J. Front Retailing have reported good sales growth, with a significant part of this growth attributed to international tourist arrivals. For instance, Takashimaya's June sales rose by 5.6% year-on-year and their operating revenue for the first quarter was 4.2% higher than a year ago. J. Front Retailing's sales grew by 15.2% in June and 16.4% in the first half of 2023.

Despite these promising numbers, the future of Japan's department stores remains uncertain. Their share of total retail business has been on a steady decline, accounting for only 3.6% in 2022, down from 7.0% in 2002. The sustainability of the current growth will be tested in 2024 when the effects of post-Covid normalisation wear off.

Department stores lead retail growth in Japan