In Japan, the days of rising consumer consumption – particularly from Chinese tourists – is now over. Tighter mainland Chinese customs controls, aimed at thwarting those who shop abroad for resale at home, have made it harder for Chinese tourists to purchase large amounts while abroad since last year.

As Chinese visitors spend less, the prime retail sector in Japan is also facing flattening domestic consumption. Meanwhile, record-high commercial land prices and rents in retail hotspots are creating additional stress for both landlords and retailers.

Yet, we remain optimistic about the future of the retail sector in Japan:

1. The local wealth effect has enabled international luxury retailer sales to grow at healthy rates. Select foreign brands are recording a surge in sales, and in some cases, Japan sales are outperforming global sales averages. The strong performance of international brands in the market indicates that local spending power – underpinned by rising stock prices, if slower than the past – remains steadfast.

2. More diverse shopping habits are forming among younger generations. While department store sales in the country hit a 36 year-low in 2016 – in part due to the warmer climate impacting fashion sales and slowing demand for duty-free from visitors – there was a noticeable uptick in cosmetic sales. In contrast with the respective 2 per cent y-o-y declines in women’s fashion and luxury sales, cosmetics sales grew 9 per cent y-o-y, across both domestic and foreign shoppers. This is a bright spot on the horizon, suggesting that department stores are commanding interest from younger generations, which helps ease ongoing concerns that they have become overly dependent on an older, wealthy consumer base.

3. Major prime retail hotspots continue to thrive. With a growing collection of fast fashion retailers, an enviable maze of flagships, department stores, and street-side retail stores, the world-famous Ginza shopping district maintains huge crowds that drive annual retail sales for the area that tops out at hundreds of billions of yen.

4. Threats posed by the rise of e-commerce are limited in the luxury goods market. Direct service plays an important role in luxury goods shopping, and this shows no signs of fading anytime soon. Physical stores remain important for certain areas of the retail sector. Meanwhile, fast fashion outlets often generate high foot traffic for malls, while suburban shopping centres – packed with food and entertainment options – serve shoppers with needs that cannot be met online.

5. Japan remains a popular regional shopping destination. In 2016, the number of tourists to Japan rose 22 per cent y-o-y. Relaxed visa rules make visiting Japan easy for many tourists from nearby countries such as China and Taiwan. Further, as political tensions between Seoul and Beijing remain high, nearby markets like Tokyo could benefit from a boost in Chinese travellers looking to spend elsewhere in the region.

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