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Japanese duty free sales victim of Chinese traffic slowdown

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As reported, South Korean travel retailer Lotte Duty Free and its partners Bic Camera and New Kansai International Airport Company recently pulled out of a planned downtown duty free shop proposed for Osaka as a result of the slowing market.

The partnership was due to open a 4,400sqm Lotte Duty Free Osaka store on the sixth and seventh floors of Bic Camera Namba in Osaka. The alliance was projected to generate sales of KW130 billion (US$109 million) during its first full year of operation in 2017.

The ‘bakugai’ (‘buying explosion’) trend began in Japan in 2015 as Chinese travelling shoppers poured into Japan in waves, helping to drive a government-backed proliferation of tax and duty free stores. Like all bubbles, it appears this one has burst. According to The Japan Times, spending by foreign visitors for July-September 2016 fell, the first quarterly drop in over four-and-a-half years.

SEE ALSO: Chinese tourists in Japan choose cosmetics over electronics

Japanese downtown duty free retailers have been warning of a slowdown for months. In its first-half presentation last October,  J.Front Retailing Co noted a “rapid drop” in tax free sales to tourists.

According to Nikkei Asian Review, the domestic market retail giant’s tax and duty free sales will fall -26.0% in the year ending 28 February 2017 to ¥25 billion (US$220.5 million). For the September through December period its department store sales, hit by the soft tourism market, fell -4.5% year-on-year. Notably, cosmetics was the only product sector to show growth.

Nikkei Asian Review noted that the powerful trio of Japanese department store operators Isetan Mitsukoshi Holdings, J. Front Retailing and Takashimaya will generate combined tax and duty free sales of just over ¥100 billion (US$882 million) for fiscal 2016, a fall of around -14% year-on-year. It noted: “Japan’s department stores enjoyed year-on-year growth for 38 straight months until March 2016. Duty free sales soared +160% in the 2015 calendar year to around ¥194 billion (US$1.7 billion), of which roughly 60% came from the top three companies.”

However, a combination of factors, notably the strong Yen, has dulled the market. According to Nikkei Asian Review, spending per tourist dropped around ¥13,000 (US$115) year-on-year to about ¥61,000 (US$538) in November 2016. “Inbound tourists recently have been attracted to face lotions priced around ¥5,000 (US$44) rather than brand items,” it noted.

(Source: Moodie Davitt Report)

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