In Japan, new records for (some) department stores

The long-running polarisation in performance between department stores in big cities and the rest continues – and the trend is accelerating rapidly. While major department store chains have just announced record sales and/or profits for FY2023, the outlook for regional outliers looks increasingly bleak.

In CY2023, while stores in the top 10 cities managed 11.7 percent growth, the remainder rose just 0.7 percent on a same-store basis. In March, top 10 city stores added a further 12.9 percent growth against 0.0 percent for the rest on a same store basis.

Matsuya reaches new records

The widening gap in performance is no better exemplified by the striking results from Matsuya’s Ginza flagship.

Last year, consolidated sales rose 31.2 percent to JPY114.9 billion and operating profit jumped 8.5 fold to JPY2.9 billion, although net profits were down 40.0 percent to JPY2.6 billion due to a one-off sale of fixed assets the year before.

Sales at the Ginza store alone rose 35.5 percent to JPY101.8 billion, breaking the previous record of JPY86.3 billion set all the way back in FY1991.

This strong growth was driven by tourists, with duty-free sales up 83 percent to JPY33.7 billion, an unprecedented 33 percent of sales. Despite a relatively slow return to pre-pandemic numbers, sales to Chinese visitors were still top at 51 percent of all tourist sales (down from 78 percent in 2019), with other Asian countries such as Taiwan (13 percent) and Hong Kong (8 percent) seeing growth instead.

Sales to locals at the Ginza store also increased 2 percent , boosted by sales to cardholders – the number of customers who spend more than JPY1 million per year increased 7 percent on the year and were up 43 percent since 2019.

Matsuya says sales will rise 6.1 percent this year to JPY114.9 billion, although operating profit is expected to fall 16 percent . It expects strong sales for the medium to long-term due to Ginza’s role as a tourist hub.

Takashimaya profits highest in 33 years

Even department store chains with some branches in the regions managed new records. Takashimaya posted gross sales up 8.0 percent to JPY952.2 billion, a solid result, but operating profit surged 41.3 percent to JPY45.9 billion, the highest since the company began consolidated financial statements in 1991.

Domestic department store sales increased 10.6 percent, and were 7.5 percent higher than FY2019. Duty-free sales reached JPY68.7 billion, also a record, accounting for just over 7 percent of sales.

Although sales to Chinese tourists were down about JPY5 billion to JPY33 billion, sales to other nationalities jumped three-fold to JPY35.6 billion.

Luxury brands topped the ranking, up 17 percent , but clothing was also up 11.7 percent. The mall management subsidiary, Toshin Kaihatsu, increased revenues by 9.3 percent and operating profit by 30 percent.

Takashimaya remains more cautious than Matsuya, partly because it has a wide range  of stores and a big gap in performance between them.

President Yoshiro Murata said that the current trading environment is in something of a “rebound” and, “rather than getting carried away with our record-high profits, we need to tighten our resolve,” suggesting that FY2024, “will be the year that tests our true capabilities.” Nevertheless, Takashimaya expects sales to increase 4.8 percent to JPY998 billion, operating profit by 8.8 percent and duty-free sales by 24 percent.

Record tourist sales at Daimaru-Matsuzakaya

J Front Retailing’s Daimaru-Matsuzakaya Department Stores increased sales by 13.7 percent to JPY747.8 billion. Duty-free sales increased 12 percent to JPY72.1 billion, a new record, accounting for 9.6 percent of total sales.

The main city centre stores performed the best; Daimaru Shinsaibashi rose 35.2 percent, Daimaru Tokyo 22.0 percent, Umeda 13.9 percent, and Kyoto 14.6 percent.

J Front’s Parco subsidiary also benefitted from tourism, with sales up 16.3 percent to JPY296.9 billion, led by Shibuya Parco which has now found a new role as a tourist hotspot, with sales up a huge 57 percent, followed by Shinsaibashi Parco, up 46.1 percent.

J Front is also more cautious about future prospects, expecting sales to rise 4.2 percent but with lower operating profits, down 12.9 percent (partly due to investment in upgrading Matsuzakaya Nagoya). It still expects further record growth in inbound tourism as more Chinese return.

J Front increasingly envisages itself as a real estate retail business. Its latest long-term plan to 2030 calls for major investment in the seven cities where it has retail facilities, focussing on redevelopment of residential and commercial districts surrounding its retail assets, such as Sakae in Nagoya, Shinsaibashi in Osaka and Tenjin in Fukuoka.

Isetan-Mitsukoshi up 15.3 percent

Isetan-Mitsukoshi posted gross sales up 12.5 percent to JPY1.22 trillion. Its five largest stores rose 15.3 percent. Operating profit rose 86.3 percent to JPY54 billion.

Isetan Shinjuku’s sales rose 14.7 percent to JPY375.8 billion (30 percent of the group total), of which duty-free sales accounted for 12.6 percent, increasing 109 percent, JPY100 billion more than in FY2019. Duty-free sales across the chain for the full year reached JPY109 billion for the first time.

Bumper stock market prices, wealthier wealthy, better management, improved marketing – particularly to cardholders – and the surge in tourists have all helped Japan’s big city department stores rebound.

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While some regional stores have also outperformed, most face declining relevance. But even the big chains remain cautious about the future, with concerns over how long the luxury boom will last, and just when the Yen will strengthen again, possibly causing a sudden drop in tourist spending – as happened in 2017 when shiny new duty-free stores were forced to close.