Japanese Department Stores Struggle as Strong Yen Dampens Tourist Spending

Foreign tourists are pictured in front of the Matsuya Ginza store in Tokyo. Duty-free sales, once a major source of profit for Japanese department stores, are declining. This is largely due to the strengthening yen, which makes luxury goods less attractive to tourists.

In response to the decline, struggling department stores are implementing new promotional strategies. These include focusing on sales floors that are less affected by currency fluctuations. Data from the Japan Department Stores Association indicates a significant drop in duty-free sales.

Nationwide duty-free sales in July totaled 40.3 billion yen, a 36.3% decrease compared to the same month last year. This marks the fifth consecutive month of year-on-year declines, with the drop exceeding 30% for three months straight. The average spending per customer also decreased, falling by 23% in July.

Yoshiharu Nishisaka, executive director of the association, attributes the decline to the rising yen, which has made customers more cautious. He also notes the increasing number of middle-class tourists visiting Japan as a contributing factor. The yen's fluctuation, from the 161-yen range per U.S. dollar in July 2024 to the 140-yen range in April of this year, has impacted purchasing power.

Previously, tourists from Europe, the United States, and Asia could find goods in Japan at prices significantly lower than in their home countries. However, the price gap has narrowed considerably. For European and American tourists, prices in Japan are now comparable to those at home. The gap has shrunk to about 5% for Asian tourists. Price increases for luxury brands have further contributed to the decline in high-end sales.

Matsuya Ginza experienced a 34% to 50% year-on-year drop in duty-free sales from April to July. Isetan Mitsukoshi Holdings saw a 31% slide in duty-free sales during the April–June quarter, alongside an 11% decrease in customers and a 23% drop in average spending per customer. Takashimaya and Daimaru Matsuzakaya Department Stores also reported year-on-year declines in duty-free sales, ranging from 20% to 40% between April and July.

Despite the challenges in duty-free sales, the number of overseas tourists to Japan from January through June increased by 21.0% year-on-year, reaching 21,518,390. Their spending in Japan also rose by 22.9% to 4.8053 trillion yen. Both figures represent record highs for the first half of a year. The number of foreign visitors in July also reached a record high for that month.

Department stores are actively developing new strategies to attract tourists. Daimaru's Umeda store in Osaka is hosting a special event featuring the popular Gundam franchise. Seibu department store's Ikebukuro store is expanding its cosmetics floor.

According to Nishisaka, department stores must offer content beyond traditional boundaries, such as pop culture, to remain competitive.