Spotlight Japan inbound retail - October 2018 Savills World Research Japan
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Savills World Research
Japan
Spotlight
Japan inbound retail October 2018
savills.co.jp/research
Spotlight | Japan inbound retail October 2018
Savills World Research
Japan
Spotlight
Japan inbound retail October 2018
Spotlight
Japan inbound retail savills.co.jp/research
“Japan is evolving as a global travel destination,
and the retail market is benefiting from the SUMMARY
explosive growth of inbound tourism. The
impact is being felt across various retail sectors. Shopping expenditure by overseas tourists
reached JPY1.6 trillion in 2017, accounting for 37% of
If the country skilfully targets different tourist their total expenditure.
preferences, some of Japan’s retail market could Food and beverage, as well as entertainment
continue to grow even faster than the rapidly spending has shown steady growth, exceeding
JPY1.0 trillion in 2017.
expanding hospitality industry.”
Convenience stores, drug stores, and department
stores are frequently used for shopping by overseas
Introduction The number of inbound tourists has
tourists, and sales for these categories have been
Japan is an enormous retail market increased exponentially from 6.2
million in 2011 to 28.7 million in 2017, growing.
with annual retail sales of over JPY140
trillion, and most global retail brands and total expenditures by overseas
tourists amounted to JPY4.4 trillion. Regional tourism should continue to grow
have established client bases in to the benefit of retail shops and malls in those
the country. While domestic retail The government has set a goal of
areas. Inbound tourism might be the last source of
demand is stable, rapid expansion 40 million overseas visitors and
sustainable growth for some regional economies.
of tourism in recent years has jolted JPY8 trillion of spending by 2020.
this mature market with new energy It also aims to significantly increase
Although resources are limited in regional
and is creating opportunities for a Meeting, Incentive, Convention, and
markets, capital has started flowing as many large
wide range of retailers who can swiftly Exhibition (MICE) related expenditures
players now have 'skin in the game' via the hospitality
adapt to new trends. from about JPY150 billion in 2016 to
industry.
MAP 1
Experience is the essence of travel, and landlords
Global luxury chain hotels* in Japan should be able to benefit from mixing tenants who
can provide unique and exciting offerings.
+2
1
JPY800 billion in 2030. The Rugby
World Cup 2019, the 2020 Tokyo
Olympics, and integrated resort (IR)
development could also be a boon for
inbound tourism.
With the expansion of inbound tourism,
4
more investments are taking place
+5 in regional cities. This can be seen
+3
17
in the increased number of lodgings
7 sprouting up around the country. More
luxury hotel brands are also opening
up in cities that used to be mainly for
1 domestic tourists. In areas where
lodgings are not sufficient, peer-to-
peer accommodations (minpaku)
# of luxury hotels in the pipeline
may fill the void to accommodate
+2 regional tourism. Capital is also flowing
as regional banks are actively lending
2 # of luxury hotels
money, and funds to promote tourism
are being launched by both the public
Source: Smith Travel Research (STR), press releases,, Savills Research & Consultancy
* We have counted the number of hotels whose brands are categorised as luxury chains by STR in the 2018 STR
and the private sector. Investment
Chain Scales list. should continue to increase as many
savills.co.jp/research 02
Spotlight | Japan inbound retail October 2018
large players now have skin in the convenience stores makes them the GRAPH 1
game via the hospitality industry, which most frequented store types where Overseas tourist retail/service
previously catered mostly to Japanese tourists spend money. This is followed
tourists. by airport duty-free stores, drugstores,
expenditures, 2014 – Q2/2018
department stores, and supermarkets, Shopping F&B Entertainment
800
In the face of a dwindling population, where one in two tourists choose to
inbound tourism could be the only shop. Additionally, 15% to 17% of 700
immediate chance for retail shops tourists shop at outlet malls, fashion
and malls in some regional areas to speciality stores, and urban retail shops, 600
reposition to a sustainable growth which, although small as a percentage 500
trajectory. For popular tourist of the total, accounts for the equivalent
JPY billion
destinations, this is likely to be a long- of 4.3 to 4.9 million people. To highlight 400
term growth driver. Osaka in particular how inbound tourism is affecting
300
is a clear beneficiary of tourism growth Japan’s retail market, we discuss three
with drug stores and department primary shopping venues: convenience 200
stores performing exceptionally well. stores, drugstores, and department
100
The news of an old family-run food stores. Although these are store types
stall in Osaka Castle Park earning over that have been significantly benefiting 0
JPY500 million in three years also from inbound tourism, insights obtained Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2015 2016 2017 2018
shows how wide the spillover effect is. from examining these sectors could
present useful lessons for other store Source: Japan Tourism Agency, Savills Research & Consultancy
Since experience is the essence of types as well.
travel, Japan’s retail market should GRAPH 2
largely benefit from incorporating Convenience store sales Overseas tourist shopping places, 2017
service elements into the shopping According to the Ministry of
experience. Forays into the hospitality Economy, Trade and Industry (METI),
industry by luxury fashion brands convenience store sales increased 80%
such as Armani, Bulgari, and Versace from JPY8.1 trillion to JPY11.7 trillion 70%
illustrate the compatibility of retail and between 2010 and 2017, an impressive
60%
service. Although Japan is known for its 45% increase. While an increase in the
service quality, a lack of basic amenities number of stores largely contributed 50%
Usage ratio
such as multilingual services and WiFi to overall sales, sales per store also 40%
spots is leading to dissatisfaction. grew in all regions between 2010 and 30%
These are low hanging fruits that could 2017. In 2017, sales per store were
20%
potentially give some well-prepared the highest in Kanto at JPY221 million,
retailers a competitive advantage. followed by Kyushu/Okinawa, Kinki, 10%
and Tohoku, respectively. 0%
Overview of inbound
tourist spending Although it is not easy to isolate the
Although a rapid increase of Chinese impact of inbound tourism on sales
tourist spending due to “bakugai” growth, its contribution is assumed
(“explosive buying”) virtually ended in to be significant in cities that are
popular among tourists. According to
2015, total expenditures by overseas Source: Japan Tourism Agency, Savills Research & Consultancy
Nikkei’s 2017 retail survey, over 70% of
tourists are steadily growing. In
surveyed convenience stores reported
2017, total shopping expenditures GRAPH 3
that inbound tourist customers
by overseas tourists reached JPY1.6 Convenience store sales per store by
increased compared to 2016. And,
trillion, an increase of JPY214 billion or
15% YoY over 2016. Although Chinese
in the same survey, over 50% of region, 2010 vs 2017
respondents said that they were
tourists account for 25% of overseas
actively targeting overseas tourists. 2010 2017
visitors, they are responsible for over 300
50% of the spending. Expenditures For example, FamilyMart announced 250
by tourists from other countries also that it would let Airbnb users pick up
rapidly increased by JPY119 billion, keys at stores. The company expects 200
to JPY762 billion, between 2016 and goods sales increases as Airbnb
JPY million
2017. Furthermore, food and beverage, guests reportedly spent JPY800 on 150
as well as entertainment services are average at key pickup at its test stores.
contributing to tourists’ total spending. Lawson started accepting Alipay, an 100
Compared to shopping expenditures, online payment platform popular in
50
growth of these categories appears China, in January 2017. In January
more stable and should continue in line 2018, Alipay users reportedly paid 0
with increases in visitation. JPY1,500 on average, almost triple
the non-user average of JPY540 (as
Inbound tourists shop at a wide range of December 2017). Other store types
of venues and contribute to sales in might also be able to increase sales by
various retail sectors. The ubiquity of applying similar methods. Source: METI, Savills Research & Consultancy
savills.co.jp/research 03Spotlight | Japan inbound retail October 2018
GRAPH 4 Drugs and toiletries sales
Breakdown of sales growth rate in the drug and The popularity of Japanese drugs and
toiletry sector by city, 2015 vs 2011 cosmetics among overseas tourists is
widely publicised. METI’s data shows
Efficiency factor Sales floor factor Confounding Total retail sales that drug store sales increased from
80%
JPY4.9 trillion to JPY6.0 trillion between
70%
2014 and 2017. At the city level, sales
60% growth in the drug and toiletry sector
50% outpaced that of overall retail sales in
a majority of markets between 2011
Growth rate
40%
30% and 2015. Most notably, in the Chuo
20% Ward of Osaka, where Shinsaibashi is
10%
located, drug and toiletry sales grew
over 150% during the same period
0%
due to explosive increases of overseas
-10%
shoppers in the area.
-20%
Drugs and toiletries were added to
the duty-free item list in 2014, which
appears to have helped sales growth
Source: METI, Savills Research & Consultancy
in this sector. According to the Japan
Department Store Association (JDSA),
GRAPH 5 cosmetics are typically the most
popular duty-free category among
Duty-free sales, Jan 2017 – May 2018 overseas tourists, followed by high-end
brand goods. New rules will simplify
35
General goods Expendable goods Per person
80,000
the process of claiming duty-free items
by allowing general and expendable
30 70,000 goods to be claimed together.
Digitisation of purchase records will
60,000
25 eliminate the hassle of carrying around
50,000 passports thickened with receipts.
JPY per person
JPY billion
20
40,000
15
Unlike the short-lived electronics
30,000 and luxury item shopping sprees, the
10 popularity of daily necessities is likely to
20,000
last longer. Drug, toiletry, and cosmetic
5 10,000 products are popular among not only
Chinese, but also Taiwanese and
0 0
South Korean tourists, which should
also contribute to stable demand for
these items. However, one caveat is
Source: JDSA, Savills Research & Consultancy that sales growth in this sector was
primarily driven by increases in sales
GRAPH 6 floor areas rather than improvement in
sales efficiency in many cities. If total
Comparison of store sales growth of major demand shrinks, competition for larger
department store chains, FY2017 vs FY2016 shares will intensify.
Department store sales
Department stores are another
Hankyu Umeda
Hankyu Hanshin
beneficiary of inbound tourism. As
discussed in our “Japan Retail May
Osaka Takashimaya
2018” report, inbound tourist demand
Takashimaya
Daimaru is propelling sales at department
Shinsaibashi stores in popular destinations. Such
Daimaru Matsuzakaya
properties in Osaka in particular have
Seibu Shibuya been outperforming others.
Sogo Seibu
Ginza Mitsukoshi Unlike convenience stores and
Isetan Mitsukoshi drugstores, however, overall sales at
department stores have been stagnant
Chain total
in Japan, save for Osaka1. The demise
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 1 Osaka appears to be a positive outlier among
YoY cities. The underlying cause for this divergence is likely
the “Osaka 2011 Problem” where a series of expansions
and openings of new stores abruptly increased
Source: Company disclosures, Savills Research & Consultancy
department store supply.
savills.co.jp/research 04Spotlight | Japan inbound retail October 2018
GRAPH 7 should also energise regional tourism
Department store sales in Japan and major (cover photo: DoubleTree by Hilton
Okinawa Chatan Resort).
submarkets, 2010 – 2017
Japan Tokyo 23W Yokohama Osaka Nagoya
In the face of depopulation, regional
130 stakeholders have acknowledged
125
that tourism could be the key to the
revitalisation of local economies and
120 are ramping up their efforts to attract
visitors. For some regional areas where
Sales index (2010=100)
115
local economies are rapidly shrinking,
110
it may be the last clear and immediate
105 chance to escape from the downward
100 spiral of decreases in population and
investment. To effectively promote
95
regional tourism, the government aims
90 to create 100 registered Destination
85 Marketing/Management Organisations
(DMOs) by 2020, and 86 DMOs have
80
2010 2011 2012 2013 2014 2015 2016 2017 been registered as of July 2018.
Source: METI, Savills Research & Consultancy These organisations are consortiums
of local stakeholders; it is expected
GRAPH 8 that they can implement coherent
Department store sales per sq m of sales floor in strategies, which are essential for
long-term growth, through effective
major submarkets, 2010 – 2017 consensus building. DMOs are also
Japan Tokyo 23W Yokohama Osaka Nagoya responsible for collecting data on
125
tourists. Consumer behaviour and
120 preferences of tourists widely differ
based on their nationalities and
115
can abruptly change, as with the
Chinese tourist “bakugai”. Timely data
Sales index (2010=100)
110
accumulated by DMOs should assist
105 retailers in capturing emerging trends.
100 Given that tourists’ dissatisfaction
comes from basic information needs
95 such as a lack of WiFi spots or
90 multilingual services, there still seems
to be huge untapped potential for
85 sales improvements. Furthermore,
80 the Japan Tourism Agency (JTA) is
2010 2011 2012 2013 2014 2015 2016 2017 sharing detailed survey results on
tourist preferences and behaviour
Source: METI, Savills Research & Consultancy
GRAPH 9
of department stores is a global space has been declining since 2005.
phenomenon, and it is hard to imagine Retailers who can leverage growing New supply of large-scale retail
that the trend will reverse without the tourism may survive competition and facilities in major cities*, 2005-2017
entire industry going through a massive improve profits by increasing market
transformation. Having said that, sales share. 1,600
per sq m of sales floor area showed
Regional tourism
1,400
stable growth in major markets in
recent years. Specifically, Tokyo’s 23 In Japan, total room nights stayed 1,200
wards improved the figure by 18% by overseas tourists more than
between 2010 and 2017. A likely cause quadrupled from 17 million to 72 1,000
Thousand sq m
for improving performance is reduced million between 2011 and 2017. During
800
competition following a series of this period, while Kanto shrank its
closures of underperforming stores. In share from 46% to 37%, Kinki and 600
addition to inbound tourism demand, Okinawa increased their shares by 4
surviving department stores appear percentage points (ppts) and 3ppts, 400
to have absorbed displaced demand respectively, indicating increasing
from closed stores. popularity of regional cities outside 200
Greater Tokyo. As the number of repeat
0
What is happening in the department tourists increases, more people are 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
store sector could be applicable likely to explore regional destinations. Source: METI, Savills Research & Consultancy
to other retail categories. Graph 9 Increases in regular routes of low cost * Retail facilities of over 1,000 sq m of store area in 20 cities designated by
indicates that supply of new retail carriers (LCCs) to regional airports ordinance plus Tokyo’s 23 wards.
savills.co.jp/research 05Spotlight | Japan inbound retail October 2018
GRAPH 10 dining, boutique shopping, and a
Total room nights by overseas tourists, 2017 vs 2011 driving simulation. In 2017, Asics,
a Japanese footwear and sports
2017 equipment producer, opened Asics
72 mil stays Connection Tokyo along the Sumida
River. The facility features cafes and
2011 fitness studios and aims to promote
17 mil stays Kanto active lifestyles to locals, as well as
Kinki
domestic and overseas tourists.
Hokkaido
37%
Kyushu
Chubu
Currently, a shortage of multilingual
46% Okinawa
services in Japan is a major source of
9% Hokuriku Shinetsu frustration for overseas tourists. Since
Chugoku interaction is usually a key element of
10% Tohoku experience-based products, retailers
21%
Shikoku may be able to significantly improve
customer satisfaction with better
25% language services. Advancements
in translation technology, as well as
Source: JTA, Savills Research & Consultancy increases in the number of foreign
residents in Japan could help address
by nationality, which should assist retailers acknowledge the importance the problem.
formation of effective strategies. of physical stores. Incorporating
experience in retail is especially GRAPH 11
Capital is also flowing into various essential to attract tourists as many Daily food and beverage spending per
regional cities. The Regional Economy visit Japan for unique and authentic
Vitalization Corporation of Japan, experiences.
person by country in 2017
established in 2009, has been setting 6,000
up funds for revitalisation of regional Enjoying local cuisine and drinks is
economies, and tourism is one of their a popular activity for most tourists. 5,000
major focuses. Furthermore, All-Japan Total food and beverage spending
Kanko Rikkoku Fund, a JPY25 billion by overseas tourists was JPY886 4,000
fund, was established in April 2018 by billion in 2017, accounting for 20%
JPY/person/day
a consortium of 60 companies such of their total expenditures. In 2017, 3,000
as MUFG Bank, Sekisui House, JAL, tourists from Hong Kong spent the
and regional banks. Combined with most on food and beverage per
2,000
bank loans, the fund is expected to person per day, followed by Singapore
provide a total of JPY100 billion in and South Korea. According to the
financing for regional tourism projects. Japan Foodservice Association, 1,000
Organisations like the aforementioned restaurant sales2 in Japan have grown
DMOs should also be able to help concurrently with tourism since 2011 0
effective allocation of capital. and recorded about JPY19 trillion in
2016. The story of the Osaka food
Overall, the inflow of tourists and stall mentioned in the introduction
capital to regions should have a also shows the huge potential of this Source: Japan Tourism Agency, Savills Research & Consultancy
positive impact on regional retail category.
markets. Some cities may also be GRAPH 12
able to utilise new resources to attract Additionally, entertainment service Restaurant sales in Japan between
Japanese tourists, who are still by far
the largest source of tourism demand.
expenditures by inbound tourists 2008 and 2017
amounted to JPY144 billion in 2017
Considering that depopulation is 19,500
with western tourists in particular
severe in some areas, however,
spending more per person than the
consolidation of stores is likely to 19,000
average. Among Asian tourists, going
proceed, which, as with department
to a Japanese hair salon, for instance,
stores, should create opportunities 18,500
is a popular experience as beauty
for surviving stores. Consolidation
of ownership could also progress standards in Japan are widely admired 18,000
in other parts of Asia.
JPY billion
if J-REITs pick up underperforming
17,500
properties as high-yield assets.
Moreover, these experience elements
Experiential retail are used for brand marketing. For 17,000
The importance of in-store experience instance, Lexus Meets… Hibiya
16,500
has been widely discussed in the opened in Tokyo Midtown Hibiya in
context of the looming threat of March 2018 as a brand experience
16,000
e-commerce to brick-and-mortar facility; customers are able to
shops. Examples of Amazon Go, LINE experience the Lexus brand through 15,500
FRIENDS stores, and the pop-up 2008 2009 2009 2010 2011 2012 2013 2014 2015 2016 2017
2 Restaurants include various food and beverage
Mercari Café indicate that even online functions such as cafes and bars. Source: Japan Foodservice Association, Savills Research & Consultancy
savills.co.jp/research 06Spotlight | Japan inbound retail October 2018
OUTLOOK
The prospects for the market
Overall, the momentum of inbound acknowledged the importance of However, Japan’s heavy reliance on
tourism should continue, further tourism for revitalisation of local tourists from Asia could pose a risk.
bolstered in the medium-term economies, facilitating the formation As illustrated by the impact from
by the Rugby World Cup 2019, of DMOs and providing risk capital. China’s boycott of travels to South
the 2020 Tokyo Olympics, and IR Tourism is now a major concern Korea, inbound tourism is susceptible
development. Japan’s retail market for many entities as it has attracted to various external factors including
should continue to be a beneficiary players from various industries, which political tensions. Natural disasters
of this trend, although shifts in the could accelerate further investment are also an inherent risk in the tourism
shopping behavior of overseas as exemplified by All-Japan Kanko industry. A potential retreat of the
tourists could cause some volatility Rikkoku Fund. global economy might also put a
in performance. temporary break on travel volumes in
Considering trends in tourist demand Asia. To mitigate the risk, it is essential
As Japan’s hospitality industry for leisure activities, it is becoming for the country to diversify source
grows larger, it will be increasingly increasingly important for retail stores regions of tourists. Some cities might
important to have long-term to offer experiences. Landlords are be able to use resources accumulated
strategies to capture the growing likely to benefit from mixing specialty through inbound tourism to attract
demand and diversified preferences restaurants and service-oriented domestic tourists for stable demand.
of different nationalities. For tenants for added excitement. Having
some regional cities, inbound local flairs should also add to the
tourism might be the last clear uniqueness and authenticity that
and immediate chance to break travellers seek. JTA’s vast and detailed
the negative cycle of population disclosures should be helpful for
outflows and declines in economic the formation of effective marketing
activity. The government has strategies.
Please contact us for further information
Savills Japan Savills Research
Christian Mancini Tetsuya Kaneko Simon Smith
CEO, Asia Pacific Director, Head of Research Senior Director
(Ex Greater China) & Consultancy, Japan Asia Pacific
+81 3 6777 5150 +81 3 6777 5192 +852 2842 4573
cmancini@savills.co.jp tkaneko@savills.co.jp ssmith@savills.com.hk
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