FOCUS: Chasing the tourist shopper: new retail marketing strategies for inbound tourists in Japan

Mar 15

Japan is enjoying unprecedented growth in inbound tourism. Department stores, hotels and overseas brands are benefiting first and foremost, but other formats are also eagerly introducing services and ranges directly targeting the tourist market. Most of these services have, so far, remained basic, concentrating on duty-free sales and acceptance of Chinese debit and credit cards. However, there is considerable scope for greater segmentation. International chains have an advantage, knowing more about customers in other markets, but the variety of tourists visiting Japan and their interests and spending patterns reveal plenty of opportunity to exploit this rapidly growing market further.

CHARTS

Inbound & Outbound Travellers 2012-15

Department Store Tourist Sales and Basket Price, 2012-15

Inbound traffic by country and type, 2014

Change in Spending by Nationality

Shopping by Format and Product Category and Nationality, 2014

Tourists coming to Japan: a new phenomena

Long-time Japan hands understand how hard Japan has wrestled with the almost spiritual issue of allowing more outsiders into the country – even on a temporary basis. That internal battle is now over. Over the past 10 years Japan has gradually developed into an almost ideal tourist destination. It is a mostly safe and friendly place to visit with a highly advanced commercial, communication and transport infrastructure, and a unique, rich culture. English is now prominent in major cities, and there is even a general enthusiasm for encouraging foreign visitors – suddenly it seems everyone understands how profitable tourism can be. In one extreme example, to mark the opening of the Hokuriku Shinkansen route in February, one ryokan inn set out to attract only overseas visitors, offering both an English Facebook page and a gold plated toilet – although at ¥200,000 a night, it’s a niche market whatever the nationality.

Even with an estimated 13.41 million visitors in 2014, equivalent to only 10% of the population, Japan ranks a mere 22nd in the world in terms of visitor numbers, below Saudi Arabia and Poland. In contrast, France, the most visited country in the world, attracted more than 80 million visitors in 2012, and on average the leading 40 tourist destination countries enjoyed inbound tourism averaging 89% of their populations. This statistic alone shows just how much potential there is. Japan’s world tourist rank jumped nine places in just two years, and it now has one of the fastest growing markets anywhere. In most months outbound travellers still outnumber inbound, but the situation was reversed for the first time in April 2014 and government estimates suggest the annual inbound figure will exceed outbound numbers for the first time ever this year.

It’s hardly unfair to say that Japan only recently took a serious interest in attracting tourists. The first ‘Visit Japan Campaign’ was launched by PM Junichiro Koizumi in 2003 with a target of 10 million visitors by 2010. A huge promotional budget, aimed at the travel industry and spent mostly in Asia, pushed up numbers consistently, but it took years to dismantle visa restrictions – a problem not just of Japan’s making as several Asian nations still required exit visas for their citizens. This barrier, along with trend stopping events such as the 2009 economic crisis, bird flu, and then the 2011 earthquake, all meant Koizumi’s initial target wasn’t met until 2013.

The election of current PM Abe and the government’s concerted determination to weaken the Yen has turned the gradual rise in numbers into a stampede, with more than 1 million tourists arriving every month since March 2014 – in 2003 Japan was lucky to see half this number. As numbers rise, and with the Rugby World Cup 2019 and the Olympics 2020 on the horizon, government estimates expect 20 million inbound visitors by 2020 and around 30 million by 2030. If anything these estimates may prove conservative. Assuming they are met, Japan will jump up the rankings to become one of the top five or six tourist destinations in the world.

SHOPPING: MORE THAN YOU WOULD EXPECT

Japan has beaches and it has skiing, both of high quality if you know where to look and are prepared to get out of Tokyo. It also has festivals, ancient temples, stunningly rebuilt replicas of castles, even a few good museums and art galleries.

But these major sightseeing attractions are overshadowed by two things that are almost unique to Japan: the food and the sheer volume and concentration of shopping in major cities. In surveys over the past six years, an average of around 60% of tourists said that, before arrival, they most wanted to try the food and see the culture. In contrast, just 14% said shopping was a major motivation for visiting.

But while the food is fantastic and the culture unique, shopping is the area where Japan truly excels. Shopping might not be popular before arrival, but close to 90% said they enjoyed it after they got here. In 2013, METI estimated tourists spent ¥463.2 billion on shopping in Japan, 32.6% of their total spending while in the country and second only to accommodation.

CAMERA, SHADES AND BULGING WALLET: A TYPICAL TOURIST IN JAPAN

So who are these visitors and what are retailers doing to entice them to spend? Every year the Japan National Tourist Organisation (JNTO) surveys more than 26,000 visitors to Japan at 11 major air and sea ports around the country. This survey, while basic, demonstrates key differences between nationalities. First, this new influx of visitors is indeed predominantly made up of tourists rather than business travellers, and second, the current growth is being driven almost entirely by visitors from Asia.

The number of tourists from Europe and America dropped off significantly following the 2011 earthquake and has been slow to recover. Only around 65% of visitors from the West arrive in Japan as tourists rather than for business or other purposes. Europeans mostly visit in the summer, and Americans tend to stay longer than any other nationality. From 2012-15,  the proportion of total visitors of Asian origin rose from 81% to 85%, and of these 79% were visiting as tourists.

In terms of nationality, more than half of all tourists visiting Japan in 2013 were from Taiwan and Korea, making up more than 3 million of the 10 million visitors that year (see Chart 1). Hong Kong Chinese were third, but their number was only a third the number of Koreans, with Chinese mainland visitors fourth. While 80-95% of the visitors from the largest three countries were tourists, only 54% of mainland Chinese visited as tourists. With USA the fifth largest tourist nationality, these top five nationalities alone make up more than 75% of all tourists visiting Japan, while the top 10 nationalities make up 87% of the total.

While the types of services introduced for tourists suggest that brands understand this delineation, few firms have yet made much effort at segmentation by tourist type.

And the differences go beyond just the number of tourists by nationality. Not surprisingly, Korean visitors stay for a short time, mostly 1-3 days, while 36% of American’s stay for 1-2 weeks. The majority of visitors are making their first trip to Japan, including well over half of all Chinese visitors, although a larger proportion of Taiwanese have visited more often. Similarly, more than 10% of visitors from both Taiwan and America, and more than 17% of South Koreans, claim to have visited more than 20 times, presumably including both tourist and business travel.

In 2014 overall, only 40% of visitors were women, although 76% of American visitors were male, and more than half of Taiwanese visitors were female. A little over half of visitors were aged 20-39, with 29% of Chinese visitors 20-29, and 19% of American visitors in their 50s.

Not every retailer is tourist equal

Where and on what do tourists spend? 90% of all tourists say they love their shopping experience in Japan, and a wide range of retail formats are enjoying the benefit and the amounts spent are all increasing.

Separate to the JNTO data, the Japan Department Store Association (JDSA) tracks tourist shopping at around 45 of its 240 member stores based on the number and amount of duty-free claims made in the store. While this is more imprecise than press reports usually suggest, one trend is clear: the value of claims is rising steadily. In December 2012, department stores were processing a mere ¥2.02 billion in duty-free claims a month (see Chart 2). This rose steadily to ¥4.8 billion in September 2014, but then exploded, hitting an all time high of ¥15.4 billion in February 2015.

This is entirely due to the massive increase in visitors from late last year. Purchases per customer (basket prices) have stayed remarkably similar, averaging ¥81,605 in December 2012 and ¥87,000 in February 2015. Partly due to purchases of more expensive outerwear in winter and high spending around Chinese New Year, average purchases drop to the low ¥70,000s in summer, and peak after the New Year and in early Autumn, with the record so far of ¥99,573 set in August 2013.

There is still huge potential for more growth. Although Isetan Shinjuku saw sales to tourists reach an unprecedented 40% of total turnover at Chinese New Year 2015, overall even this highly popular destination saw only around 3% of sales from tourists for the full year. Compare this to Galeries Lafayette in Paris where the tourist share is 30% and Harrods in London which garners 15% from tourists.

Outlet malls are also major beneficiaries of tourist growth. Mitsubishi-Simon, the operator of the Premium Outlet chain of outlet malls, has seen tourist sales more than double. Unlike department stores, it saw the biggest traffic from Thais in 2013 accounting for 25% of footfall, and tourism now accounts for 10% of sales.

Chinese outspend everyone else: ¥134,000 per visit

The JNTO data provides a broader and more detailed perspective than the JDSA data alone. On average in 2014, tourists spent ¥58,517 per trip on shopping activities, a figure that rose 18% on the year and 22% over 2012 (see Chart 3). The stats reveal that while by no means the most numerous, mainland Chinese tourists are by far and away the biggest spenders when visiting Japan, on average spending ¥134,067 per visit in 2014. This is nearly double the second highest spenders, Russians, and well over double the third highest, Thais. Chinese tourists are also increasing spending faster than any other group, with the average jumping 31% since 2012 alone.

More generally, Asian tourists tend to spend far more than Westerners, although South Koreans are an exception, spending the least of any nationality surveyed – a figure that relates directly to the short stays of most South Korean tourists. Europeans are relatively cautious spenders, led by the French at ¥34,557 with British visitors spending just slightly less, but Germans are the second lowest spenders after Koreans. Canadians spend slightly more than the French, but tourists from the USA spent just ¥29,281 on shopping in 2014, perhaps because of much lower prices at home.

Not just department stores for tourist shopping

Naturally, there is a close match between what tourists spend their money on, and where they choose to shop. Preference for shopping formats also varies by nationality. Although press reports concentrate on department store shopping, tourists overall actually visit more GMS and supermarket chains, particularly those at malls, and airport duty-free shops and convenience stores also receive a lot of custom. Only Thais and British tourists shopped more at department stores than GMS chains in 2014 (see Chart 4).

Europeans, other than the British, appear to prefer SCs as shopping destinations with department stores second, in keeping with their overall lower emphasis on shopping in general. Asians, other than Thais who use department stores and Chinese who prefer airport duty-free, clearly use GMS chains more than other nationalities. All other formats were far less frequently used. Chinese tourists were the only significant users of consumer electronics stores, and Thai tourists were the biggest users of ¥100 Shops.

In terms of what was actually purchased, confectionary was by far the most commonly purchased item by Asian tourists and the second most common category for other nationalities. Europeans and Americans buy mostly foods, alcohol and tobacco.

There are a few other anomalies. Taiwanese tourists buy more medicines and toiletries than any other nationality, although the category is also popular with Hong Kong and Chinese tourists too.

Similarly, Hong Kong tourists buy more Western clothing in Japan than any other nationality, although among the Western tourists, Russians and Australians also buy a relatively large proportion of Western brands compared to other categories. Chinese tourists are the only major purchasers of consumer electronics and the largest purchasers of cameras – in contrast South Koreans buy very few consumer electronics in Japan, having better options back at home. British and French visitors are the largest purchasers of Japanese clothing which is generally more popular with Western visitors than Asians.

Attracting Tourists

Japanese retailers have made significant strides towards attracting more tourists into their stores over the past two years. Department stores have long offered minimal duty-free shopping services and some interpreting, but these have been hugely expanded with the majority of stores now featuring a tourist shopping counter aiming to make duty-free shopping easy and to encourage higher spending. From within their staff most Tokyo stores can offer interpreters for a number of languages, while some regional stores have opted for electronic interpreting through iPads.

In April Takashimaya announced an experiment with in-store digital tracking devices. At tourist counters in eight of its stores, visitors can pick up a sensor pendant which will activate product displays in their own language as they walk around the store.

More recently, led by Bic Camera and Takashimaya, stores have also begun offering an airport or hotel delivery service, taking away the need to carry around large amounts of shopping.

The importance of duty-free shopping has only really come to the fore since the increase in the consumption tax in April 2014, but, coupled with the low Yen, this discount seems to be proving a major encouragement to spending.

As of April 2014, 5,777 stores across Japan were registered to offer duty-free processing services, 38.8% of them in Tokyo and a further 14.7% in Osaka. Until October, tourists could claim back duty on bags, clothing and electronics as long as they spent ¥10,000 or more a day. Now, food, alcohol, medicines, tobacco and cosmetics are also claimable for purchases of between ¥5,000 and ¥50,000 per customer per day.

METI has also clarified the claim process with organisations like the Japan Shopping Centre Council taking on the role of educating members. For now the process still relies on a mass of paperwork, some of it quite complex, and many retailers, not to mention tourists themselves, will be hoping for new digital solutions soon.

It is not just department stores getting on the duty-free bandwagon. Matsumotokiyoshi, the leading drugstore chain, now offers duty-free at most of its stores in Tokyo and Aeon too has a duty-free counter in the majority of its GMS outlets. The service has even spread to convenience stores for some purchases such as alcohol. Asian tourists in particular have a strong belief in the quality of many Japanese brands of household goods, medicines, cosmetics and toiletries. Oral care and sanitary products such as adult and baby nappies are popular too with Asian tourists often buying them in bulk for personal use and even as gifts.

To make shopping even easier, Isetan-Mitsukoshi will open a new type of duty free store within Mitsukoshi Ginza this Autumn. The store will be managed in association with NAA Retailing and Japan Duty Free, which operates shopping areas at Narita Airport, through a new company called Japan Duty Free Fa-So-La. The 3,300 sqm store will be focused largely on luxury brands in fashion, accessories, jewellery, watches and cosmetics. Customers will not receive goods in the store but at Narita and Haneda airports after clearing security. This feature means that Japanese living overseas will also be able to use the store. Isetan-Mitsukoshi expects sales of ¥10 billion in the first year alone rising to ¥13 billion a year later, up from  ¥7 billion currently.

In late February leading CE retailer Yamada Denki confirmed it will convert its LABI store at Shinbashi station into a duty-free outlet from the middle of April. Other LABI stores, such as the main flagship in Ikebukuro, already operate special duty-free sales areas but the Shinbashi store will be the first dedicated entirely to sales to tourists. Other LABI stores in major cities like Osaka and Fukuoka are also expected to see tourist ranges expanded over the next few months.

Ginza is fast becoming a duty-free Mecca for visiting tourists, with many international brands, as well as flagships for Bic Camera, Apple, Mitsukoshi and other department stores already in the area. Later this year Korean department store Lotte will also open in Ginza, and Laox, the electronics chain now under Chinese ownership, is planning two new stores in the area in September.

More can be done to exploit the tourist Yen

While the market is already booming, marketing to tourists has mostly meant offering interpreting and signage, acceptance of overseas debit-cards, and duty-free services. Taiwanese and Chinese tourists are an easy target for many chains simply because they make up the largest number of new visitors to Japan, and there is a general assumption that stores can get by with staff who speak either English or Chinese. In reality, as the data from the JNTO shows, there is far more scope to further segment the market.

International brands have a natural advantage given that they often employ more multilingual staff and are already well known to visiting tourists in the first place.

There is significant opportunity for far better targeted services for tourists, including adjustment in merchandise ranges and more targeted promotions. Although this would be additional work for many chains, bringing complications with languages and staff training, the growth in tourist volume over the next decade almost certainly justifies the effort – and at least for those in and around Tokyo and Osaka, that applies to both Japanese and international retailers.

This may include more deals with travel companies and hotels, and we’re likely to see more specific market positioning developing for particular chains and stores. There is also considerable opportunity for entirely new retail concepts that cater primarily to international tourists like those in other popular tourist markets like France, Spain, the UK and USA. In particular an emphasis on Japanese themed product for tourists is likely to grow, with examples in Uniqlo Ginza and at Narita Airport already successful. Capsule ranges with Japanese designers in fashion or famous Japanese chefs/restaurants in food for example all go down well with tourists and mix the assurance of the international brand with the excitement of something only available in Japan.

There are clear signs of reconfiguration of shopping areas for tourists. Kitte, the SC adjacent to Tokyo Station has a heavy emphasis on Japanese brands, and stores are configured to cater to tourist interest in Japanese merchandise. Tokyo Midtown, which this month will see its largest update since opening, has converted its basement to offer tourists a full range of Japanese foods, crafts and fashions. Ginza is already well served but the area could do much more to make the tourist experience more exciting in terms of detailed guides through smartphones and other information.

Indeed the main issue remains communication of shopping opportunities. When asked about their satisfaction levels, while overall satisfaction is very high, tourists generally note a lack of information on shopping. This means both a problem with language, but also lack of focused information for particular promotions or marketing to their own needs and tastes. Given that there are significant differences between nationalities in terms of shopping locations and purchase rates by product category, retailers that aim to make shopping easier for those nationalities are likely to build a following quickly.

In addition to tourist targeted channels such as travel companies and hotels, social media like LINE will play a big role in this, and targeting actual and potential tourists in local social media in their country of origin is a strategy major Japanese retailers are already using as an effective way to further increase tourist numbers. Outlet mall operators, Mitsui Real Estate and Mitsubishi-Simon are also heavy investors in Asian social media, offering discount coupons and other incentives directly online.

Only 10, 20 or 30 million tourists

It remains early days for Japan’s fledgling international tourist industry, and Japan’s retailers are still learning how to implement effective marketing to meet the new surge in tourist numbers. The opportunity is, however, huge. The target of 20 million tourists by 2020 is almost certain to be broken early given the current rate of growth, and few in Japan would oppose this significant new route towards more sales.

General systems have been introduced to cater to tourists during the past two years, but now retailers and brands need to become yet more sophisticated, introducing marketing strategies that will set them apart from rivals and present a new, international face to the tourist market. Those that move first will see a major increase in tourist sales over the next five years.

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