After sales at department stores rose for the first time in 16 years in FY2013, most forecasts suggested those gains would be wiped out by the collapse in spending post-tax hike. This didn’t happen for most major stores in most big cities, even while regional stores continued their decline. The surge in tourism helped, but overall still accounts for less than 5% of turnover. The main contribution was the renewed support from affluent Japanese, thanks to their real and perceived new wealth under Abe, but, as important, customers responded to the huge amount of work done by department stores to get rid of legacy management, interiors and thinking, and meet the needs and desires ot today’s consumer.
Department store sales densities rise 7.3% in 5 years
The combined sales of the 240 department stores in the Japan Department Store Association (JDSA) came to ¥6.21 trillion in FY2014, up 0.3% on a same store basis and down 0.1% overall. This is the third straight annual increase in same store sales. While not as noteworthy as the increase in 2013, which was the first overall increase in 17 years, in a way it is more of an achievement.
These numbers are for calendar year 2014, which includes the splurge in spending from January through March 2014, but the last time the consumption tax was increased, sales collapsed and stayed down for years. More indicative of the sustained recovery in department stores, especially those in major cities, is the fact that in 2015 sales to July have been positive in all months except January and March.
As impressive was the fact that, despite a 3.4% contraction in sales space, overall sales only fell 0.1%. Sales densities for all 240 stores averaged ¥50,134 per sqm per month – still appallingly low, but a considerable jump on the ¥46,518 in 2010.
This 7.7% increase in sales densities above all reflects the current status of department stores: they have managed a significant shift in efficiency, but the still low sales densities, and indeed profitability, show just how much more can be done – even more so when you compare the top performing locations with the rest.
Growth in CY2014 came from cosmetics, up 6.6%, jewellery and watches up 5.3%, followed by accessories, up 4.5%, apparel accessories which rose 2.7% and services, up 2.2%. Menswear rose 0.3% but womenswear fell by 1.8%. Food sales were down 0.8%.
Stores in the biggest cities had a good year; for stores in the top 10 cities, sales increased by 1.2% overall and 1.5% on a same store basis, well above the national figure. Osaka led, up 3.1%, followed by Nagoya just behind with 3.1%, Fukuoka with 2.4% and Tokyo rising by 1.5%. Sales at stores in regional cities fell 2.1%, a reflection of the tougher trading for ageing stores within some rapidly depopulating and ageing cities (and some are really just large towns these days). Hokkaido suffered the worst fall, down 3.7%, followed by Kanto down 2.6%.
Top 100 only fall 1.4% in FY2014
The data that matters more to most foreign brands is the performance of the leading department stores which account for most of the share of the sector – and indeed their interiors and locations more closely match most people’s definition of what a department store is. The remainder are often little more than glorified general merchandise stores or dilapidated shopping centres.
In FY2014, i.e. the 12 months after the consumption tax hike, the top 100 stores by sales posted a small contraction of just 1.4%. This was the first time in four years the top 100 had seen sales fall, and a resilient result given the hangover from the tax increase.
The following sections provide summaries of results and major trends last year by company and store, as well as analysis of strategies and performance going forward.
Leading department store companies
Sales by department store branch
The main reasons for solid performance were:
Apparel sales by store
The apparel floors of the leading 30 stores by apparel sales had a solid year, down just 0.7% compared to increases of 2.9% and 2.1% the years before. For the most part, the strongest performances came from stores in major cities.
With sales of just over ¥1 trillion, these 30 stores accounted for just under 10% of the apparel market. The biggest vendor of apparel by far remains Isetan Shinjuku, 40% higher than second ranked Hankyu Umeda.
Mitsukoshi and Matsuya in Ginza recorded the best performances, up 8.8% and 6.9% respectively, followed by Daimaru Tokyo and Takashimaya Shinjuku – the latter store is finally beginning to pay its way, almost entirely due to support from tourists, thanks to its location and its renewed focus on brands favoured by Chinese tourists in particular.
Accessories by store
Accessories showed a stronger performance than apparel at the top 30 stores with average sales up 1.5%, compared to 8% and 3.1% in the two years before. Again the best performances were from stores in major cities. The increase was even more impressive given the partial closure of Hanshin Osaka and Takashimaya Nihonbashi. Without these, sales would have been up nearly 2.5%.
Matsuya Ginza led by far, with an 18.4% increase in accessories sales. As mentioned above a plan hatched five years ago to become known as Tokyo’s accessories emporium for wealthy women has paid big dividends, attracting locals, Asian tourists, but also domestic visitors from the regions who make a visit to Matsuya a priority, as well as Asian tourists. Mitsukoshi Nagoya was up strongly again, increasing 13.4%, after a 34% increase the year before.
Hankyu Umeda was the top vendor of accessories for the second year running, with a 1.6% increase in sales compared to 2.4% at Seibu Ikebukuro, the second ranked store. JR Takashimaya in Nagoya was up 12.2% in third place.
The impact on foreign brands and retailers
The solid results in 2014 after excellent returns in 2013 and 2012 have reassured the industry that it is on a solid footing.
This would not have been the case without huge upheavals in ownership, management, store design and tenant mix. While department store share of retailing has dwindled to just 4.5% compared to 20% for shopping centres, as interesting is the fact that some of the bigger firms are themselves gradually transforming into multi-format retail conglomerates of which department stores are just a part.
What is also true is that a mix of conversion or partial conversion to shopping centres, better store profiling, and the tourist dividend are all injecting new life and sales into many stores, and the era of mass closures is behind us.
In other words, while true department store retailing has indeed contracted massively, the leading businesses and the buildings themselves are adapting to market need, a net benefit for all brands and retailers selling through this sector.
The impact on foreign brands and retailers of all this upheaval is mixed. There has been a good deal of debate and worry that the rapid increase in both private brands and space converted to specialty tenants will squeeze out foreign brands.
There is some argument for this, but for several reasons, the changes should actually result in a net benefit for overseas firms:
Perhaps more than any of these changes, the emergence of new department store branded, small format stores offers opportunities for overseas brands to reach new customers and new areas in unprecedented ways.
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