What you need to know about Japan’s high-end retail sector

Several luxury brands recently opened stores in Tokyo.

The retail sector in Japan’s central areas has seen tremendous growth, with the continued rebound of inbound tourism supporting this positive trend. According to a Savills report, during the pandemic era, luxury retail was already performing well due to the pent-up demand from wealthy domestic residents. 

“In the present post-pandemic era, while luxury conglomerates appear to have recently slowed down at the global level, tailwinds in Japan do not appear to have petered out. In fact, luxury retail appears to have continued on an upward trend, and could be expected to keep improving as overall tourism in Japan appears to have shifted some focus on appealing to the high-end market,” the report said.

Here’s more from Savills:

There have been a number of luxury store openings in Tokyo over the past year. For instance, Grand Seiko opened their flagship store in Ginza, which is their third location in the area, and several luxury brands, such as Jimmy Choo have opened in Ginza Six. Elsewhere, Omotesando’s main luxury retail street has welcomed famous luxury brands BVLGARI and Tiffany & Co., while luxury watch boutique Rolex opened a store in Shinjuku in 2023. 

In the new Azabudai Hills complex, brands including Hermes, Cartier, Dior, and Celine have added new stores in 2024. The multiple new openings suggest that many brands demonstrate the confidence in the Japanese market, and more stores of similar calibre could be seen in other large-scale developments taking place in Tokyo over the next few years. 

Meanwhile, high-end department stores have continued to break sales records throughout 2023 and entering 2024, showing the heightened demand for luxury brands. To exemplify this, Isetan Mitsukoshi, Takashimaya, and Daimaru Matsuzakaya have all reported considerably higher sales in 2023 than in 2022 for their outlets in Greater Tokyo. 

For instance, Isetan Mitsukoshi’s sales for FY2023 are reported to be close to 20% higher than those of FY2022, Takashimaya’s sales in the first quarter of 2024 were around 15% higher than the same period in the previous year. Tax-free sales reportedly hit new levels for these department stores, showing that inbound tourists have made significant contributions to the spectacular performance of these department stores. 

The significant role that inbound tourism has played in the high-end retail sector is likely to be highlighted even further, with major players taking significant steps in appealing to international clientele. For example, Isetan Mitsukoshi has doubled the number of Gaisho staff that serve foreign customers, and have also promoted foreigner-friendly membership apps. 

Indeed, the average amount spent by inbound tourists has increased significantly in the post-pandemic era, with the weakened yen bolstering purchasing power. This factor has undoubtedly played an important role in boosting revenues of high-end retail. However, there have also been other factors feeding into this, like governmental efforts over the past decade to promote inbound tourism through increased numbers of duty-free stores and foreign language services, for instance. 

Furthermore, with the global economic slowdown hitting harder on the working class on top of elevated airfares, travellers in Japan are generally wealthier on average than before, and this can also be seen in the heightened hotel rates that have surpassed pre-pandemic levels, resulting in overall spending trends having gravitated towards those on the higher end. 

Elsewhere, ultra-luxury residential developments have also gained greater traction in the market over the past few years, many of which are part of a large-scale mixed-use development that will also tend to have highend retail outlets. Going forward, with Japan’s emergence as a premier global tourist destination, on top of the emergence of luxury offerings in residences, hotels, and more, not to mention the Integrated Resort (IR) development in Osaka, more wealthy visitors and clientele will emerge, meaning that high-end retail stores should also look on track to perform well.