Weak yuan deflates Chinese tourist spending in Japan
Cheaper watches and Pokemon enlisted to cast wider net for travelers
TOKYO/OSAKA -- Big-spending Chinese tourists' loss of buying power in Japan is forcing stores best known for premium shopping to expand down-market to retain a key source of sales.
At the revamped watch section of Isetan Mitsukoshi Holdings' flagship Isetan Shinjuku department store in Tokyo, timepieces priced at 500,000 yen ($4,600) or more are now joined by ones costing a tenth of that.
As factors including the U.S.-China trade war weigh on the yuan, "Chinese customers have been shopping less at department stores," said Isetan Mitsukoshi President Toshihiko Sugie, who sees a broader range of products and more staff interaction with shoppers as ways to overcome these headwinds.
Chinese tourists -- who account for 30% of all spending by foreign visitors to Japan -- are particularly sensitive to currency swings. The yuan's weakness in recent months has exacerbated a shift away from the conspicuous consumption of the past, when travelers would splurge on rice cookers and other bulky purchases.
The durability of consumer spending in Japan is now in focus after this week's consumption tax increase, which raised the rate to 10% from 8%.
The remodeled Daimaru Shinsaibashi department store in Osaka now features a Pokemon-themed cafe to catch a wider range of customers. (Photo by Natsuko Katsuki)
The average amount spent by each visitor to Japan per trip slid 0.6% to 153,029 yen last year, while the drop among Chinese tourists was sharper, with a 2.4% decline to 224,870 yen.
Mitsubishi UFJ Morgan Stanley Securities estimates that the Chinese average falls by 29,000 yen for each 10% that the yuan weakens against the yen. The Chinese currency softened by about that much between April 2018 and last month, from 16.7 yen to less than 15.
Assuming the number of visitors stays constant, "the 10% drop in the yuan will drag down consumption by 243 billion yen this year," or about $2.3 billion, said Hiroshi Miyazaki, a senior economist at the brokerage, who warned that the decline could be worse if the currency depreciates further.
This is bad news for department stores and other retailers that have come to count on business from foreigners in general, and Chinese tourists in particular, amid lackluster sales to locals.
Sales under Japan's tax exemption program for foreign travelers jumped 25.8% to 339.6 billion yen last year, data from the Japan Department Stores Association shows. This accounted for 20% of all goods sales to customers from abroad. At Isetan Mitsukoshi and Takashimaya, tax-free sales made up 10% of all revenue.
Some stores are focusing less on luxury to capture a broader audience.
After its first remodeling in 86 years, the Daimaru Shinsaibashi department store in Osaka reopened Sept. 20, with its ninth floor now featuring a Pokemon-themed cafe and a store with merchandise from series in the popular manga magazine Weekly Shonen Jump. The goods in the Jump Shop, which include bags and pins, are generally priced in the hundreds to thousands of yen.
Operator Daimaru Matsuzakaya Department Stores, a subsidiary of J. Front Retailing, had considered turning the area into another cosmetics section. But it instead opted to create a space for fans of Japanese pop culture, in a bid to capture demand over the longer term.
"We do what we can to avoid being at the mercy of short-term ups and downs like currency fluctuations," said Daimaru Matsuzakaya President Tatsuya Yoshimoto.
Meanwhile, household goods sellers and secondhand stores also see business opportunities in the Chinese appetite for bargains.
Sogo & Seibu unit Loft expanded its Ginza flagship store in April, stocking 40% more products in categories such as cosmetics. It looks to draw Chinese customers with Japanese-made products like 650-yen face packs made with sake lees or rice. Secondhand store operator Komehyo saw a 10% increase in customers using the tax exemption program between April and July over the same period last year.
Some retailers are working to cultivate demand outside Japan, worried that relying too much on incoming travelers would leave them more exposed to geopolitical risks, such as the South Korea-Japan rift that has led to boycotts of Japanese tourism.
Takashimaya opened its fourth overseas department store in Thailand last November, citing requests by travelers from greater China and Southeast Asia to stock Japanese products in such countries as Thailand and Singapore.
"It's a mistake to try to capture inbound demand only in the Japanese market," said Takashimaya President Yoshio Murata. "We're bringing in customers on a global scale."
