What: Japanese retail demonstrates contrasting fortunes as specialty stores gain market share while department stores navigate challenging market conditions.

Why it is important: The combination of weak consumer confidence and rising commodity prices creates a critical inflection point for traditional retail models.

Japan's retail landscape is experiencing a significant transformation as consumer confidence hits concerning lows, reaching 35.2 on the government's index in January 2025. This shift is particularly evident in the contrasting performance between retail formats. Department stores have seen their growth rate decline dramatically from 10.8% in the first half of 2024 to just 2.3% in the second half, with major city flagships maintaining momentum through tourism whilst regional stores struggle. Meanwhile, value-oriented specialty retailers like Uniqlo and Muji demonstrate remarkable resilience, with same-store sales growing by 8.6% and 11.3% respectively in January 2025. The challenges are further exemplified by the chocolate market, where global supply issues have driven prices up 66% year-on-year, forcing retailers to adapt their offerings and strategies. This divergence in performance reflects broader market dynamics, where tourism, which reached 36.9 million visitors in 2024, partially masks underlying domestic consumption challenges.

IADS Notes: As observed in January 2025, the stark contrast in retail performance is evident in J Front Retailing's results, where flagship stores achieved double-digit growth while regional locations struggled. This trend was foreshadowed in August 2024, when industry experts predicted the closure of approximately 10% of Japan's department stores over the next decade. The shift in consumer behaviour became particularly apparent in July 2024, as specialty stores in shopping centres reported 7% growth in apparel and double-digit increases in accessories. By October 2024, department store sales growth had significantly slowed, highlighting the growing divide between tourist-dependent and domestic retail segments.

Japan’s retail sector faces challenges amid weak consumer confidence