What: Duty-free sales at Japanese department stores fell 36.3% year-on-year in July, as a stronger yen and higher luxury prices dampened tourist spending, prompting retailers to launch new promotions and diversify their offerings.

Why it is important: The ongoing decline in duty-free sales highlights the risks of over-reliance on currency-driven tourism and luxury demand, forcing department stores to rethink their value proposition and adapt with new experiential and pop culture-driven strategies.

Japanese department stores are facing a sharp downturn in duty-free sales, which dropped 36.3% year-on-year in July, marking the fifth consecutive month of declines and the third straight month with drops exceeding 30%. The average spend per tourist also fell 23%, as the yen’s appreciation erased Japan’s price advantage for luxury goods, and price hikes further discouraged high-end purchases. While the number of foreign visitors and their overall spending in Japan reached record highs in the first half of the year, the influx is increasingly made up of middle-class tourists who are more cautious with their spending. In response, department stores are launching new strategies to attract customers, such as pop culture events like Daimaru’s Gundam Base Pop-Up World Tour and major expansions of cosmetics floors at Seibu’s Ikebukuro store. These initiatives reflect a broader shift away from reliance on luxury tourism, as retailers seek to engage a wider audience and create experiences that are less vulnerable to currency fluctuations and global economic shifts.

IADS Notes:

The July 2025 decline in Japanese department store sales and tax-free revenue underscores the sector’s acute vulnerability to shifts in tourism, currency fluctuations, and global sentiment. As reported by Japan Times (June 2025), tax-free sales dropped 40% year-on-year, with average tourist spending falling sharply due to the yen’s appreciation and changing shopping patterns among international visitors. Mint (July 2025) and BoF (July 2025) highlight how this downturn follows a period of record-breaking growth in 2024, revealing the risks of over-reliance on inbound tourism and luxury spending. The situation is further complicated by external factors such as geopolitical tensions, rumors affecting Hong Kong visitors, and a sustained decline in South Korean travelers. These developments have prompted major department stores to accelerate digital initiatives, enhance domestic market appeal, and diversify revenue streams. Collectively, these sources illustrate the sector’s urgent need to balance international and domestic demand, adapt to volatile market conditions, and rethink the traditional department store model for long-term resilience.

Duty-free sales at Japanese department stores dropping as yen rises