What: Japanese department store tax-free sales plunge 40% year-on-year in May 2025, with average tourist spending dropping significantly amid changing shopping patterns.

Why it is important: This trend demonstrates the need for Japanese retailers to diversify their revenue streams beyond tourist spending and strengthen domestic market appeal.

Japanese department stores are experiencing a significant downturn in tax-free sales, with May figures showing a 40% year-on-year decline. General products, particularly luxury brands, saw the steepest decrease at 45.6%. The average spending per shopper has fallen to approximately ¥79,000, down ¥47,000 from May 2024, while shopper numbers decreased by 5.4%, marking the first negative growth in 38 months. Industry experts attribute these changes to evolving tourist demographics and shifting shopping priorities. Economic factors, including a stronger yen and luxury brand price increases, have made tax-free shopping less attractive. Additional challenges include U.S. tariff uncertainties, China's economic slowdown, and social media rumours affecting specific markets like Hong Kong. Major retailers are responding with digital initiatives and enhanced services, such as Isetan Mitsukoshi's foreign client app and Matsuya's VIP guest lounge.

IADS Notes: The current decline in Japanese department store tax-free sales reflects a significant shift in retail dynamics. According to nippon.com's January 2025 coverage , the sector had achieved record-breaking duty-free sales in 2024, with an 85.9% increase to ¥648.7 billion, making the current 40% decline particularly notable. Inside Retail's April 2025 analysis showed how major retailers were already experiencing challenges, with sales declines ranging from 0.8% to 1.6% across different chains. Inside Retail's February 2025 report revealed broader market pressures, with consumer confidence hitting concerning lows at 35.2 on the government's index. Inside Retail's April 2025 coverage highlighted how retailers like Takashimaya are responding by diversifying their strategies beyond tourist spending, recognising the need to strengthen domestic market appeal. The current average spend of ¥79,000 per shopper, down ¥47,000 from May 2024, demonstrates how currency fluctuations and global economic uncertainties are reshaping tourist shopping patterns in Japan.

In Japan, department stores' tax-free sales drop as tourists' shopping patterns change