What: Japanese department store shares underperform as tax-free sales plummet 41% year-on-year in May 2025, driven by strengthening yen and weakening tourist spending confidence.

Why it is important: The sharp reversal from record-breaking performance to significant decline demonstrates how currency fluctuations and tourism dependency can rapidly impact retail success, particularly in markets heavily reliant on international spending.

Japanese department stores are experiencing a significant downturn in performance, with tax-free sales dropping 41% year-on-year in May. This decline is primarily attributed to the strengthening Japanese yen, which has appreciated from 160 to 143 against the dollar, diminishing tourists' purchasing power. The impact is particularly evident in the average spending per shopper, which has fallen to YEN 79,000, representing a substantial decrease of YEN 47,000 from the previous year. Major retailers including Takashimaya, J. Front Retailing, and Isetan Mitsukoshi have reported significant declines in their inbound sales, with some experiencing double-digit decreases. The challenges extend beyond currency fluctuations, as economic uncertainty has dampened tourist confidence, leading to more cautious spending patterns. The situation is further complicated by potential policy changes, including discussions about abolishing tourist tax exemptions, and broader market concerns such as U.S. tariff uncertainties and China's economic slowdown.

IADS Notes: The current decline in Japanese department store performance marks a dramatic reversal from the sector's remarkable achievements in 2024. In January 2025, the industry celebrated record-breaking annual sales of YEN 5.75 trillion, with duty-free purchases soaring 85.9%. However, this success masked growing structural challenges, as revealed by Takashimaya's April 2025 report showing 80% of sales concentrated in just five flagship stores. The sector's vulnerability became more apparent in February 2025 when consumer confidence hit a concerning low of 35.2, coinciding with department store growth declining to 2.3%. The current 41% drop in tax-free sales, coupled with the yen strengthening from 160 to 143 against the dollar, represents a significant shift from the tourism-driven boom, highlighting the risks of over-reliance on international visitors and the persistent urban-regional divide in Japanese retail.

Japan’s Department Store Shares Lag as Tourist Splurge Slows - BoF

Japan’s department store shares lag as tourist splurge slows - Mint