Retail Sales Tumble as People Stayed Home
Overall retail sales slumped 10.2% y-o-y in the Spring period (preliminary data for Mar-May), impacted by the state of emergency imposed between April 7 and May 25 and the plunge in international tourist arrivals. A sales drop of more than 10% has not been recorded since March 1998. The breakdown reveals further concerns. Apparel sales collapsed 37.1%, with general merchandise down 32.5%. Department stores report sales drops of 72.8% in April and 65.6% in May. Even the drugs and toiletries sector, which had benefited from consumers stocking up and recorded stable growth in past quarters, managed growth of only 0.5% in the Spring period. The state of emergency was lifted on May 25 and stores are reopening, but the recovery of private consumption is still a long way off.
Ginza Rents Fall, Followed by Other Major Markets
The majority of stores reopened in June, following closures during the state of emergency, but footfall traffic remains well below pre-COVID-19 levels. According to NTT Docomo, customer footfall (excluding international tourists) as at 3 pm of June 28, one month after the state of emergency ended, was down 42% y-o-y in Ginza, and 40% in Shinjuku, 32% in Shibuya and 28% in Namba, Osaka. Inbound tourist numbers from April to June sank 99.9% y-o-y, due to entry restrictions. Prime retail rents in Ginza dropped 5% y-o-y in Q2, while rents in Shinsaibashi continued their fall from Q1, dropping 16.7% y-o-y. Nagoya Sakae, Kyoto Shijodori, Kobe Sannomiya, Sapporo and Sendai also experienced rental level declines. With the pandemic still “not even close to being over” (WHO), we expect other major markets such as Shinjuku, Omotesando and Ikebukuro to see rent drop in the coming months.
A Series of New Mall Openings Amid Retail’s New Normal
Although the Tokyo 2020 Olympics is postponed, an influx of new supply targeting the expected influx of visitors have completed in June, including With Harajuku where IKEA’s has its first urban store in Japan, Toranomon Hills Business Tower, Kyoto’s ShinPuhKan and two expanded outlets. Amid reopened streets and new malls, the retail industry is also shifting towards new operational norms, including avoiding the 3Cs of closed spaces, crowded spaces and close-contact settings; universal provision of hand sanitizer; and improved ventilation systems.