Hey big spender: Behind Japan’s retail strategy shift

 —  Article by Brad Kelly
busy road crossing in Japan
Image credit: Shutterstock

Chinese tourists have long been valuable customers for Japanese retailers.

While they remain the biggest spenders in Japan, splurging ¥227,821 (US$2,199) per person from July to September 2016, the bakugai – or explosive spending – has waned during the past year – down 18.9 percent from the same period a year ago.

The sluggish spending has been blamed on a strong yen, a steep Chinese import tax on travelers and a slowdown in the Chinese economy.

Now, Japanese retailers are changing their strategy to better target the changing spending habits of Chinese tourists, who have moved away from high-end luxury goods and electronics and are instead opting for cosmetics, household goods and experiences.

Zina Zhang, Head of Retail Consulting at JLL Japan, says that with a challenging short-to-medium term outlook, retailers will need to be creative to shore up revenue.

Seeking authentic experiences in Japan

Like in many other countries, Chinese travelers are prioritizing unique cultural experiences.

“Chinese tourists are choosing to spend on experiences rather than products, such as attending festivals, staying at hot spring hotels and trying on kimonos,” says Zhang. “Binge shopping has become less of a priority for Chinese tourists, many of whom are turning to food and leisure.”

Regional areas are also looking to cash in on the growing numbers of repeat Chinese visitors by luring them away from the major centers to visit the shrines and temples of rural Japan.

These factors represent a challenge to large metropolitan retailers who had become used to Chinese visitors on a shopping spree.

Adapting to the new spending trends

However, with the record five million Chinese tourists who visited Japan in the year up until the end of September, Japanese retailers will continue to target this group with a shift in their selling proposition, says Zhang.

Japanese duty free retailer Laox, for example, is focusing its efforts on entertainment and restaurants after revenue projections for 2017 fell to ¥90 billion from a projected ¥150 billion. “This will also expand their line-ups of regional specialties unavailable elsewhere,” Zhang adds.

Japanese retailers will also need to build relationships within the travel industry to recapture the Chinese tourist market, according to Kevin Tranbarger, Head of Retail PDS, Asia Pacific at JLL.

“Retailers need to position themselves to communicate to the customer before they travel,” he says. “The relationship with the travel agent is critical. Many of these trips are planned hour by hour pre-departure, so retailers need to ensure that they are a stop on that that tour.”

Although many are now traveling independently to Japanese cultural sites, Tranbarger says the market is still there for retailers to draw in Chinese tour groups.

“There are different travel agents and tour guides with different levels and quality of potential customers. They all have their preferred routes and partners. The market as defined is very big,” he says.

Going online to aid retail sales

While the in-store spending is down, the appetite for quality made-in-Japan goods remains high among Chinese consumers. Japan’s Economy, Trade and Industry Ministry estimated that Japanese goods bought by consumers in China through e-commerce will reach ¥2.34 trillion in 2019, almost three times more than in 2015.

As such, many retailers are ramping up their e-commerce efforts. This has the potential to be a significant new source of revenue for Japanese retailers targeting Chinese consumers, says Zhang.

“There’s a trend of Chinese consumers purchasing Japanese products such as cosmetics, food and household goods online after they return to China,” she says. “This is encouraging Japanese retailers to ramp up their cross-border e-commerce capabilities in order to capture the lucrative Chinese dollar in their home market.”

Amazon Japan recently rolled out a Chinese language website to take on the dominance of Alibaba as well as discounting shipping to Mainland China.

Retailer Matsumoto Kiyoshi said the company is upping its levels of consumer research in an effort to more effectively market to their visitors. Meanwhile, Zhang says that Japanese department store Takashimaya, which has been hit hard by falling sales, is considering an e-commerce business for Chinese consumers.

Such moves are all part of the changing strategies of Japanese retailers. Whether through expansion into other sectors, pre-prepared tours or building Chinese-friendly web platforms, they’re working hard to get the Chinese to once again open their wallets – either at the till or online.

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