Why Japan’s retail recovery faltered

Japanese retailers suffered from mild winter weather and a scarcity of Chinese tourists in December, which combined to send retail sales growth negative and made for a disappointing end to 2025. It seems that the poor old Chinese traveller can’t go anywhere these days without thinking twice about it. The Chinese avoided Thailand like the plague right throughout 2025 because of concerns over safety, and now the Chinese government is telling its citizens to give Japan a wide berth. 

Tourism is incredibly important to retail trade throughout the entire Asia region, and any impediment to the free flow of travellers is a major spanner in the wheel for retailers just about everywhere, particularly at the higher end of the business. In this instance, the problem is not the violence-and-scam variety favoured in Thailand but rather the current friction between China and Japan over Taiwan and, separately, a nasty little maritime spat between the two countries.

Department stores in Japan had been riding a wave of duty-free sales in stores at the major international entry/exit points. That now is at risk. Thus, when Takashimaya’s management addressed investors on 13 January, the deteriorating state of Japan-China relations was singled out as a reason for the recent pullback in inbound tourist spending. Although management was adamant that spending by domestic customers was holding up enough to compensate, the numbers don’t seem to have supported that claim in the past few months. At the very least, the situation vis-a-vis China has dashed hopes of a sustained tourist boom.

Into the red

December wasn’t the first month in the second half of the year when sales went negative – that honour went to August – and the warning signs have been abundant in the second half that retailers might be in for an uncomfortably prolonged period of weakness. The government’s Ministry of Economy, Trade and Industry (METI), which issues a monthly snapshot report on trade at large retail chains, stated that sales for December fell by 0.9 per cent, rounding out the year in disappointing fashion relative to the optimism with which it began.

Department stores feel the heat

Japan’s department stores are an important part of the country’s retail ecosystem and cultural fabric. Many are located at busy transport hubs and are housed in historic buildings. The Mitsukoshi and Takashimaya stores that are both set in Nihombashi stores in downtown Tokyo, operate out of heritage buildings, and both companies see themselves as more than just retailers: They are also torchbearers of Japan’s cultural heritage. The past year though has been a testing one, particularly at the high-end stores in the main international gateways, which performed brilliantly in 2024 and had set the bar so high for themselves that it was always going to be tough to improve on in 2025. Indeed it was: Seven out of the 12 months showed a decline in year-on-year sales, including a 1.2 per cent drop in December. 

Department store executives were not naive but they couldn’t have foreseen the spat with China and the extent of the fall-off in duty-free sales. Perhaps they weren’t prepared for what the weather gods sent them either, in the form of a distinctly warmer-than-normal beginning to winter that played havoc with seasonal apparel sales.

Sales at Takashimaya’s 14 stores in Japan rose by 3.2 per cent in December, but that got a big assist from the closing-down sales at its Sakai branch in Osaka, which got the chop at the end of January after five years of running up losses. After Sakai, the best-performing store in terms of sales growth is the e-commerce store.

J. Front Retailing, which operates the Daimaru and Matsuzakaya department stores, had red ink spattered almost everywhere in its portfolio in December, with sales down in 10 of its 15 stores, and in percentage terms, by 2.0 per cent across the portfolio.

Uniqlo and Muji feel the pinch too

METI’s report on retail sales for the large chains doesn’t include specialty stores such as Uniqlo and Muji. The news there, however, wasn’t much better. In December, Uniqlo’s 785 stores in Japan experienced a total sales decline of 5.9 per cent while same-store sales were down by 6.6 per cent. Both of those numbers include e-commerce. The company put the poor result down to unseasonably warm weather throughout the month that dampened enthusiasm for Uniqlo’s winter clothing.  At Muji, the story was similar.

Consumer sentiment improving, but still down in the dumps

Consumer sentiment in Japan rose slightly in January but on an absolute basis it would take the most outrageous spruiker to claim that consumers were upbeat. (It has to be said, though, that many business commentators are doing exactly that.) The sentiment index now stands at 37.9, up from 37.2 – but that’s a pyrrhic victory given it’s on a scale of 0-100. With incomes not growing and the population ageing, people are focused much more on saving than spending. The department stores are well aware of this and are not silly enough to think that there is a magic bullet that’s going to change it. Although they still attempt to broaden their customer base, the main focus is to extract more from affluent and loyal domestic customers through their famous highly personalised service supported by technology.

Japan’s loss is China’s gain

The Chinese government has another motive for reducing the number of its citizens trotting off to Japan and Thailand for their vacations: It is making strenuous efforts to restructure the Chinese economy to increase domestic consumption and reduce dependence on trade and property. Money not spent in Tokyo or Bangkok, the government figures, can be spent at home in China. Retailer-friendly government policies are a key part of the effort. This includes allocating funds to extend into 2026 of the massive appliance trade-in program that put a rocket under sales in the second half of 2024 and throughout most of 2025. The government is also pressing the finance industry to ease lending terms to make big-ticket purchases more accessible.

Meanwhile, back in Japan, the average consumer is tightening the belt: Takashimayat’s claim that the consumer still has a healthy and sustained appetite for shopping is about to be put to the test.

Further reading: Inside Miniso: How a Guangzhou startup became a global phenomenon

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