Takashimaya is recovering from two bad years under Covid-19 restrictions. In January and February, its latest reporting months, sales were up strongly at the chain as a whole (21.6 per cent and 4.3 per cent year-on-year, respectively). The big Tokyo flagship at Nihombashi has got off to a decent start to the year, and so have the stores at Shinjuku and Osaka that operate large duty-free businesses in normal times.
But the department store’s problems didn’t begin with Covid. And despite the strong start to the year, it’s alarming to see how badly the industry as a whole has slipped over time. Data from the Japan Ministry of Economy, Trade and Industry shows Japan department store sales in 2021 totalled YEN4.9 trillion ($53.5 billion), down from YEN6.3 trillion in 2019, a decline of more than 22 per cent. The amount of department store floorspace declined by 6.1 per cent during the same two-year period, because of permanent store closures, but the productivity of the space fell by even more – a whopping 15.6 per cent.
Even in 2019, department store sales were down 34 per cent from 20 years prior, so there has been a steady erosion of sales since before the pandemic. Covid has amplified the mess by causing temporary store closures and other problems, but the declining trend is clearly structural.
Apparel sales have been hit particularly hard because of intensified competition, casualisation of fashion and the ageing of department stores’ primary customers. Stronger food sales have helped make up for some of this.
State of play
Before the Covid horror show, in 2019, Takashimaya’s sales were YEN848.5 billion, but they crashed nearly 27 per cent in 2020. The company’s latest guidance for revenue in 2021 is YEN764.0 billion.
Covid probably hit Takashimaya harder than other department store chains because international visitors account for a huge chunk of sales at the company’s flagship stores in Tokyo and Osaka. Japan is among those countries that closed its borders to tourists and has been very slow to reopen.
Like other retailers, Takashimaya responded to pandemic conditions with greater emphasis on e-commerce, renovating its site and expanding its functionality in mid-2021. As a highly service-oriented retailer, the chain is, among other things, harnessing its digital platform to support personal shopper services, such as staff visiting customers when they can’t (or won’t) come to the store.
Takashimaya has a loyal, but ageing customer base for the 15 stores it operates in Japan and unusually solid connections to local communities wherever its stores are located. Unlike most of its competitors, it also sees its overseas stores as engines of growth. The department store business around the world has generally been characterised by regional or national brand recognition that doesn’t easily cross international borders. Tales of department-store chains triumphantly entering foreign markets only to exit some time later with their tails between their legs are common. Takashimaya seems to be an exception. It has significant Asia-wide brand recognition and one of its key strategies is to cater to a broad customer base in its non-Japan stores that includes both locals and international travellers.
Takashimaya operates four stores overseas: in Singapore’s Orchard Road, where it anchors its own shopping centre; Bangkok’s Iconsiam shopping mall; Shanghai’s Changning district; and in the Saigon Centre in Ho Chi Minh City’s District 1. For visitors to Singapore, Takashimaya is possibly one of the most easily recognised landmarks on Orchard Road. It has been around for just under 30 years and in 2019 accounted for about 70 per cent of the combined revenue from the four overseas stores. It also earned about 120 per cent of the operating profits.
Better positioned than rivals
One of Takashimaya’s biggest competitors, Isetan, has also been hit hard by Covid. The pedigreed department store chain has migrated outside Japan but has banked heavily on selling upscale merchandise to Japanese tourists. Covid severely dented this business model, resulting most notably in the August 2020 closure of Isetan’s huge store at Central World in Bangkok, which had been a fixture at the mall for nearly 30 years.
Isetan has had a tougher time than Takashimaya within Japan itself and it, too, has suffered from steady sales declines over the years. Before the pandemic, in 2018, the chain’s sales fell by 4.7 per cent from 2017; in 2019, the business shed another 6.5 per cent. And in 2020, sales fell 27.1 per cent. Isetan leans disproportionately on the success of its flagship, in Shinjuku, Tokyo, which has the highest sales of any department store in the country (YEN274.1 billion in 2019).
Takashimaya, on the other hand, has its sales distributed more evenly across the chain and has several stores that operate at roughly the same level of sales or better than the Nihombashi flagship.
Despite its competitive strengths when measured against other department stores, including formidable brand cache that extends beyond Japan, Takashimaya cannot escape the reality that department stores as a format are a mature and declining force in international retail. The biggest danger is demographic and this applies to Takashimaya no less than its peers; the customers that made it great are ageing and spending less. Shifting sales online certainly helps, but it is not where the strengths of an almost 200-year-old department store company repose. Rather, future prosperity will hinge on ensuring that a unique service culture, heritage and brand curation still matter as much as price and convenience.