the year. Better still, there is likely to be some upside as the year goes on.  METI says Japan retail sales in the January-May period totaled 66,050 billion yen (about $693 billion at current exchange rates), up 6.0 per cent from a year ago. Better yet, growth in the aggregate has been fairly even, month by month.  Segmented by broad store categories though, growth has been anything but even. For large specialty stores selling home appliances (2,700 of them) and home improvement stores (4,440 of those) it has been a year to forget so far, with sales down 2.5 per cent and 0.6 per cent, respectively.   Other categories are doing nicely. The 56,000 convenience stores recorded sales growth of 5.4 per cent, and drugstores gained 7.3 per cent. Supermarkets (5,900-plus stores) gained 2.6 per cent. But it was the 190 department stores in the METI survey that shone particularly brightly, with a 10.6 per cent gain.  On a store productivity basis, the numbers looked impressive: sales per store in the January-May period were up more than 12.9 per cent over a year ago. And only a small part of this productivity growth was ‘survivor bias’, the tendency of productivity to increase among the survivors as weaker stores are closed and drop out of the survey. The tourism factor Inbound tourism to Japan, which is riding on a depreciating yen and previously suspended flight routes being brought back into action, is beginning to reach sufficient critical mass to be a material benefit to the country’s retail sales.  In the last ‘normal’ year before Covid, 2019, inbound tourism was 31.9 million, which is an average of well over 2.5 million a month. Of the total visitor count, no less than 84 per cent were from other parts of Asia, including nearly 10 million from mainland China. Although restrictions on tourism were relaxed in October 2022, the numbers were still barely more than a trickle through the end of the year. Now, the number is just hitting 2 million a month, still not anywhere near pre-Covid levels but certainly enough to start making a difference, particularly to department store retailers that depend somewhat on foreign big spenders to drive sales of high-end brands. The continued absence of the Chinese is a problem though. Visitors from the Middle Kingdom are still only at about 15 per cent of their pre-Covid level. What that means, however, is that there is a lot of upside.  Department stores rule the roost The major department store companies have reported sales at their stores through the end of June and two of them, Takashimaya and J. Front Retailing, have reported financial results through May. The news has been mostly good and a uniform theme has been the growth of the aforementioned international tourist arrivals. For Takashimaya, sales continued to trend nicely in June, up by 5.6 per cent year-on-year. A few days earlier, the company reported profit for the March-May quarter of 8.9 billion yen, 58 per cent higher than the same period a year ago. Operating revenues, which consist not only of department store sales but also retail and other development business, were up 4.2 per cent.  Takashimaya is forecasting a stronger quarter ahead and expects to be able to haul its operating revenue up 10 per cent, year-on-year, for the six months ending 31 August. It also revised upward its profit guidance as it looks to cut costs. One thing that will help an awful lot in driving the top line will be a steady increase in those international tourist numbers. At J. Front Retailing, which consists of nine Daimaru and four Matsuzakaya department stores, year-on-year sales growth was 15.2 per cent in June and 16.4 per cent in the first half of 2023. The Daimaru Shinsaibashi store, between Osaka and Kobe, and the Daimaru Tokyo store both had first-half sales growth above 30 per cent, compared with the first six months of 2022. After-tax profit for the quarter ending 31 May was 6.4 billion yen, an increase of 8.2 per cent on the same quarter a year ago. For Isetan Mitsukoshi department stories, things have also been trending well, with sales in the second quarter up 13.9 per cent, year-over-year, at its 15 stores. The company has five stores in the Tokyo metro area and they collectively had sales growth of 18.6 per cent, led by the Mitsukoshi Ginza (+38.5 per cent) and Isetan Shinjuku (+20.0 per cent) stores, both benefiting, like Takashimaya, from increased inbound international travel driving duty-free sales. The company indicated that high-end accessories, particularly jewellery and handbags, are in strong demand. How will the numbers look going forward? Japan’s department stores in 2022 were accounting for only 3.6 per cent of the country’s total retail business. That’s down from 4.8 per cent a decade ago and 7.0 per cent in 2002. So in the past two decades, the department store segment has become about half as important as it was 20 years ago. This year’s growth numbers are likely to continue looking OK because of post-Covid normalisation, although the possibility of recession or slower growth crimping travel and domestic consumer spending is still worrying. If current trends continue though, it will make 2024 very interesting. That’s when we find out if consumers really do love department stores again and the current growth is sustainable, or whether this year has just been a dead-cat bounce.  As things stand, look for a continuation of mid-single-digit sales gains through year-end, followed by much flatter growth in the low-single digits in 2024 after most of the ’normalisation’ has played out.