BANGKOK – Boxed in by a shrinking domestic market and consumer preferences shifting toward online shopping, the only way for Japanese department stores — as well as the broader retail sector — to survive is to get a slice of fast growing markets overseas, especially in neighboring countries.
Takashimaya, one of Japan’s major department stores, may be a case in point: Its seven-floor store, opening in Bangkok on Saturday, will potentially serve as an example of how brick-and-mortar shopping locations can survive by joining together with non-retail ventures in fast-growing markets.
But with its new retail development, Takashimaya, along with other well-known fashion brands, will be only a small part of a massive $1.7 billion retail, residential and entertainment development project known as Iconsiam, which will include two residential towers over 50 floors high, a movie theater, a concert auditorium and a variety of retail options.
Hironobu Hanai, a Takashimaya representative, said that expanding in fast-growing countries in Asia, many of which have a growing base of middle-class consumers, is one way to offset the decline in domestic sales.
“Southeast Asia and China are growing economically, so in order to increase our sales we have to go to these types of markets,” Hanai said during an interview with The Japan Times. “That is one of the reasons why we are opening a store in Thailand.”
The company’s first overseas location, in Singapore, opened in 1993, but over the past five years it has also branched out with stores in Shanghai and Ho Chi Minh City.
“Japanese department stores in the 1980s and 1990s were going into the U.S. and Europe. Now we are moving into Asia instead,” he said.
Other Japanese brands featured in the development include Uniqlo, Toyota and Onitsuka Tiger, in addition to many smaller Japanese boutique names within Takashimaya.
But, unlike conventional department stores, Iconsiam aims to provide a comprehensive experience for shoppers and visitors not available online, bringing in customers who may otherwise have stayed home.
James Pitchon, executive director at CBRE Co. Ltd, who has analyzed the Thai market for over two decades, said that at first glance, the Iconsiam project looks promising because it gives consumers more than what the traditional shopping mall has to offer.
“Iconsiam is very different to what we had before in shopping centers, which was traditionally department stores plus boutique stores,” Pitchon said during a telephone interview with The Japan Times.
“They (Iconsiam) have a museum, a whole section for Thai handicrafts and products … it’s innovative, new and different.”
Nobuko Kobayashi, a partner at Ernst & Young Transaction Advisory Services Co. Ltd. in Tokyo, agrees, saying that Iconsiam is part of a new wave of retail trying to create an “experience” for customers in order to “clearly differentiate from (the) online channel.”
A specialist in the consumer and retail industry, Kobayashi said that Japanese businesses themselves have also employed this strategy, offering everything from space for elderly people to workout facilities and salons as a way to draw people to physical stores.
A large-scale example of this type of development is Ginza Six, a 13-story department store which also boasts its own theater and rotating exhibitions. Located in a swanky shopping district in Tokyo, the facility had estimated it would have 20 million visitors and ¥60 billion ($527 million) in sales in the first year of operation, according to the owner, J. Front Retailing Co.
According to a 2017 survey by McKinsey Japan, 42 percent of luxury consumers make a visit to Ginza Six for the purpose of “going out with friends or family,'” far outpacing any other category.
With a total floor space of 750,000 square meters, Iconsiam aims for a similar effect, but on a far grander scale.
“Iconsiam is a project six years in the making, and we want it to become a destination, not only a shopping center,” said Supoj Chaiwatsirkul, the managing director of Iconsiam Co. “Of course we encourage tourists to visit but we are aiming for the local population to make up 60 percent of guests.”
The project was developed by Siam Piwat, the operator of three other large malls in Thailand, including Siam Discovery, Siam Center and Siam Paragon.
Chaiwatsirkul said cross-promotion between the malls can help drive customers to the new location. Iconsiam is aiming to draw about 22 million visitors during its first year of operation.
But even if Japan’s retailers use Ginza Six or Iconsiam as a model domestically, it is unlikely that innovation alone will be sufficient to offset falling demand in their home market.
A December 2017 report from Mizuho Bank Ltd. estimated that Japanese department stores’ total domestic sales will slump to ¥5.3 trillion by 2022, down from ¥5.9 trillion in 2018.
Other Japanese department stores have also taken notice of Southeast Asia’s potential, with Isetan Mitsukoshi Holdings Ltd. opening a six-story Isetan branch on the outskirts of the Malaysian capital, Kuala Lumpur, last year.
This, however, pales in comparison to more aggressive tactics from nimbler retailers such as Uniqlo, owned by Fast Retailing Co., which had 178 stores across Southeast Asia as of February.
Another familiar sight in the region is the popular Japanese outlet mall Aeon, which is planning or has already built seven new shopping centers there since 2015.
Kobayashi, the Tokyo-based retail industry specialist, said that while catering to wealthy locals and tourists will be important for Japanese retailers who enter markets like Bangkok and Jakarta, business success will also be determined by how well they tap into these places’ growing middle class.
And for tourists from the Asian region visiting Japan, there may be opportunities for retailers to also sell to these consumers both at home and abroad.
“If tourists have had a nice experience at Takashimaya in Japan,” why not give them the opportunity to buy in their home country as well, said Kobayashi.
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