With more than 127 million people, the world’s third-largest economy (nominal GDP), rising consumer spending and a historic appetite for luxury goods, Japan will continue to be Asia’s premier destination for retail shopping. With the consistent increases in tourists and rapid development leading up to the 2020 Olympics, we expect to see prime retail demand further increase. Interest and demand on main streets and in malls should keep Japan on pace with the world’s most favorable retail destinations.
As noted by several renowned business news outlets, including the BBC’s latest post on Japan in June 2015, Japan is experiencing sharp growth in its GDP, consumer purchasing power and local and international tourist consumption. The Nikkei Stock Market Exchange has been posting consistent stock price growth in the nation’s top 100 firms, which is reported to be a direct result of Prime Minister Abe’s policies on regulation and the Japanese currency. These policies and the positive anticipation of the 2020 Olympic and Para-Olympic games are contributing to the record numbers of international tourists, retail goods consumption and the value of commercial and residential real estate in Japan’s larger markets.
Notwithstanding the positive economic growth, Tokyo’s major retail neighborhoods have also been experiencing strong results for their brands bottom-line. Particularly Ginza, Omotesando and Shinjuku, where we are seeing stronger sales results YOY and a strong uptick in the volume of new market-entry brands opening flagships and competing for local and tourist business. According to Japan’s Wall Street Journal and the Nikkei Shinbun, Japan is experiencing sales results and record tourist numbers that are far-exceeding those of the “Bubble Economy” experienced from the late 1980s to the early 1990s.
|Unemployment rate (%)||3.6||3.5||3.6||3.5||3.5|
|Interest rates 3-month (%)||0.1||0.1||0.1||0.2||0.2|
|Interest rates 10-year (%)||0.3||0.2||0.3||0.5||0.8|
Note: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Oxford Economics
|Population||126.8 (2015 estimate)|
|GDP||US$ 4.84 trillion (2015 estimate)|
|Parliament||Unitary Parliamentary constitutional monarchy|
|Prime Minister||Prime Minister: Shinzo Abe Deputy Prime Minister: Taro Aso|
|RETAIL SALES GROWTH: % CHANGE ON PREVIOUS YEAR|
|LARGEST CITIES (2014)|
|Tokyo (23 Wards)||8,949,447|
MAJOR JAPANESE FOOD RETAILERS
McDonald’s Holding Co. Japan, Skylark Group: Family Restaurants, Zensho: Budget Dining, Plenus: Budget Dining
MAJOR JAPANESE NON-FOOD RETAILERS
Fast Retailing, MUJI, Nitori, Aeon Mall Retail, Tomorrowland Co., BEAMS Co. Ltd, Bay Crews Co. Ltd., United Arrows, World Co., Shimamura,Aoyama Shoji
INTERNATIONAL RETAILERS IN THE JAPAN (A SELECTION)
Inditex: Zara, Bershka, H&M, LVMH, GUCCI Group, Richemont Japan
FOOD & BEVERAGE OPERATORS
Higa Industries: Wendy’s (Re-entry), Burger king (re-entry), Krispy Kreme, Auntie Annie’s , Zest
WDI: Bubba Gump’s Shrimp, Tony Romas
|DEPARTMENT STORES||SHOPPING CENTERS||STANDALONE STORES|
|10.00 - 20.00||10.00 - 20.00||10.00 - 20.00|
Japan is the second-largest luxury good and retail market in the world, according to the McKinsey Report, representing between 10%-20% of global sales in the market and remains the No. 1 consumer base for luxury goods.
Tokyo is one of the largest cities in the world with an extremely high sense of fashion and quality. As noted in the McKinsey Luxury Report, the market for luxury goods is steadily increasing as the purchasing power builds among the upcoming professionals and increases for the mature market.
Retail in Tokyo has been historically centered in the department stores and free standing locations of Ginza since the late 1800’s and thus expanded to include Harajuku, Shinjuku, Omotesando, Shibuya and Ikebukuro. With customers becoming more accustomed to high-street shopping, retailers have been focusing on highly trafficked retail areas to meet these new shopping patterns throughout the city.
Department stores and local textile trading companies have traditionally held the most power and influence in apparel and luxury retail, however, many shopping centers and their developers have been gaining momentum due the shift in shopping trends amongst the youth and middle-aged professionals, the overall aging of the population, and the increase of international retailers occupying key locations in the shopping centers.
There are a few big box retailers such as Costco, IKEA, and Nitori, the largest Japanese furniture and interior retailer that operates more than 212 stores in Japan and 23 consecutive terms of increased sales and profits.
E-commerce has also been gaining foot in the Japanese retail market as large online marketplaces like Rakuten, Ebay’s Japanese counterpart, and Amazon have been reporting increasing profits and sales. The now famous online virtual shopping center “Zozo Town” has been able to sustain revenue growth of in excess of 150 percent since its inception in 2010 according to the IBM Smarter Planet Leadership Series.
New Entrants to the market
|skechers||Calzedonia||dominique ansel||ice monster|
|TOP SHOPPING CENTERS BY SIZE|
|NAME||CITY||SIZE (GLA SQM)||YEAR OPENED|
|Aeon Mall Lake Town||Koshigaya||225,223||2008|
|Lalaport Tokyo Bay||Funabashi||104,000||1981|
|Aeon Mall Okazaki||Okazaki||95,000||2000|
|Aeon Mall Hanyu||Hanyu||88,000||2007|
|Aeon Mall Kusatsu||Kusatsu||86,000||2008|
|Kobe Harbour Land Umie||Kobe||85,000||2013|
|KEY FEATURES OF LEASE|
|Lease Terms||Standard Lease or Old Lease Law (OLL): Typically 2 years with automatic renewal; or the Fixed Term Lease or NLL (NLL): nonrenewable, with terms being less than 1 year up to 20 years, but typically between 5 and 15 years in length.|
|Rental Payment||Frequency of Rent Payable: Monthly in Advance. Rent Deposits: Usually 10 to 24 months. Paid in cash to the landlord at beginning of lease. Non-interest bearing. Turnover Rent: Usually only seen in mall transactions, percentage rent is computed based upon total sales or sales above a natural or artificial break point which is based upon the tenant’s profit after payment of the base rent.|
|Rent Review||CPI and rental market under OLL; as negotiated under NLL.|
|Service Charges, Repairs and Insurance||Internal: Tenant Common Areas: Landlord (charge back via service charges) External/Structural: Landlord (charge back via service charges)|
|Property Taxes and other costs||Building Insurance: Landlord (charge back via service charges) Local Property Taxes: Landlord (charge back via service charges) VAT Payable on Rent: Consumption tax equal to 5% on rent and service charges|
|Disposal of a Lease||Assignment/Sub-letting: Assignment prohibited. Sub-letting, may be negotiated on a case by case basis under NLL; almost never allowed under OLL Early Termination: Yes, by giving 6 months prior written termination notice to the landlord under OLL, or by specific negotiation under the NLL. Tenant’s Building Reinstatement Responsibilities at Leases End: Original Condition, allowing for wear and tear|
|Valuation Methods||Shops are valued on a 'zoning' basis. The retail zoning principle recognises that the area at the front of the shop, adjacent to its primary window frontage (normally referred to as “Zone A”) is the most valuable in rental terms. The rate per square foot halves back through regular depths towards the rear of the ground floor, with “Zone B” valued at A/2, “Zone C” at A/4, “Zone D” at A/8 and a “Remainder” zone, typically valued at A/12. Upper and lower sales floors are similarly valued as a proportion of the “Zone A” rate, with basement and/or first floor sales accommodation typically taken at A/10, and ancillary at A/20. There will occasionally be local variations to these rates, which will also depend on the quality and functionality of the accommodation, relative to the market norm. For corner units, it is usual to add a small percentage to the value of the ground floor, the amount of which will depend on the degree of overall prominence.|
|Legislation||Two co-existing and very different lease styles: the Standard or Old Lease Law (OLL) and the Fixed-term or New Lease Law (NLL).|
Prince C. PhillipsRetail Services Japan
T +(81 3) 3596 7070
M +(81 80) 1057 3126