Market Overview

The size of the domestic retail market increased in 2023 compared to the previous year. COVID-19 was downgraded to Class 5 under the Infectious Disease Control Law, which increased people's activities and recovered consumer spending and inbound tourists. During the year, price increases continued due to rising costs of raw materials and other items. As sales increased due to higher prices per product, retailers strove to prevent customer churn by increasing customer satisfaction through the development of private-label products and improving convenience using AI and other cutting-edge technologies. As it was imperative to cope with soaring energy prices and labor shortages, more and more companies focused on reforming workstyles while improving work efficiency through digital transformation.
It was the department store and bag/purse specialty store markets that showed a rapid growth rate due to the recovery of inbound tourism demand. On the contrary, domestic consumers were focused on saving sentiments, which increased the presence of second-hand and uniform price stores. 

Noteworthy Topics

Rising Commodity Prices Impact Retail Distribution, and Measures Taken

According to the Ministry of Internal Affairs and Communications, the average consumer price index in 2024, with 2020 set as 100, was 108.5 (up 2.7% YoY), and 107.0 for all items except for energy and fresh food (up 2.4% YoY), showing how commodity prices have generally increased.
In terms of the impact on retail distribution, the rise in commodity prices has contributed significantly to the expansion of companies' sales. However, companies have not been able to recover all of the increased costs by passing them on in prices, so they have not been able to secure sufficient profits. In addition, as the period of rising commodity prices dragged on, consumers tended to save more, reducing the number of items purchased per person, even at a grocery store. This tendency is projected to be stronger for items other than food and other daily necessities.
In a situation where price pass-through has occurred in almost all categories, every retail distribution company is looking to address the rise in commodity prices through 1) item enhancement, 2) local dominance strategies, 3) private label strategies, and 4) affluent market strategies.

Future Outlook

Inbound tourism demand is expected to expand further in 2024, due not only to the increasing number of foreign travelers but also to the impact of the weaker yen. Domestic demand, on the other hand, has begun to slow from its gradual recovery in recent years. Companies in the retail distribution sector are striving to develop products that both attract price-conscious consumers and add value, thereby seeking to tap new demand. The size of the domestic retail market is expected to increase slightly in2024 compared to the previous year.  

Research Outline