On January 14, Ichibata Department Store in Matsue City, Shimane, closed down after 65 years of business. The latest sales were 4.3 billion yen, which was a 60% decrease from 10.8 billion yen in 2002, the peak year. Due to the closure of the only department store in the prefecture, Shimane became the third “prefecture with no department stores,” following Yamagata and Tokushima. The impact on the local economy of closing down of a regional number-one store beloved for a long time is significant. However, the impact on the actual consumption behavior of the local residents is minimal, except for specific customer segments. The structural problems in the department store business were exposed by the fact that this closure does not substantially affect most residents.

On January 18, Ibaraki Prefectural Police proceeded with a house search on former executives of Mito Keisei Department Store and others on suspicion of benefit fraud of the Employment Adjustment Subsidy (EAS). It is suspected that they falsified their work data to avoid a deficit due to poor business performance, and fraudulently received 300 million yen of the EAS. This means that the struggles of department stores are not only problems occurring in rural areas. The market continues to shrink in urban areas as well as suburban areas. Several department stores have also shut down in core cities in the Tokyo metropolitan area, including Isetan Fuchu, Isetan Sagamihara, and Takashimaya Konandai. In addition, the main store of Tokyu Department Store in Shibuya and the main building of Odakyu Department Store in Shinjuku have already started the “redevelopment” by abandoning their existing businesses.

There have been following three structural factors: a decline in the working-age population, shrinkage of the middle-class markets, and changes in the purchasing behavior of consumers. The size of the department store market has declined from its peak of 9.7 trillion yen in 1991 to 4.9 trillion yen in 2022, and the number of stores has also decreased from 311 stores in 1999 to 180 stores in November 2023. The dignity of department stores embodying a “higher-grade shopping experience” has been undermined. It can be said that the market stagnation of the past 30 years has lowered the motivation of customers to demand products in the “higher price range,” which are the mainstay of sales in department stores.

On the other hand, the performance of department stores has been recovering on a year-on-year basis, partly due partly to the current sharp increase in consumers’ motivation for spending after the lifting of various restrictions imposed during the COVID-19 pandemic. Rising stock prices, depreciation of the yen, and the recovery of spending by foreign visitors are boosting the consumption of expensive goods. However, it should be recognized that the essential supply-demand adjustments have not yet ended. Although the potential for the development of high-income group markets is certainly great, in these markets, extremely personalized products and services are required once the demand exceeds a certain level. A uniform products and services do not work here. The same is true for middle-income and lower-income group markets. Marketing of products in the “higher price range” is still oversupplied. Therefore, the key to success is how to grasp the distributed and segmented needs, or in other words, how to merchandise the real empathy for the “uniqueness” of each person or each group.” The direction of the next-generation department stores will be to make the lumped-together category of department stores meaningless, and the starting point will be to abandon the idea of just seeking to increase the sizes of the conventional department store businesses.

This Week’s Focus, January 19

Takashi Mizukoshi, the President