too, with Japan’s department stores, particularly at the high end, which are trying to scale last year’s dizzy heights when the yen was weak and tourism was rebooting. The department store leadership was well aware this problem would come: Tourism growth was bound to level off, and the local currency would regain ground. What they didn’t foresee was that their sales would sink quite so deeply. So while around this time last year sales were leaping – in the big-city stores, particularly – now the “recoil”, as one Takashimaya executive put it in response to a question on the company’s last investor call at the end of June, has arrived.  Investors are getting worried that maybe the department store companies’ strategies for steadying the ship are not up to the job. Not everyone is fretting More broadly across Japan’s retail categories and formats, things haven’t slumped, as they have with the department stores. Indeed, they continue to go on much as they were: Low single-digit growth has been the norm for the past two years anyway. The government’s Ministry of Economy, Trade and Industry (METI), which issues a detailed monthly report on retail trade at large chains, states that sales for May rose by 2.2 per cent, compared with the same month a year ago, hardly deviating from the year-to-date trend.  At supermarkets, sales grew by 5.4 per cent, year on year, in May, the third consecutive month above 5 per cent. After a bit of a hump to get over in June, they should enjoy a strong second half, too. Convenience stores likewise had a good month in May, showing sales growth of 4.2 per cent.  Large-scale appliance stores had 4.7 per cent growth in May and have had a very solid year to date. Drugstores did even better, up 6.4 per cent. Department stores have a different perspective But it is in the department-store sector that things are not so chipper. There is a rotation to value occurring that represents a headwind for department stores, which depend disproportionately on big-spending international visitors and ‘high value’ domestic customers.   They’ve had a horror run of negative year-on-year sales growth and the descent has become serially worse, capped off with a 7.3 per cent decline in May. This time last year, sales growth was absolutely stellar at the big-city stores in particular, which caught three waves at the same time – signs of an improvement in confidence, the tourism boom that underpinned duty-free sales at the large international ports of entry, and growing success in their efforts to acquire and keep high-net-worth domestic customers. A year later, and just like Sotomayor’s successors trying to clear his world record mark, the department stores are struggling to get over the bar. Executives at Takashimaya conceded to investors that, “The previously overheated trends for high-ticket-item spending and inbound demand have run their course.” The good news is that things will get easier in the back half of the year, although the company cautioned that there are a series of adverse factors in play attributable to the stronger yen. “These include a shift from high-ticket items to everyday goods, a shift from goods to services and a shift from cities to regional areas.”  For Takashimaya, which, like its competitors, issues a monthly sales report for all its stores, June continued the dismal trend, but company executives have told investors that they expect a rebound in the second half. Investors are impatient to see it. Of its 14 stores in Japan, only four reported year-on-year growth in June and one of those was the online store.  J Front Retailing, which operates 15 stores under the Daimaru and Matsuzakaya banners, had a bad time in June, too, with only one of its stores registering growth over last year. Uniqlo crushes it METI’s report on retail sales for the large chains doesn’t extend to the big apparel and lifestyle retailers like Fast Retailing and Muji. The news there is encouraging. In June, Uniqlo’s 715 company-operated stores in Japan enjoyed same-store sales growth of 6.4 per cent. Foot traffic was up even more, which the company attributes to appropriately hot June weather that encouraged sales of summer items. At Muji’s 422 stores in Japan, the story was the same: like-for-like sales grew by 7.1 per cent, year-on-year, led by apparel (9.5 per cent) and household goods (7.0 per cent).  Other indicators point to strong performance in the specialty categories not covered by METI. J Front, in addition to its department stores, operates a chain of 15 malls branded ‘PARCO’, and the company said its mall tenants reported comparable-store sales growth of 5.1 per cent in June. Only three of its stores reported a negative change. When will sentiment improve for the high-end retailers? Consumer sentiment in Japan remains downbeat. In June, the government’s confidence index rose slightly, to 34.5, but that’s on a scale of 0-100 so the mood there is still well below what it needs to be to ignite a new ‘leg up’ for retail at the high end, which puts department stores squarely in the crosshairs. For them, the post-Covid boom was a one-off event that masked the old structural issues that have never really gone away, including unfavourable demographics and format obsolescence. Despite a lot of noise in the popular media in recent years claiming that department stores had succeeded in broadening their appeal beyond their ageing, traditional customer base, the evidence of that is mixed. Indeed, even the behaviour of the department-store companies themselves suggests that they see their target customer base is narrower than it ever was in the past, with its dependence on tourists and affluent domestic customers, who love the attention they get via the department stores’ intense focus on customer interaction skills of their sales staff, complemented by digital technologies. All of this suggests that the old fault lines in Japan’s retail industry are still there and are deeper than ever; specialty retail is winning market share in the categories that were once the department stores’ wheelhouse. The Sotomayor Effect is revealing the latter’s vulnerabilities once again. Further reading: Services and the mid-market: Takashimaya’s post-tourism plan