Sharp Declines In Demand Force Retailers To Rethink Opening Strategies
October 14, 2020 – Retailers in Japan are being forced to think of new strategies to cope with the reopening of major cities and resumption of travel after the global pandemic caused a massive crash in consumer demand.
According to the latest issue of Nikkei Real Estate Market Report (October 2020, Issue 135), inbound demand has “completely dried up” as per the data in July this year. The number of visitor arrivals to Japan was down almost 100% year-on-year every month from April to July. In May, Japan recorded the lowest number of visitor arrivals since the statistics started in 1964.
By default, consumption by international visitors to Japan, as published by the Japan Tourism Agency, also slumped. In the first quarter of 2020, it fell 41.6% year-on-year.
Domestic demand is also poor. The state of emergency declaration from April 7 to May 25 asked people to stay at home and stores to close, forcing many physical stores to suspend business or shorten their business hours. This led to a 13.9% year-on-year decline in April retail industry sales and 12.3% in May.
Nationwide department store sales plunged 72.8% year-on-year in April, also the largest decline since the statistics began in January 1965. Nikkei said that while this decline narrowed in May and June, July remained almost flat from June.
This situation pushed retailers to revise their store opening strategies.
Nikkei said “showrooms,” “pop-up” shops and “luxury brands” will likely be the new format adopted to drive demand in major retail areas after the pandemic is resolved.
“What these have in common is that the physical store serves as a place to “experience” the product or brand. Future physical stores will need to instil a sense of anticipation in consumers that makes them want to actually go to the location,” the report said.
Other strategies include closing unprofitable stores and focusing on reorganising or consolidating physical store outlets. With stores forced to observe social distance for the foreseeable future, it will likely require a decent amount of time before sales rebound to pre-COVID levels.
With the retail industry’s performance worsening, many retailer tenants in Japan have
asked their landlords to lower rent.
In CBRE’s questionnaire survey, 90.9% of retailers have requested to lower their rental fees.
The most common request was for a rental reduction of 20% to 30% for a period of 3 months.
A similar questionnaire by Daiwa Real Estate Appraisal which targeted building owners that are its client companies showed that tenant requests for rent reduction have been received by 90% of the building owners. Many have asked for at least 3 months of rental relief.