Chinese Tourism Slump Hits Japan's Department Stores as Profits Forecast to Drop 24%

Japan's retail sector faces significant headwinds as six major department store operators project a collective 24% year-on-year decline in operating profits for the December-February period. The downturn stems primarily from a sharp reduction in high-spending Chinese tourists, historically crucial to Japan's luxury retail market.

Beijing issued a travel advisory against visiting Japan in mid-November following comments by Japan's Prime Minister about Taiwan. This political friction triggered an immediate tourism contraction, particularly noticeable during what is typically peak travel season around China's Lunar New Year celebrations.

Evidence of the impact emerged in December sales figures:

• J. Front Retailing (Daimaru Matsuzakaya) reported 6-8% revenue declines at flagship Osaka and Kyoto stores
• Matsuya recorded 11% lower revenue at its Ginza location and 20% drop in Asakusa
• Takashimaya saw Chinese customer spending decrease by 35%

The significance becomes clear when examining spending patterns: Chinese tourists accounted for 21% of Japan's ¥1.7 trillion ($10.7 billion) international tourism revenue in 2024. Their preference for luxury goods—cosmetics, watches, and jewelry—makes them disproportionately valuable to department stores compared to other retail segments.

J. Front Retailing President Keiichi Ono warned of prolonged impact, with his company forecasting a 53% profit decline partly due to lost Chinese business. Matsuya anticipates an 81% profit drop. This contrasts with modest projections from other retail segments—drugstores expect 4% growth while supermarkets and convenience stores project 4% declines.

Analysts see little near-term improvement. UBS Securities estimates Chinese tourist spending could halve in 2026, while Daiwa Securities predicts a 30% reduction. In response, retailers are implementing countermeasures:

• Takashimaya launched VIP programs in Singapore, Thailand and Vietnam with duty-free privileges
• J. Front Retailing is expanding culture-based product lines targeting non-Chinese tourists
• Matsuya increased multilingual social media promotions for cosmetics

Daiwa Securities analyst Emiri Shigeoka notes shifting tourist demographics: "U.S. and European visitors to Japan tend to value experience-based consumption. Offering more experiential spending opportunities will be key to capturing international tourist revenue going forward."

The situation compounds existing challenges in Japan's retail landscape, where inflation continues to pressure domestic spending. Seven & i Holdings reports declining customer counts amid price increases, while Aeon pushes budget private-label alternatives. As UBS analyst Takahiro Kazahaya observed: "Consumers are scrutinizing the balance between price and value more critically under persistent inflation."