The China-Japan rivalry is impacting Japanese department stores

The Chinese government’s call for its citizens to avoid traveling to Japan is directly affecting the performance of Japanese department stores. The operating profit of six major Japanese department stores is projected to decline by 24% year-on-year from December 2025 to February 2026. Industry insiders generally believe that the decline in Chinese tourists will continue in the long term, necessitating efforts to expand customer base outside of China and stimulate domestic consumption through wage increases.

Osaka’s Kuromon Market, usually bustling with overseas tourists, has seen a significant decrease in Chinese visitors since the Chinese government’s call in mid-November 2025. The same is true for Senso-ji Temple in Asakusa, one of Tokyo’s top tourist attractions, where visitors from Europe and America are particularly prominent. While December to February is typically a peak season for Chinese tourists during the Spring Festival, this year’s situation is quite different.

Due to the decrease in Chinese tourists with strong purchasing power, the monthly sales of all Japanese department stores in December 2025 are lower than the same period last year. J Front Retailing’s Daimaru Shinsaibashi, Umeda, and Kyoto stores all saw sales declines of 6-8%. Matsuya’s sales at its Ginza main store dropped 11% and its Asakusa store 20% due to declining duty-free sales, showing a sluggish performance. Takashimaya’s sales to Chinese tourists also decreased by 35%.

J Front President Keiichi Ono cautioned, “The impact of China’s call for caution in traveling to Japan is likely to be long-lasting.” With the continued reduction in flights between China and Japan, department stores are pessimistic about their performance forecasts for December 2025 to February 2026. J Front, due to the reversal of reserves in the same period last year, is expected to see a 53% year-on-year decrease in operating profit for December to February, while Matsuya is also expected to see a significant decline of 81%.

Data from the Japan Tourism Agency shows that in 2024, Chinese tourists spent 1.7 trillion yen in Japan, accounting for 21% of total spending. For department stores, Chinese tourists have consistently been “high-quality customers” with a strong willingness to purchase high-end cosmetics, watches, and jewelry. Therefore, department stores have been hit harder than other industries such as supermarkets and apparel.

The Nikkei compiled operating profit forecasts for 65 listed Japanese retail companies from December 2025 to February 2026, showing that department stores are expected to see a 24% decline in profits. This decline is greater than that of drugstores (4% growth) and supermarkets/convenience stores (4% decline).

Market analysts generally believe that calls from China to avoid traveling to Japan will continue for a long time. UBS Securities estimates that spending by Chinese tourists visiting Japan in 2026 will be halved year-on-year, while Daiwa Securities predicts a 30% decrease. For department stores to recover, the most urgent task is to expand their customer base from Europe, the United States, and Asian countries outside of China.

In addition to Singapore, Takashimaya is also issuing VIP cards to premium customers in its stores in Thailand and Vietnam, offering services such as priority tax-free processing in Japan. J.Front Retailing has expanded sales of Japanese entertainment and subculture-related products that are also popular outside of China. Matsuya is also strengthening its related measures, posting information about cosmetic discounts and other items on social media not only in Chinese but also in English.

The spending preferences of tourists visiting Japan vary across different countries and regions. Daiwa Securities analyst Emiri Shigeoka points out, “Western tourists visiting Japan place greater emphasis on experiential consumption. The ability to offer such consumption options will be key to attracting inbound spending in the future.”

The recovery of domestic personal consumption in Japan is also indispensable. In department stores, while the high spending of the wealthy has not weakened, consumers’ increased awareness of saving has led to overall sluggish sales in the retail industry. In the convenience store sector, Seven & i Holdings has seen a decline in domestic customers; its strategy of gradually increasing high-value-added products while passing on costs has backfired. Aeon, on the other hand, is strengthening promotions for its low-priced private label (PB) brands.

UBS Securities senior analyst Takahiro Kazehaya points out, “With continued inflation, consumers are becoming more stringent in their judgment of the balance between value and price.”

At a New Year’s greeting meeting attended by leaders of the three major economic organizations, including the Keidanren, business leaders stated that they will strive to achieve a wage increase of more than 5% in the labor-management negotiations in the spring of 2026. As of November 2025, real wages in Japan have declined for 11 consecutive months. The final amount of the wage increase will be a key focus.