Japan’s total retail market size in recent years subtly ascends to reach the historical highs of 20 years ago
- Total retail market of Japan excluding motor vehicle, machinery and fuel in 2017 is valued at JPY106,564 billion of which 65 percent is contributed by 10 major mixed merchandise channels and 35 percent by category specialists and non-store retails.
- The 10 major mixed merchandise channels grew consistently and achieved revenue of JPY70,191 billion with annual growth of 1.9 percent in 2017, which is lower than the previous 2 years.
- Retail sales productivity also showed upward tendency in 2016, achieved annual sales of JPY1,072,000 per square meter which is 24 percent higher than 2012, the year with the lowest sales productivity of the past 20 years.
Households still cautious in spending except on foods amidst growing GDP and household income
- GDP, household income and household expenditure all grew in 2017, with growth rate of 1.9 percent, 1.3 percent and 0.4 percent, respectively. Among the three, household expenditure has grown the least. Slower income growth triggers the propensity for cautious spending.
- In the past 5 years, households significantly increased spending only on foods, so far have indicated relatively consistent growth, which underpins the growth potential of 10 major mixed merchandise channels.
No signs of recovery yet for struggling channels such as GMS, Department store, Consumer electronics and Home center
- GMS channel had total revenue CAGR of 1.7 percent in the past 5 years, however, annual growth of 2016 and 2017 saw revenue contracted by 1.6 percent and 3.8 percent, respectively. Although the 2 mega Japanese retailing groups namely AEON and 7&i Group, have prioritised and spent several years reforming the GMS business but to no avail. Revenue and operating profit have not seen improved results as yet.
- The other channels which are under pressure to perform indicated these 5 years CAGR/2017 annual growth (YOY) status, Department store at -0.6 percent CAGR/-0.4 percent (YOY); Home center at 0.3 percent CAGR/0.7 percent (YOY); and Consumer electronics at 0.2 percent CAGR/2.7 percent (YOY), relatively high rebounded YOY growth from 2016 due to the demand for big ticket/premium items and influx of inbound tourists.
E-commerce grows to 3rd biggest channel in Japan but progression of growth slowed as the market matures
- E-commerce CAGR of the past 5 years was 11.5 percent, much higher than any other channels, however, recent annual growth went down to 7.5 percent. Household penetration of internet users leveled off to 80.9 percent in 2017 which is a 2.6 percentage points drop from the previous year. Transaction via smartphone increased by 3.1 percentage points in 2017, and occupied 35.0 percent of total e-commerce transactions.
- E-commerce ratio of all product categories in Japan is 5.8 percent in 2017, however, e-commerce ratio of food/beverage/alcoholic beverage is still in lower level at 2.4 percent reflecting the slow (or being cautious) responsiveness of store-based retailers to get on the e-commerce platform. Not many retailers transparently announced e-commerce earnings. However, 7&i Group, one of the mega Japanese retailing group, revealed e-commerce ratio of 1.8 percent has been achieved in 2017 with annual growth of 11.4 percent.
Growing concentration level of top 5 retailers in Japan at varying degrees by channels
- Revenue of top 100 retailers grew by 2.8 percent in 2017 when the total retail market grew 1.9 percent, indicates that major retailers are growing in size.
- Share of top 5 retailers’ revenue is high in Convenience store at 96 percent, Discount store at 72 percent, Consumer electronics at 69 percent and GMS at 66 percent. On the contrary, share of top 5 retailers is low in Supermarket, only occupied 16 percent which displays a highly fragmented channel.
- Drugstore channel, with 43 percent share by top 5 retailers, is still seeing trends of mergers and acquisitions in both the national and regional levels. Therefore, higher concentration of top 5 retailers’ market share is expected within the next few years.