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Japanese retailers going after tax-free spending by foreign tourists

A sales clerk at Matsuya Ginza department store explains Japanese sake brands to foreign tourists.

TOKYO -- Japanese department stores and large shopping complexes are ramping up their efforts to lure foreign tourists, whose tax-free spending in Japan is surging.

     Facing a rather gloomy future of the domestic consumer market in a country with a shrinking and aging population, Japan's retail industry is pinning its hopes on the growing ranks of tourists coming here from around the world.

     The number of foreign visitors to Japan topped 10 million in 2013 for the first time. The amount of money they spent in Japan grew by 30% from the previous year.

     To capitalize on tax-exempt shopping by travelers from abroad, who are not affected by the consumption tax hike in April, large retailers are taking steps to improve their shopping experience, such as increasing the number of tax refund counters and currency exchange machines.

     The government, for its part, is expanding policy support to attract more foreign tourists to Japan. The number of products on which foreign visitors do not have to pay consumption tax will be increased this fall, with foodstuffs and cosmetics to be added to the list.

     Growing tourist traffic into Japan is one of the few bright spots in the largely grim outlook of the retail sector.

     A total of 10.36 million foreigners visited Japan in 2013, up 24% from the previous year. They spent 1,416.7 billion yen ($13.7 billion) during their stays in the country, according to the Japan Tourism Agency.

     The government has set a target of attracting 20 million foreign visitors in 2020, when Tokyo will host the Summer Olympic Games. Reaching the target would translate into an increase to the tune of 3 trillion yen in consumer spending in Japan.

     With the nation's population expected to continue graying and contracting in the coming years, foreign tourists represent "one of the few growth markets for retailers," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

     In Tokyo's prime Ginza shopping district, department stores are competing fiercely to gain a bigger chunk of spending by foreign shoppers.

     Department store operator Matsuya's Ginza store has fully remodeled its food and drink department. In response to the popularity of Japanese sake as a souvenir among foreign tourists, the number of sake brands available in the section has been increased to 450. The store now boasts one of the biggest collections of sake brands in the Ginza district.

     Matsuya Ginza plans to install a tax-refund counter in the food and drink department in time for a change in the regulations this fall, when foodstuffs purchased by foreign tourists will be exempted from the consumption tax.

     Mitsukoshi's Ginza store, Matsuya's rival, is also considering an increase in tax-refund counters.

     Sales at Japanese department stores fell significantly after the consumption tax rate was raised to 8% from 5% on April 1. Same-store sales at Takashimaya and Daimaru Matsuzakaya department stores dropped by more than 10% in April from a year earlier.

     The tax rate is slated to be hiked further to 10% in October 2015 or later. The planned consumption tax raise is only increasing the importance of foreign shoppers for Japanese retailers.

     Takashimaya will install by the end of February 2015 currency exchange machines that can handle eight foreign currencies in its four key department stores, including the Tokyo and Osaka stores. In addition, the department store chain will boost its ability to cater to Chinese tourists by increasing the number of China UnionPay terminals at its 18 stores in Japan to 1,500 from the current 120.

     Daimaru Matsuzakaya plans to introduce a new system to simplify the procedure for tax refunds. The new system, to be installed by summer in three of its department stores, including the Daimaru Kobe store and the Matsuzakaya Nagoya store, will more than halve the time needed for tax-refund filings from the current average of around five minutes.

     Sales of tax-free products at Japanese department stores totaled 38.4 billion yen in 2013, according to Japan Department Stores Association.

     The association predicts such sales will reach 70 billion yen in 2014 as department stores are improving their services for foreign tourists.

     Large shopping complexes, where foreign tourists need to follow the tax-refund procedure for each store, are also working to make shopping more convenient for foreign visitors.

     TMD, a Tokyu subsidiary that operates shopping malls and other commercial facilities, has been holding meetings with tenants of its fashion-forward Shibuya 109 department store to explain the procedures they need to follow at tax offices to become a tax-free shop. TMD wants to increase quickly the number of tax-free shops at 109 to 40-50 from the current three.

     In a similar move, major real estate developer Mitsui Fudosan plans to increase the number of tax-free shops at its Mitsui Outlet Park Sapporo Kitahiroshima, an outlet center in Hokkaido, to around 50 from the current 20 or so.


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