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Japan department stores downbeat despite longer operation hours

Industry calls for rent support, warning of impact on suppliers

Department store sales in Tokyo fell 32% in April from the same month in 2019, before the pandemic, according to the Japan Department Stores Association. (Photo by Tomoki Mera)

TOKYO -- Japan has relaxed some restrictions on retailers, even as the government extended a state of emergency for nine prefectures, but department store operators remain downbeat about their business prospects.

On Tuesday, just over a month before the Olympic Games are set to kick off, Prime Minister Yoshihide Suga's government extended the state of emergency in Tokyo, Osaka and seven other prefectures to June 20. The state of emergency was declared on April 25 and has since been extended twice.

Before Tuesday, the government had asked that department stores close all sections but groceries and some restaurants. But now, department stores can fully open until 8 p.m. on weekdays. They are still asked to close luxury brand shops and jewelry stores at weekends to minimize the flow of shoppers.

Yet, department store operators remain pessimistic. "We are not welcoming this restriction relaxation with open arms," a spokesperson for Japan's biggest department store operator Isetan Mitsukoshi Holdings told Nikkei Asia. "Depending on the infection situation, there might be another restriction in the future. We still have to brace ourselves."

Other retailers are also feeling the sting. Japan Department Stores Association last week told the governors of the nine prefectures under the state of emergency to allow department stores to stay open.

Yoshio Murata, chairman of the association who is also president of Takashimaya, said in a statement sales for department stores in target areas had "significantly dropped" and the situation was "extremely serious."

"If this continues,... it will have an enormous impact not only on the department stores but also on the employment and business continuity of our suppliers," he added.

According to the association, sales of Tokyo's department stores fell 32% in April from the same month in 2019, before the pandemic struck.

Japan Council of Shopping Centers, Japan Retailers Association, and two other industry groups jointly issued a statement last week asking for government support.

Commercial landlords have to reduce or forgive rentals if tenants are struggling and the industry groups are asking the government to offer financial aid to make up for their income shortfall.

"If retailers follow authorities' request, they are not fully compensated," said Yoshihiro Sakata, an analyst at Tokyo Shoko Research. "As many retailers are facing an existential crisis, many may start to think what is the point of following the request if they keep losing money."

Credit Suisse Securities retail analyst Takahiro Kazahaya believes that there is "finally a light at the end of a long tunnel," as the elderly started getting inoculated in April, as a first stage of the country's vaccination program.

But he said that even if struggling retailers manage to weather the pandemic, they face challenges, not least the changes in consumer behavior brought on by over a year of working from home. For example, demand for office clothes, fancy shoes and cosmetics might take more time to recover to pre-pandemic levels.

"For department stores that are losing tenants amid the crisis, a question remains if they are still attractive to shoppers," said Kazahaya. "No one can guarantee that customers will go back to the stores just because the pandemic is over."

Takahide Kiuchi, an executive economist at Nomura Research Institute, estimates that the latest extension of the state of emergency is costing the Japanese economy 1.24 trillion yen ($11.3 billion).

Japan reported 3,036 new infections on Wednesday, down from a high of around 7,049 on May 12.

Tokyo is expected to host the Olympics in around 50 days. Yet, analysts said retailers were not heartened by the prospect.

"I don't think the Olympics are relevant for retailers anymore as they're not going to have [foreign] spectators and the athletes are not going to be moving around," said Mike Allen, an analyst at Jefferies Japan. "I don't think the Olympics makes any difference at all for retailers."

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