TOKYO -- Tax-free store operator Laox, which once enjoyed record earnings from the phenomenon known as bakugai, or "explosive buying" by visitors to Japan, is struggling to keep up with consumers' shifting spending habits.
Though travelers to Japan from China and elsewhere have not decreased, their buying trends have changed, with a greater focus on experience-based consumption rather than the purchase of goods. Consequently, Laox is among many Japanese retailers racking their brains to find new business opportunities.
Shopping fever cools
The company fared poorly in 2016, with its sales shrinking more than 30% from the prior year. It also plunged to a net loss of 1.5 billion yen ($13 million) from an 8 billion yen profit in 2015, logging its first red ink in three years. President Luo Yiwen conceded the figures were "disappointing" after the company released results on Tuesday.
Luo has "no doubt' that inbound tourism is still a growth field. But he pointed out that visitors to Japan who "were buying high-value durable goods before ... are now buying low-priced consumables." Laox's per-customer sales decreased on the year in all 12 months of 2016. In response, the company this year significantly downsized its tax-free AsoBitCity location in Tokyo's Akihabara electronics district.
Experience over possessions
Luo sees experiential spending as key to a sales turnaround and the Japanese retailer has created a department overseen by directors to cultivate new business.
The touchstone for this effort is Chiba Port Square, which Laox acquired with Chinese real-estate giant Greenland Holdings last year. The multipurpose commercial complex is slated to offer not only shopping but also gourmet dining and entertainment. The company hopes this new type of commercial establishment will appeal to domestic consumers as well as visitors.
But details of the services to be available at the mall have yet to be hammered out. Buildings for commercial activities are still mostly vacant and the startup of operations -- originally scheduled for 2016 -- is unclear.
Other Japanese retailers that once thrived on sales of high-value items to foreigners also have to reexamine their strategies.
Kansai Airports, which operates airports in the greater Osaka area, has canceled plans to open an airport-style duty-free shop with South Korea's Lotte Group inside a Bic Camera store in Osaka's Namba district.
Secondhand retailer Komehyo, which once rode a wave of foreign visitors buying watches and designer-brand goods, will close nine stores -- about one-fifth of its locations -- amid plummeting sales to tourists.
But tax-free sales at department stores across Japan rose for the first time in nine months in December, with cosmetics being one of the drivers, according to the Japan Department Stores Association.
Takashimaya enjoyed a roughly 30% year-on-year jump in tax-free sales in December. The company had lagged behind Laox and others in updating its merchandise lineup to keep up with changing trends. But it finally did, and concerted efforts to set up payment systems also paid off.
Laox had once been a major retailer of home appliances. But in the face of daunting competition from Yamada Denki and others, it sold a stake in itself to Chinese retailing giant Suning Appliance, currently Suning Commerce Group, in 2009 and shifted its business focus to tax-free stores.
Now, as the "explosive" shopping boom fades, Laox is at a crucial moment in determining its fate going forward.