Welcome to Japanese retail market!

Japan_MapAssuming you are a global retailer and new to this market, please let us brief you with the basic facts about Japanese retail market that should be helpful to start thinking your Japan market development strategies.

1. Facts about the land and the population

In a nutshell: in Japan, retail markets are intensely concentrated in small flat areas of Kanto Area and Kansai Area, especially in Tokyo-to. Consumers mostly trip by the train network.
  • 127 million Japanese people live in 47 prefectures.
  • High centralization: among those 47, population is intensely concentrated in prefectures in blue letters (see left), especially in Tokyo-to that has 10%+ of total Japan population. 34% of total population live in Kanto (greater Tokyo) area. Another 16% of total population live in Kansai (greater Osaka) area. Therefore, half the Japanese population live in Kanto + Kansai areas.
  • High concentration: Land is small (90% of the size of California USA) and only 25% of the land is inhabitable (i.e. non-mountain), so population density and land price are high especially in Tokyo.
  • From the necessity to use such mountainous land efficiently, train network is highly developed across the country. Japan is a train society especially in urban areas; passenger x kilometer indicator (how heavily trains are used for transportation) is well over three times more than EU countries and 15 times more than the USA.

2. Characteristics of central business district retail markets

train_stationCentral business districts rely heavily on train network as transportation infrastructure; therefore, commercial markets are geographically formed around train stations.

There are well over 9,000 train stations in Japan, but commercially, “main terminal stations” are the most important ones. Those stations are the confluences of multiple train and subway lines, where a large indefinite number of incoming, outgoing and transferring passengers create deep-pocket commercial markets with outclassing retail business potential around the station.
On the other hand, other non-terminal stations merely function as the nearest station for neighborhood residents, so the number of passengers and retail business potential are limited.

Examples of such “main terminal stations” in Tokyo-to are listed below. Especially, Shinjuku Station is known as the world’s busiest station with around 7 times more passengers compared to Paris Gare du Nord Station.

Station

Name

Train & Subway Lines Outgoing

Passengers*

Transfer

Passengers*

Outgoing +

Transfer

Passengers*

SHINJUKU Yamanote, Chuo, Odakyu, Keio, Seibu Shinjuku, Subway: Marunouchi / Oedo 2,119,569 1,170,358  3,289,927
IKEBUKURO Yamanote, Akabane, Tobu Tojo, Seibu Ikebukuro, Subway: Marunouchi / Yurakucho / Fukutoshin 1,448,842 1,137,371 2,586,213
TOKYO Tokaido, Tohoku, Chuo, Sobu, Keiyo, Tokaido Shinkansen, Tohoku Shinkansen, Subway: Marunouchi 761,488 1,803,017 2,564,505
SHIBUYA Yamanote, Tokyu: Toyoko / Denen-toshi, Keio Inokashira, Subway: Ginza / Hanzomon / Fukutoshin 1,459,721 808,891 2,268,613
SHINAGAWA Tokaido, Yamanote, Tokaido Shinkansen, Keihin Kyuko 810,164 1,213,519 2,023,683

* Average passengers per day.  Source: Toyo Keizai, August 2014

Structure of retail markets around main terminal stations

JR_ShinjukuStationAll the main terminal stations in Japan have large shopping complex buildings (developed by railway group companies) connected to station exits. Around the station, a number of big-box retailers such as major department stores and mass retailers operate mega stores. These large shopping complexes and the station itself function as “TG” (Traffic Generagor) for mini-box retailers within the market. Proximately, mini-box retailers operate numerous small stores in areas within the walking distance from those TGs.

Mini-box retailers need to build many stores within the same major terminal station market in order to actualize the market’s large potential.
Trade-area per store is small in such a market as people visit the store mainly by foot, therefore, mini-box retailers need to cover the market with a network of multiple stores.
Mini-box retailers heavily compete to occupy prime real estate locations that are close to TG or along the streets with strong traffic line (streets that connect multiple TGs), so the rent of such sites is high.

3. Characteristics of suburban retail markets

Suburban retail markets in Japan developed after 1970’s when suburbanization of population progressed in most cities.

There are 3 major characteristics found among suburban markets:

  1. Dispersed: residential areas are spread through a wide area, so market volume around each retail store (footing market) tends to be smaller compared to urban market.
  2. Motorized: public transportation network is not as developed as in urban markets, so people rely more on private cars for transportation.
  3. Low Rent: rent is lower compared to urban markets.

Surburban_MarketRetailers in suburban markets need to build stores with enough parking space. It is also necessary for them to attract customers from wide area, by forming a shopping complex around core large shopping center, or by forming “Roadside Ginza” with many roadside convenience stores, restaurants and specialty stores along a high-traffic major highway.

Recent trends: dynamics of Japanese population is showing an accelerated “return movement” to city centers, so large-scale commercial development projects tend to concentrate in central business districts.
Therefore, recently an increasing number of suburban retailers are shifting its store development activities from suburb to city centers (e.g. Italian restaurant chain “Saizeriya”, men’s closing chain stores, supermarkets, etc.).