In the United States, where more than 2 million people have been infected with the new coronavirus, long-established department stores went under one after another in May.
Neiman Marcus mainly deals in luxury products and operates about 40 outlets, while J.C. Penney, having many middle-class customers, has about 850 stores mainly in shopping centers. Both operators have been in business for over 100 years.
The largest department store operator Macy's is also in trouble. The company reported a net loss of 652 million dollars (about 70 billion yen) in its preliminary financial statement for the February-April period of 2020.
The rise of online retailers including Amazon.com, Inc., has led to a decline in the number of consumers visiting brick-and-mortar stores. In addition, the COVID-19 shock aggravated the situation.
Sucharita Kodali, an analyst at research company Forrester Research, Inc., pointed out that customers have already been switching to Amazon and Walmart Inc., and the coronavirus pandemic has only quickened their bankruptcies. Even without a pandemic, they would have experienced financial crisis in a few years, according to Kodali.
Just like those in the United States, Japanese department stores also have been experiencing deteriorating business conditions.
The number of department stores nationwide dropped to 208 at the end of 2019, after peaking at 311 at the end of 1999. In 2019, 11 department stores closed, which is the highest figure equal to that of 2001, the year after the collapse of department store operator Sogo Co.
On May 26, Nakago Co., which operates a department store in front of Fukushima Station, announced closure of the department store at the end of August, citing the building that houses the store will be rebuilt in a redevelopment project.
The new building will be completed in four or five years, and the department store operator considered whether it would resume business operations in the new building.
However, the store was already in a tough financial situation. Sales had dropped to 6 billion yen in fiscal 2019, 70% down from 20 billion yen in fiscal 1992. Apparel companies, which play a major role in attracting customers, are trying to increase online sales, and so it was unclear whether they will open stores in the Nakago's new building. With no prospect of resuming business, the company faced the coronavirus crisis. Amid such a situation, it decided to effectively close itself.
--Customers switch to other retailers
The wave of department store closures has spread to urban areas in recent years. As more and more consumers have been switching to Uniqlo, shopping centers and online shopping, there are fewer locations where department stores can operate.
Isetan Mitsukoshi Holdings Ltd. closed the Isetan Sagamihara store in Kanagawa Prefecture and the Fuchu store in Tokyo last year. In 2021, the company plans to close the Mitsukoshi Ebisu store in Tokyo. Takashimaya Co. also decided to close the Konandai store in Yokohama.
Department stores in central Tokyo's prime locations, such as Ginza and Nihonbashi, will not be immune to closure. They may not be able to draw customers due to concerns over infection. Recently, an increasing number of consumers shop at commercial complexes in Tokyo developed by major real estate companies such as the Tokyo Midtown Hibiya in Chiyoda Ward, and the Roppongi Hills in Minato Ward.
The Tokyu Toyoko department store in Shibuya Ward, Tokyo, ended their 86-year history in March due to a redevelopment project in the district. The flagship store was directly connected to Shibuya Station, and known as a store that specializes in food products, including a floor called Toyoko Norengai.
A new commercial complex, which is scheduled to open in fiscal 2027, will be built on the department store site. It is unclear whether Tokyu Department Store Co. will open its outlet in the complex.
On the other hand, the department store operator has been implementing a strategy to open and operate small-sized stores dealing in food, cosmetics products, clothes and other items in commercial complexes along Tokyu train lines. "In the post-coronavirus world, consumers will spend more time in their neighborhoods, so this provides a boost to stores along train lines," the head of the company's specialized store business department said.
Taketo Yamate, the managing director of consulting company Frontier Management Inc., said, "While it has been said that even though department stores in regional cities are in difficult situations, those in the Ginza district are nevertheless strong. Now, such logic does not work."
"To survive, department stores in urban areas will need to shift to a real estate business model to earn money from rent paid by tenants, while other stores will have no choice but to downsize or close."
--Fundamental change
If department stores fail to find solutions, realignment is an option.
"It is possible that digital companies will acquire department stores," an expert familiar with department store issues said.
The U.S.-based online retailer Amazon bought high-end supermarket chain Whole Foods Market for 13.2 billion dollars (about 1.4 trillion yen) in 2017. Whole Foods Market operates more than 400 outlets across the United States. Amazon's strategy is to make use of the supermarket stores for commodity distribution, such as using them as distribution centers for perishable products. There is a rumor that Amazon is now interested in J.C. Penney.
Since the merger between Isetan Co. and Mitsukoshi Ltd. in 2008, there has been no large-scale reorganization in Japan's department store industry. Will the unprecedented crisis bring about fundamental change? All eyes will be on the future of the industry.
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