Tokyo is the City of Choice for Global Retailers in 2023

Tokyo is the City of Choice for Global Retailers in 2023

Commercial News » Tokyo Edition | By Michael Gerrity | August 28, 2023 7:12 AM ET

Based on new CBRE data, retail leasing demand in the world's leading retail markets continues to rebound as economic activity recovers in the wake of the COVID-19 pandemic. The Tokyo retail market is no exception, with a resurgence in retailer demand having commenced from around H2 2022. In addition to existing retailers looking to increase their store numbers, several overseas brands have made their first ventures into the Japanese market. As was the case prior to the pandemic, Tokyo continues to be one of the preferred locations for retailers seeking to establish or extend their store presence. 

In a global context, Tokyo prime rents are quite reasonable relative to its city GDP. In other words, considering the city's economic scale, including total retail sales volume, it is relatively inexpensive for retailers to rent store space. This means that, in comparison to the world's other major retail markets, it is easier for retailers to make a profit from brick and-mortar stores. New York has the largest city GDP in the world at approximately JPY 126 trillion, with Tokyo in second with JPY 111 trillion, followed by London, Shanghai, and Seoul. Meanwhile, London registered the highest prime rents at approximately JPY 1,212,000 per tsubo per month, followed by New York at JPY 729,000. These two cities are followed by Paris and Milan, with Tokyo's figure of JPY 400,000 per tsubo placing it in fifth. 

Tokyo is popular with retailers as a location for Asian or global flagship stores. In June, a leading musical instrument manufacturer from the U.S. opened its first global flagship store in Tokyo's Harajuku district, while a worldwide fashion brand opened its first Asian flagship store in the same area the following month. With Tokyo continuing to be seen as a fashion and cultural epicenter, more retailers are likely to select the city as a location for flagship stores. 

CBRE further says Japan's e-commerce ratio remains low in comparison to other major markets. Section one of this report explained why it is easier for retailers to make a profit from brick-and-mortar stores in Tokyo. Another key factor underpinning this assertion is Japan's low e-commerce ratio. Of the nations and regions used for comparison in this report, South Korea has the highest e-commerce ratio, at 43.5%, followed by China at 31.4%. The next highest figures are recorded by the UK, the U.S, and Hong Kong, with Japan's figure of 14.7% trailing Singapore in 7th. In addition to the fact that Tokyo rents are relatively cheap when compared to the city's economic scale (as shown in the previous section of the report), the fact that a relatively high percentage of the city's consumers still make their purchases at brick-and-mortar stores is another reason that such stores are more easily able to turn profits.

Japanese consumers' preference for making in-store purchases has also been noted in the results of CBRE's own surveys. Comparison of in-store purchase ratios (based on self-reporting in the survey) for a variety of different product types across the countries that are being used for the purposes of comparison in this report. A majority of Japanese consumers reported that they preferred to buy seven of the 10 product types in brick-and-mortar stores, well above average compared to other major markets worldwide. Broken down by product type, Japan ranked first among these nations in terms of the percentage of respondents who indicated they preferred in-store purchases for the categories of "DIY goods" and "children's clothes and shoes"; second in the categories of "furniture and interior furnishings" and "clothes and shoes"; and third in the categories of "daily essentials" and "jewelry and luxury goods".

Turning to the issue of reasons given by Japanese consumers for their preference for in-store purchases, the most commonly given answers were that in-store purchasing "allows consumers to see products and try them before they buy", and that it "allows consumers to obtain products without waiting". To be sure, consumers were forced to conduct much of their shopping online during the pandemic, and doing so illustrated the convenience offered by online shopping, including the greater variety of stock available and the ease of making price comparisons. Despite this, the survey results show that Japanese consumers place a high value on the in-store experience of seeing and trying products for themselves and the ability to purchase items on the spot. While the coming years will likely see the introduction of new technological innovations that will change shopping habits, the preference for real physical experiences displayed by Japanese consumers seems unlikely to shift in the near future, says CBRE.

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