If everything around us changes, if people change, can we keep building the same worlds?

Cherry blossoms bloom in spring. Their beauty remains on the tree for only a few days before they fade and disappear.

Japanese department stores, a vertical reinterpretation of the traditional horizontal shopping streets that were common until about the 1950s, account for about 90% of retail distribution. The department store merchandising model is based on how shopping streets offer everything necessary for daily life while maintaining a high level of products and services. The rest is represented by individual brand shops on the street.

The appeal of department stores is particularly strong in the luxury goods sector. Although e-commerce is growing rapidly across a range of consumer goods, it is still limited compared with Western standards.

During the twenty years preceding COVID-19, stable deflation kept purchases at Japanese department stores steady. The middle class, which can be defined as having an annual disposable income between 3 and 20 million yen, benefited from stable or declining real incomes. From 1985 to 2018, the proportion of Japan’s middle class declined – particularly significant between 1985 and 2000 – and remained stable from 2003 to 2018. Disposable income decreased by over 1 million yen, from 5.76 million yen in 1990 to 4.63 million yen in 2020. Lifetime earnings decreased by 37 million yen, from 324 million yen to 287 million yen. However, deflation helped maintain shopping habits, or even increase spending on high-end luxury goods, resulted from a broader mix of brands, which motivated consumers to spend more.

After COVID-19, consumer spending rebounded in Japan later than in Western countries, partly due to the high cost of living in Japan. Moreover, the sharp increase in inbound purchases, driven by 40 years of yen depreciation, contributed to a phenomenon known as the “Japanese consumer deficit”. It occurs when consumers find retail prices higher than expected, and decide to postpone or downgrade their purchases.

Consumers consistently expect to pay lower prices at the store than the prices they need to accept. Since February 2025, 189 Japanese department stores have experienced a downward sales trend: January year-over-year sales +5.2% (inbound +54.9%); February -1.5% (inbound +14.5%); March -2.8% (inbound -10.7%); and April -4.5% (inbound -26.7), coinciding with the fading of cherry blossoms. Luxury categories associated with short-term consumption habits, such as fashion and accessories, saw a 10-15% decrease in sales, whereas categories with long-term consumption habits, such as jewelry and watches, remain positive on average.

Japan’s annual inflation rate stood at 3.6% in April 2025, unchanged from March. Food prices, considered an absolute benchmark, rose the least in four months (6.5%, compared to 7.4% in March). Inflation is clearly imported, driven by historical yen depreciation, rather than changes in the fundamentals of the Japanese economy. The average real wage per worker in 2024, adjusted for inflation, fell 0.2 percent from the previous year. In 2025, inflation-adjusted wages fell 1.8% year-over-year in April, marking the fourth consecutive month of decline. The rate of decrease narrowed from 2023, when the figure was 2.5 percent.

The lower-middle class and middle-middle class (with disposable incomes between 3 million and 8 million yen annually) are clearly moving away from the department store, delaying their spending or downgrading them to more accessible or mass-market goods and services. This trend in particular affects luxury goods and services. The phenomenon of buying luxury goods at overinflated prices, which can be seen as a form of hedonistic escape, is evidently under consumers’ reconsideration. Consumers are turning to prestige-for-masses (masstige) goods and services, which are defined as ‘premium but attainable’. These luxury or premium products are set with prices that fill the gap between mid-market and super premium. As a result, customers are looking for alternatives to the main categories of luxury offered by department stores.

The economic factors are accompanied by changes in consumer expectations and satisfaction. Although culture and social institutions impact individual behaviour, it is evident that the new generation, Generation Z, has different attitudes compared to previous generations. They are less influenced by the power of logos, and the hedonistic appeal of merely owning socially recognisable products, such as luxury goods. Instead, they pay greater attention to the socio-environmental context and seek a strong sense of social benefits from consumption. These trends have also affected other markets but have only recently become evident in Japan. The strong social context typical of Japanese culture highlights these new consumer attitudes, turning them into market trends. Facilitated by the strong economic development since the oil crisis of the 1980s and a tendency towards consumption without ideological or religious constraints, Japan is now facing a new generation of consumers distinct from the past.

We are contributing to an ongoing phenomenon of Western-style middle-class polarisation. It is estimated that the Japanese middle class accounts for 75-80% of the goods and services purchased from department stores. A stable long-term-oriented and high-spending class has always existed, sustained by deflation and stable nominal wages. However, department stores currently face a dilemma: either to keep the old model and accept lower revenues from the most profitable luxury categories, or change the paradigm and try new ways.

A paradigm shift first requires understanding the changing economy and the needs of the middle class, along with an aligned answer in the form of a new merchandising concept by the department store. Extremely large spaces that must be filled with numerous products across all the merchandising categories are becoming increasingly unprofitable. Maximising profit per brand or category space is going to become a surviving strategy. In this context, new merchandising models need to be creative, offer alternatives, and contribute to disrupting the traditional retail model.

As in every society, and despite the uniqueness of Japanese culture, there is certainly cultural resistance to accepting such a historic change. Japan is still constrained by a corporate system based on long-term employment and seniority, which natural impedes revising the traditional department store model.

The separation of men’s and ladies’ floors and stores, along with fragmentation across all fashion categories, are two major old-style criteria upon which department stores have operated from the 1950s to the present day. The concept of shopping experience has changed. To embrace new models and win back the middle class, it is necessary to understand and apply the concept of retailtainment. Retailtainment combines shopping and entertainment to create a more engaging and enjoyable experience for customers. Retailtainment and experiential retail both aim to make shopping enjoyable. However, experiential retail takes it a step further by creating an emotional connection with customers. In the retail world, an emotional bond can be a significant factor in keeping customers loyal and returning. Increased traffic, differentiation from competitors, longer customer engagement, loyalty building, and offering breaks for shoppers are all benefits.

It seems unlikely to me that market changes in a traditional and risk-averse culture like Japan’s will come from the management of department stores themselves. Therefore, it might be necessary to catalyze change by examining outside experiences that could be adopted in the country. It is important to have an external incentive, which can only be imported, to drive change.

An environment characterised by Inflation and robust yen depreciation is increasing the number of international investors buying properties and assets in Japan. Although foreign investor acquisitions of Japanese companies remain low (17% in 2024) compared to domestic M&A, a change is coming. If Japanese department stores are willing to avoid continuous sales drops, they will need to accept a certain level of capital investment from foreign investors, who will bring new visions and new perspectives on retail distribution and merchandising.

Retailers must be resolute in embracing change. The traditional business model, which prioritises satisfying corporate stakeholders is doomed to change. Consumers, once perceived as immutable, are driving the shift towards more sophisticated marketing and management models to meet new market demands.

Department stores, facing the worst inflationary period of the last 40 years, are at a crossroads. They must decide whether to adapt their operational approach or risk closing their doors and accept their fate, like cherry blossoms that fall every spring.

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