Since the COVID-19 pandemic, the purchasing of goods and services over the internet—more commonly known as “online shopping”—has become even more widespread in Japan. Use of the internet in daily life has also significantly impacted the way business is conducted in the retail industry.

For retail businesses to find success, they must understand these current challenges and trends. Then, they can formulate a strategy. This article explains the measures businesses in the retail industry can undertake as part of their next-generation initiatives to address the industry’s current challenges.

What’s in this article?

• Challenges and issues in the Japanese retail industry
  
• Initiatives to address challenges in the Japanese retail industry
  
• Japanese companies addressing challenges in the retail industry
  
• How Stripe Terminal can help
  

Challenges and issues in the Japanese retail industry

The retail industry includes many sectors and business models, and each one faces diverse challenges. The following are several challenges common to all retail businesses in Japan.

Shrinking Japanese population

According to a survey conducted by the Yano Research Institute, the domestic retail market is projected to shrink by 14% by 2030, compared to 2022. This is the result of Japan’s declining population.

In the retail industry, fluctuations in population have a significant impact. Because the decline of Japan’s population is accelerating, the number of customers is also on a downward trend. Given this situation, it is extremely difficult to reliably prevent market contraction. As a result, the retail industry must adopt new strategies to address this situation.

Fewer items sold

Services such as the sharing economy and subscriptions have become a more established part of customers’ lives. This shift in values from material consumption to experience consumption has also become one of the challenges facing the retail industry.

Customers are increasingly finding value in using or sharing items only when needed, rather than ownership. With the exception of daily necessities such as food, the current trend shows attention shifting from purchasing goods to having experiences or using services.

Labor shortages

In Japan, the declining birthrate and aging population accompany the shrinking population. This has created a severe labor shortage in the retail industry. As a result, the current situation has led to increased workloads for individual employees. In many cases, they are forced to work long hours. This has created the following negative situations in the retail industry, which are also common challenges in the apparel industry:

• Decline in service quality
  
• Shortened store hours
  
• Loss of capable employees
  

Even though inbound tourism is currently thriving, labor shortage bankruptcies could happen. This involves individual retailers being unable to expand their operations because they cannot secure enough staff. Therefore, it will be necessary to broaden the scope of who is considered employable going forward, such as by actively recruiting seniors and foreign nationals.

Showrooming of brick-and-mortar stores

Shopping websites and ecommerce malls have become increasingly widespread. In addition, the convenience of online shopping has further improved due to the growing variety of available ecommerce payment methods. As a result, customers use ecommerce sites more frequently before purchasing many types of products instead of visiting physical stores. For example, in product sectors such as home appliances, it used to be typical to visit a physical store to inspect the product in person before buying. However, the use of ecommerce has been expanding in this sector.

Because ecommerce sites offer superior convenience, many physical stores have become showrooms. This means customers inspect products in-store but then make their purchases through ecommerce sites. In other words, “showrooming” diverts sales that should have been generated in the physical store to ecommerce sites, lowering brick-and-mortar store profits.

Impacts of logistics and the supply chain

The logistics industry is making efforts to improve working conditions—including drivers’ working hours—in accordance with the Work Style Reform Laws. However, the following issues have been raised as a result of this initiative:

• Decreased transport capability: The post-reform labor force will not be able to fully meet the demand for transportation, resulting in a decrease in overall transportation capabilities.
  
• Increased resignations: Because overtime hours will be limited by these laws, drivers’ incomes from overtime work will decrease, resulting in an increase in resignations.
  

Because of this, there are concerns about the impact of delivery delays on product availability.

Initiatives to address challenges in the Japanese retail industry

To address the challenges faced by the retail industry, companies can take the following initiatives:

Create added value for physical stores

Although purchasing on ecommerce sites has become common, customers have not stopped visiting physical stores.

Physical stores offer added value, such as the ability to handle products and receive personalized recommendations through in-person service. By elevating that added value, companies can differentiate themselves from competitors, including ecommerce sites.

To boost motivation to purchase in physical stores, businesses can devise initiatives that create connections between the store and its customers. Examples of such initiatives include the following:

• Stores distribute exclusive items only to in-store customers.
  
• Each store branch holds an anniversary sale.
  
• Store staff perform product introductions and demonstrations on social media platforms.
  

Additionally, it is important to adopt a customer service approach that makes customers want to visit physical stores. This approach involves understanding their expectations and concerns and then making personalized product recommendations.

Use business management systems and artificial intelligence (AI)

Labor shortages in physical stores have become increasingly severe. One countermeasure involves implementing systems that improve checkout and inventory management processes. This can help avoid creating too much work for individual staff members.

For example, under the current Qualified Invoice System in Japan, special attention is required regarding the consumption tax rate. Consequently, when issuing invoices or receipts compliant with the Invoice System, concerns arise about the work and time required to do so properly. However, using an automated receipt and invoice generation tool makes it possible to issue documents that meet the requirements of this system, thereby reducing the operational burden.

Additionally, for items without barcodes—such as bread and cakes—AI-powered camera image analysis technology (i.e., computer vision) enables automatic identification of each product. This can help prevent staff carelessness and judgment errors.

Integrate ecommerce sites and physical stores

A countermeasure that can combat physical stores becoming showrooms and a decrease in logistics capabilities is online-merge-offline (OMO) strategies. These strategies integrate online shops with physical stores.

An OMO strategy can create positive effects across both online and offline sales channels. These effects can enhance the customer shopping experience. Here are some examples of OMO strategies in practice:

• After finding a product on an ecommerce site, the customer can visit a physical store to check the size and feel before making the purchase.
  
• Customers can purchase items on the ecommerce site that are out of stock at the store.
  

To effectively implement OMO strategies, businesses need systems that can centrally manage sales and inventory across both physical stores and ecommerce sites.

Use sustainable practices

In recent years, many customers have shown an interest in sustainability and prioritize emotional fulfillment over material possessions. This is partly due to changes in customers’ lives and priorities since the COVID-19 pandemic. This has led to a diversification of values regarding a variety of issues, including sustainability.

For customers, sustainable practices could include renting a particular item instead of buying it. This practice can help prevent them from accumulating unnecessary possessions.

For companies to implement sustainability initiatives, it is important to adopt an approach that yields benefits for the company. This could include initiatives such as managing inventory and product ordering based on data-driven demand analysis. This could help reduce disposal losses caused by excess inventory.

Properly implemented sustainability initiatives can help achieve both increased profits and reduce environmental impact.

Japanese companies addressing challenges in the retail industry

Adastria

Adastria—which carries brands such as niko and LOWRYS FARM—is a casual fashion specialty store chain. Its manufacturing and retail business primarily focuses on apparel and general merchandise.

Adastria aims to evolve with customers as they change over time. This includes a sustainable customer experience as the company ventures into a new consumer-to-consumer (C2C) platform.

In October 2023, Adastria released the dot-C secondhand clothing marketplace app. On this platform, Adastria Group store staff become sellers, and dot-C members can purchase their used items.

The dot-C app came about in response to customers who wanted to emulate the fashion styles of the Adastria staff. From a sustainability perspective, this platform allows customers—who are also fans of the brand—to reuse clothing and bags. In this way, Adastria provides a platform that satisfies the needs of both customers and staff. It also ensures a secure shopping experience and is a prime example of a company addressing the challenges the retail industry currently faces.

TENTIAL

TENTIAL offers wellness-focused recovery wear, bedding, baby products, and more. The company uses the unique strengths of physical stores to prioritize relationships with every customer.

Originally launched as a purely ecommerce business, TENTIAL now also focuses its efforts on its own directly operated retail stores. TENTIAL’s physical stores were established to meet the needs of many customers who wanted to see, feel, and try on products. The company no longer solely focuses on expanding their business through their ecommerce site. Instead, TENTIAL places great importance on maintaining physical stores as one of their sales channels. For example, the company’s goal is to create an environment with direct interaction between customers and staff. This allows the sales team to convey their passion for the brand and the value of the products. To achieve this, each store is staffed with personnel who possess high-level customer service skills, accurate product knowledge, and deep understandings of TENTIAL’s mission and brand philosophy.

In this way, TENTIAL’s initiatives create new value for physical stores that cannot be achieved with an ecommerce site alone.

How Stripe Terminal can help

Stripe Terminal allows businesses to grow revenue with unified payments across in-person and online channels. It supports new ways to pay, simple hardware logistics, global coverage, and hundreds of POS and commerce integrations to design your ideal payments stack.

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Stripe Terminal can help you:

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