Updated as of November 2005

Online Commerce Rapidly Gaining Popularity.

Total retail sales in Japan in 2004 amounted to 128,092 billion yen or $1,208 billion, down 0.6 percent from 128,871 billion yen in 2003.

Retail trade sales grew remarkably in the 5-year period from 1985 to 1990, when sales hit a peak of 144,450 billion yen, an increase of approximately 37 percent from 105,778 billion yen in 1985. From 1995 on, sales started to decline, losing 11 percent by 2004.

Total annual sales by Japan's large-scale stores (department stores and supermarkets combined) were 21,425 billion yen or about $202 billion in 2004, down 1.4 percent from 21,729 billion yen in 2003. In the past, the total value of retail sales for large-scale stores grew to 20,442 billion yen in 1990, a 42 percent rise from 12,185 billion yen in 1980. The 1980s constituted a decade of Japan's most vigorous economic growth in her history. This economic expansion continued, though at a much slower pace, until 1999, when retail sales for large-scale stores hit a peak of 23,124 billion yen. A downturn ensued in 2000 and in 2001 despite continued expansion of gross selling floor space, reflecting the start of an era of stagnation in consumer spending due to the arrival of a deflationary spiral in the Japanese economy.

This trend reflects the current structure of retail trade in Japan, where so-called “mom and pop” stores employing less than 5 people accounted for 69 percent, or 901,000 out of a total of 1,300,000 stores in 2002. Retail establishments hiring more than 50 employees numbered only 15,000 or 1 percent of larger stores in the same year.

The total number of employees working for retail businesses in Japan is not reported precisely, but was roughly estimated at 8 million in 1997.

The basic structure of the industry remains unchanged, but the total number of stores dropped about 6 percent between 1994 and 2002, primarily in the “mom and pop” segment whose number lost 13 percent or about 200,000 stores.

The most apparent change in the smaller-scale stores has taken place in their style of retail. In the early 1990s, most were “mom and pops,” but many have since been converted into so-called “convenience stores” with self service. The number of self-service stores gained almost 50 percent during the 10 years starting in 1990. The number of employees in self-service stores reached approximately 600,000 in 2002 from 540,000 in 1999.

The fierce competition among all retail establishments, new and old, large scale and mom and pop, has taken its toll among retail establishments, like Daiei, once the most powerful and largest supermarket chain, resulting in their reorganization. Demands has also been shrinking due to stagnation of the economy and pressure from deflation.

Online transactions have grown rapidly in the Japanese market and have been established as a new sales channel. According to the Ministry of Economy, Trade and Industry (METI), the amount of business-to-business (B2B) online commerce increased from 8.6 trillion yen in 1998 to 77.4 trillion yen in 2003, a nine-fold increase, and business-to-consumer (B2C) online commerce achieved even greater growth. The amount of B2C online commerce increased from 64 billion yen in 1998 to 4,400 billion yen in 2003, a 69-fold increase. B2C online commerce ranges from real estate business, to travel, to entertainment, to magazine subscriptions, to furniture, to hotel reservations and other services.

Established online business operations like Yahoo!, followed by new comers like Rakuten, Livedoor and the like, have rushed into this arena with shopping malls and auctions, which have been gaining rapid popularity.