Japanese airport retailers assess downtown tax free regulations

JAPAN. Japanese airport duty free retailers have reacted cautiously to new government legislation designed to double the number of downtown tax free stores in the country. Most feel that the biggest impact is likely to be on sales of Japanese cosmetics in airport shops.

The legislation, effective from October and announced recently by Prime Minister Shinzō Abe, is designed to see some 10,000 stores open by 2020, in a bid to capitalise on the influx of foreign tourists during the Summer Olympics and Paralympic Games in Tokyo that year. New categories of Japanese products (foods, alcohol and cosmetics) will in future be free of consumption tax (currently 8%)

Although widely reported in Japanese media (and some travel retail publications) as ‘duty free’ stores, the legislation refers to traditional downtown tax-free shops that offer consumption tax (similar to VAT) refunds to international visitors.

Sales of Japanese beauty brands on-airport may be hit hard by the legislation

A leading airport commercial executive said: “These stores already exist in the centre of major cities like Tokyo and Osaka. Foreign visitors can get consumption tax refunds at department stores, electronics retail stores and so on.

“However, in addition, the government has decided to introduce a new tax policy from this October. Cosmetics, liquor and packaged foods have [traditionally] been sold with consumption tax. However, since they are the major souvenir items that foreign tourists are very fond of, these items will now be tax free.”

He continued: “It will be very convenient for visitors. We don’t know how much this movement will affect our airport business but I’m sure at least that our cosmetics sales, especially Japanese cosmetics, will decrease to some extent.”

The source noted: “Japanese brands tend to have a relatively small price gap between downtown stores and airport duty free stores compared to foreign brands like Chanel. Our customers may buy them at department stores where they don’t have to worry about missing their flight.”

Asaki International/Blanc de Blancs President Yoko Tsuchihashi told The Moodie Report: “Though the Global Post [the Japanese newspaper that broke the story –Ed] are using the term ‘duty free shops’, I believe it is more appropriate to use ‘tax free shops in this regard. The government is planning to increase the number of tax free shops which can sell ‘souvenir’ items, now including cosmetics and alcohol, to tourists free of consumption tax.

“These shops are, therefore, different from our airport duty free shops, where customs duty, as well as consumption tax, is exempted. Some airport duty free shops carry Japan-made goods, i.e. tax free goods, and for these products, the price may become the same level as the [downtown] shops. As far as our shop is concerned, however, the sales come mainly from foreign brands, which offer more savings than consumption tax, so I the impact will be limited. I, overall, welcome the governmental action to increase foreign tourists to Japan, and expect a positive effect on airport duty free shops.”

Japanese foodstuffs have been added to the consumption tax-free range of categories downtown tourist shopping outlets can sell. As with souvenirs (below), airport sales could be adversely affected.

Another leading airport retail executive told The Moodie Report: “Foreign tourists will be able to buy Japanese foods, alcohol and cosmetics without consumption tax… though they will still have to pay liquor tax which is a national tax. However, we are concerned about the influence on sales at the airport. We think that our foods and cosmetics business will be affected.”

A leading Japanese liquor brand executive said the company was reviewing the legislation closely. “I presume that [only] goods without VAT will be sold in those shops but if real ‘duty free’ goods, including alcohol beverages, are to be sold, it will mean drastic changes in our retail market,” he said. “We are monitoring the situation.”

Another drinks executive said: “Including [Japanese] alcohol beverages in those [tax free] stores should affect airport duty free stores. They will encourage selling more local products [in downtown tax free outlets] which might affect national brands [in airport duty free].”

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