Return of rich tourists and weak yen helps Japan escape luxury downturn
Country has remained a bright spot for top-end spending despite slowdown in many other markets
In a corner of Tokyo’s glitzy Ginza district, eager shoppers line up at a glass display case on the top floor of Louis Vuitton’s seven-storey outlet.
They are not waiting to purchase handbags or watches from the French luxury brand, however, but branded chocolates. A box of eight sells for ¥18,000 (€112) at Louis Vuitton’s café in the technicolour building, which jostles for attention amid a strip of the world’s most powerful luxury brands. All of them want to reap the benefits of a weak yen that is helping power luxury sales in Japan.
Nearby at Matsuya, one of the city’s top luxury department stores, sales at brands including Gucci, Dior and Manolo Blahnik are surpassing records. “Foreign tourists have an advantage from the weaker yen . . . In the past, there was a big difference between purchasing things in Tokyo or Paris, but now the differences have flattened,” said Nobuhiro Hattori, head of customer strategy at Matsuya.
A similar story is playing out across Tokyo. In Shinjuku, sales at Takashimaya, another top-end store, are running almost 1.5 times ahead of 2019 — and juicing the bottom lines of global luxury companies.
For LVMH, the world’s largest luxury group and owner of Louis Vuitton, Japan is the fastest-growing region across its 75 brands, reporting sales growth of 31 per cent in the country in the first nine months of the year despite a global slowdown for the industry following a three-year tear.
Japan, a desirable tourist destination whose 126mn population includes many affluent consumers, has always been a reliably strong market for luxury brands. But a weak currency combined with a resurgent wave of Chinese visitors — Beijing being among the last to remove pandemic travel restrictions — are turbocharging growth, just as shoppers in the US and Europe rein in spending.
Louis Vuitton is riding this wave. The first brand in luxury to top €20bn in annual sales is by far the biggest seller in Japan, according to LVMH executives and analysts, who say its sales are double those of its nearest competitor, Hermès.
Luxury growth in Japan “is very broad-based [but] it is mostly based on tourists”, said Edouard Aubin, luxury analyst at Morgan Stanley.
While sales to the Japanese local market have grown since the start of the year, that pace has slowed and even turned negative at some brands in the most recent quarter. “On average for the big players — such as LVMH and [Gucci-owner] Kering — you’re now at about a third of sales to foreigners.”
At nearly all luxury groups, Japan is outperforming other regions. Prada’s 41 per cent increase in Japan sales in its most recent quarter led the pack while Moncler’s estimated 16-17 per cent growth was among the slowest, according to Morgan Stanley.
“Japan has always been important to luxury, even as China rose up and became a big percentage of sales,” said Sarah Willersdorf, global head of luxury at consultancy BCG.
Strong foreign demand is crucial and has prompted LVMH, whose brands include Dior and jeweller Tiffany, to invest in services and marketing in Japan.
But it comes on a bedrock of solid domestic demand where the weaker currency is also playing a role by keeping Japanese tourists at home more so post-pandemic to spend in Ginza stores.
“The underlying drivers are a wealthy ageing population, the number of women in the workforce, the appeal of sustainable products and the fact that the Japanese are staying put and consuming in their own country,” said Norbert Leuret, LVMH’s head of Japan. “Put together it creates a very buoyant, growing luxury market.”
Even brands more exposed to so-called aspirational shoppers — buyers more sensitive to cost of living pressures, who may have previously splurged with pandemic savings — have been more resilient in Japan than elsewhere.
At fashion-forward Gucci, global retail sales fell 7 per cent in the third quarter but grew 32 per cent in Japan. At Burberry, the British purveyor of classic trenchcoats that has struggled with weak sales as it looks to reposition itself, Morgan Stanley estimates third-quarter like-for-like retail sales in Japan were up 60 per cent.
“Year to date, there’s a massive disconnect between brands at the top of the pyramid and brands at the bottom around the world,” said Aubin, “In Japan, these divergences are much less pronounced.”
Pricing may play a significant role. Chinese buyers in particular are known to be very attuned to pricing differences, which is part of the reason they travel to shop. Currently, the cost of buying Gucci products in Japan and Europe is almost equivalent due to a combination of the weak yen and prices set by the company, whereas they cost about 30 per cent more in the US and 20 per cent or so more in China.
For Leuret, the success of brands that have struggled elsewhere can also be linked to a culture of brand loyalty among Japanese consumers. “Japan is the country where brands never die,” he said. “If you buy Vuitton, you buy it throughout your life, if you buy Dior or a brand from another group, it is the same.”
Conspicuous consumption is on full display as shoppers throng Ginza’s streets. Tourist numbers in Japan remain below 2019 levels, but many of those that come are spending much more, according to Hattori.
There were 19.9mn foreign visitors to Japan in the first ten months of the year, compared to 26.9mn in the same period in 2019 government data shows.
Not only is the yen keeping Japanese spenders in Tokyo, but it is pulling well-heeled travellers from the US, the Middle East and elsewhere in Asia.
In the six months to September, duty-free sales — purchases by tourists that qualified for tax refunds — at Matsuya came close to ¥14bn, compared to about ¥10bn in 2019.
The increase was helped by Taiwanese, Hong Kong and US buyers picking up the slack from China. For Chinese tourists, who had been one of the biggest drivers for luxury sales growth globally before the pandemic, returning to shopping in Paris and New York has been complicated by harsh government lockdowns that were in place until the beginning of this year, increased difficulty in obtaining visas and the slow ramp up of flights between China and top destinations such as France. Japan offers an easier, closer alternative with high end amenities.
Chinese tourists accounted for 47 per cent of Matsuya’s tax-free sales for the first half of the year, compared to 81 per cent in 2019, but they are regaining lost ground quickly especially as those coming tend to be bigger spenders. Sales to Chinese customers in March were 70 per cent below 2019 levels but by August were 51 per cent above 2019 levels.
At Matsuya, the store is preparing to capitalise even more on Chinese tourism spending if visa restrictions loosen further. It had already launched initiatives to attract foreign buyers before Covid such as doing deals with banks throughout Asia to offer discounts on purchases but is now going further, using WeChat to market its products to travellers from the mainland.
Hattori added that the store will start a personal shopping service soon, after plans were shelved by the pandemic.
LVMH is also investing in in-store appointments and tapping into the Japanese tradition of gaisho, an at-home personal shopping service, which has exploded post-pandemic.
“We are coming back towards the model of personal shopping that we knew in luxury in the 1960s and 70s . . . and with gaisho clients we have seen conversion rates go up as well as the value of average baskets increases enormously,” said Leuret.
Whether the good times can last is another question. While luxury shopping in Japan shows little sign of abating, and has also proven resilient during previous periods of yen strengthening, sluggish growth in the US, Europe and China could eventually catch up with well-heeled international shoppers, who have largely remained insulated for the time being.
“While some of these economies are not as buoyant, there are still individuals with a high level of disposable income happy to spend [but] depending on what happens with the economic growth in some of these regions, it’s going to have an impact on Japan as well,” said Willersdorf.