Japan set for luxury rebound

04 June 2012

TOKYO: Luxury brands have grounds for optimism in Japan as big spenders, online retail and young consumers all offer potential growth opportunities, a study by McKinsey has shown.

The consultancy polled 1,450 adults, some 20.5% of which were "less interested" in high-end lines than last year. This figure hit 28.2% for over-50 year olds, versus 10.4% for people in their twenties.

Although 20–29 year olds are not as valuable individually to manufacturers, a 5% share of this demographic are active in the premium segment, as are only 2.3% of their counterparts aged over 50 years old.

Elsewhere, 10% of the whole luxury audience had reportedly switched to cheaper brands in the last year, but another 13.3% had traded up in the same period, the analysis revealed.

Within this, 21% of shoppers splashing out over ¥1m a year on luxury lines - making the most profitable consumers for the industry - had switched to more expensive options and just 6% did the reverse.

These totals stood at 14% and 9% in turn for those spending between ¥500,000 and ¥1m. By contrast, 15% of customers worth under ¥500,000 to the sector traded down, and 5% took the opposite route.

When considering all income groups, 17.7% of category consumers are now making purchases less often than 12 months ago, while 5.6% are buying a greater number of items.

More specifically, 22% of people investing below ¥500,000 in luxury lines per year had reduced their activity here, falling to 16% if expenditure was in the ¥500,000–¥1m range, and 15% where a person's outlay passed ¥1m.

An additional 48% of buyers owned smartphones and/or tablets, doubling the national average, and 23% utilised these gadgets when last acquiring a premium product.

McKinsey also surveyed 20 luxury CEOs, all of which expected the market to harden this year. A further 73% stated that business had remained stable or improved despite the natural disasters of 2012, and 70% were optimistic for the medium term.

Two-thirds of this panel did agree firms had not been entirely successful in capturing changing customer habits. As such, a modest 15% had seen the web yield "meaningful" returns, but 90% concurred that online marketing and promotion was important.

Exactly 69% of luxury shoppers bought a high-end line at a department store in the last year, standing at 34% for brand stores, 32% for outlets and 32% for duty free shops. Women were also found to deliver 75% of sales, McKinsey said.

Data sourced from McKinsey; additional content by Warc staff