Japanese consumers desert luxury brands

04 June 2009

TOKYO: Japanese consumers are increasingly cutting back on their purchases of luxury brands, with long-term implications for the sector's second biggest global market, McKinsey says.

While it has been argued that luxury brands can successfully adapt and flourish during periods of financial instability, Bain & Co., the consultancy, forecasts that worldwide category sales will fall by 10% this year, to $201 billion (€152bn; £135bn).

Recent figures from Yano Research also show that imported luxury goods sales declined by 10% in Japan over the course of last year as a whole.

The company similarly predicts that sales of high-end products like apparel, jewellery and cosmetics will fall from a peak of ¥1,897bn ($19.8bn; €14.0bn; £12.1bn) in 1996 to under ¥1,000bn this year, the same level as two decades ago.

Richemont, Hermès and LMVH were among the luxury goods specialists that posted falling revenues in the country in the first quarter of this year, as slow national sales held back growth across Asia Pacific.

McKinsey's Brian Salsberg argues that while Japan was the "only mass luxury market" in the 1980s and 1990s, the current downtrend "is not a blip. This is a long-term shift in the market."

As consumers increasingly look to trade down to cheaper products, and gain "confidence" in combining low-cost and premium goods – and as other luxury services start to develop – he predicts spending on such brands will continue to fall.

Luxury brand owners are partly to blame for this situation, as they created "a luxury bubble", characterised by "a ridiculous number of store build-outs."

While China is now currently the focus for many of these companies, Salsberg also warned that this "growth story" could be similarly under threat if the mistakes in Japan were repeated.

If this is the case, "the industry is going to destroy itself" in one of the few markets where it has potential to expand in the current climate.

Data sourced from Financial Times; additional content by WARC staff