Luxury sales start to stabilise in Japan

21 July 2010

TOKYO: Luxury sales are starting to stabilise in Japan, but consumers are adopting a "more discriminating approach", according to a study.

The revenues generated by premium brands fell by 16% to $9.9bn (€7.7bn; £6.4bn) in Japan in 2009, a fall of around 50% from 1996.

However, a survey by McKinsey of senior industry executives found that 80% believed conditions would improve in 2010, and that the medium-term outlook was relatively strong.

Current priorities included customer relationship management, launching new products, enhancing e-commerce capabilities and securing the best ROI from marketing.

A similar poll among consumers revealed that 32% were keen to snap up high-end goods, a figure that only fell behind China and South Korea on the measure.

Over 30% of Japanese shoppers proved willing to pay full price for exclusive or limited-edition lines, compared with 12% in the US and 8% in Europe.

Elsewhere, the number of respondents in Japan who thought "showing off luxury goods is in bad taste" had decreased from 31% in 2009 to 24% in 2010.

The proportion of the panel that "don't feel the need to buy luxury brands because more affordable non-luxury brands offer good enough style" also dropped from 21% to 12% year-on-year.

In keeping with this trend, purchase levels for leather merchandise, watches and jewellery have hardened, with 20% spending more on the goods than they did 12 months ago.

Of this audience, 72% now "better appreciate the value of owning or wearing a luxury item" than was the case previously.

For a quarter of contributors, buying high-end products in specialist malls or boutiques had gained in favour during the past year.

"The continued growth in this channel is being fuelled by a more value-conscious shopper, changing shopping patterns, and indirect incentives such as steep cuts in expressway tolls," McKinsey said.

While websites like Gilt, Brands4Friends and Glamoursales are beginning to make a mark, two-thirds of McKinsey's cohort were cautious about ordering something without seeing it or trying it on.

Other concerns centred upon the danger of receiving counterfeits and doubts relating to customer service, but the internet could still be crucial in winning back "dormant consumers", McKinsey suggested.

Achieving this goal will be vital, as 43% of people that had not made a category purchase for at least two years agreed "I no longer desire to buy many of the things I used to spend money on."

This view was held by just 18% of individuals that had acquired a premium offering in the last 12 months, climbing to 29% for their counterparts that had done so for 24 months.

Younger customers also have evolving tastes, with 22% of 20 year olds indicating they would meet the asking price for rare items and 28% stating a preference for brand stores, figures that stood at 40% and 16% in turn for the over-40s.

As middle class Japanese households have long held an enthusiasm for "quality, novelty and exclusivity", and enjoy "higher discretionary purchasing power", McKinsey remained positive overall.

"We expect Japan to remain one of the world's only 'fast moving' luxury goods markets," the consultancy concluded.

Data sourced from McKinsey; additional content by Warc staff