Revitalising Trend: Japan's Luxury Market Thrives Post-Pandemic
Major luxury brands are reaping the benefits of this tourist influx. LVMH, with about a quarter of its Asia stores located in Japan, noted double-digit revenue growth in Japan in Q1 '24. Hermès saw a 25% hike, while Ermenegildo Zegna group's APAC revenues grew by nearly 29%
Japan's luxury market has staged a remarkable comeback in the wake of the COVID-19 pandemic, with sales soaring to new heights driven by an influx of tourists and the weak yen. However, as the yen strengthens, industry experts are questioning whether this boom can be sustained in the long run.
Tourists Fuel Luxury Spending
According to Claudia D'Arpizio, Head of Luxury Products at Bain & Co, Japan's luxury market heavily depends on the yen exchange rate and tourist spending. In March 2024, Japan welcomed over 3 million tourists in a single month, a new record. Tourist spending increased by nearly 50% in the first three months of 2024 compared to the same period in 2019, propelled by the weak yen.
Major luxury brands are reaping the benefits of this tourist influx. LVMH, with about a quarter of its Asia stores located in Japan, noted double-digit revenue growth in Japan in Q1 '24. Hermès saw a 25% hike, while Ermenegildo Zegna group's APAC revenues grew by nearly 29%, mainly powered by the Japanese market.
Japan's department stores are also experiencing unprecedented growth, with tourists contributing more than half of total sales in several luxury stores in Ginza last year. Isetan Mitsukoshi, one of Japan's biggest department-store networks, reported over 114% year-on-year growth in sales this April.
Neglecting Local Customers
While luxury retailers are reveling in the surge of overseas big spenders, some local customers feel neglected. Haruhiko Saionji, a major luxury goods consumer living in Tokyo's affluent Ginza district, believes that "most luxury stores aren't prioritizing local customers who continue to shop despite the currency's devaluation, except for a handful of reputable brands like Rolex, Audemars Piguet, and Patek Philippe, who avoid selling rare items to foreigners".
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Jessica Cho, another local luxury consumer, observes that "big luxury fashion and handbag brands treat foreigners and locals the same and sell on a first-come, first-served basis". However, she notes that only a few stores discreetly reserve special items for local clients.
Adapting to a Changing Market
As the yen strengthens, luxury brands will need to adapt their strategies to maintain their success in the Japanese market. Experts suggest that brands should focus on building deeper relationships with local customers and offering personalized experiences to retain their loyalty.
Brands should also explore new locations and store formats to cater to evolving consumer preferences. Bringing continuous newness to their stores, whether through frequent product introductions or fast-rotating visual merchandising, will be crucial to keep customers engaged.
Animating customer relationships through private events and personalized services will help create deeper intimacy with customers. Luxury brands that are able to adapt quickly to these changes are likely to emerge as the winners in Japan's competitive luxury market.
In conclusion, Japan's luxury market has shown remarkable resilience in the face of the pandemic, with tourist spending driving a surge in sales. However, as the yen strengthens, brands will need to shift their focus to building stronger relationships with local customers and adapting to changing market dynamics to maintain their success in the long run.