Maturing customer base both in age and psychology
While Japan has been a vital market for the luxury goods sector in the past decade (25% of global revenues in 2006), the country has recently shown signs of a fundamental shift in consumption patterns.
Japan’s second wave baby boomer generation, which was the bedrock of luxury goods consumption in the 1990’s – aged between 20-29 years old, still living with their parents thus benefiting from a high level of disposable income – is now in its 30’s, buying a home and starting a family. As a result, this generation’s purchasing priorities have shifted away from discretionary fashion items to more essential purchases such as homewares.
As well as getting older, the typical Japanese luxury goods consumer has become wiser, more confident and individualistic. Whilst in the past, luxury fashion and accessory brands were coveted as a symbol of social status and, as such, needed to be instantly recognisable either through prominent logos or trademark styles, Japanese luxury goods consumers are now looking for products to suit their lifestyle and express their individuality.
These two developments have strong implications for luxury goods brands, who have responded by diversifying their offering from being purely fashion and accessories to include other lifestyle products, such as homewares, spas and beauty products, and by tailoring their product offer to an increasingly demanding market.
Development of home-grown fashion brands
As their tastes have matured, so has the Japanese luxury goods consumers’ interpretation of luxury brands and how to wear them. Japanese luxury consumers have effectively pioneered a new and unique style, referred to as luxury streetwear. Not only has this style attracted the attention of a number of Western designers, who regularly visit Japan for inspiration, it has led to the flourishment of a number of home grown brands, such as Evisu, Samantha Thavasa and Bathing Ape. These labels, underpinned in part by a weak Yen, have proven to be strong contenders against overseas luxury labels in Japan and have also achieved scale and notoriety overseas.
The rise of local brands could be a threat for medium to small luxury brands but the major players do not appear to be worried. Even though they have entered a stagnant phase in Japan, they still believe in the Japanese consumer’s propensity to spend.
Increased domestic presence of overseas luxury brands
After the Asian crisis in 1998 and the subsequent devaluation of the Yen, overseas luxury brands sought to reduce their exposure to the declining number of Japanese tourists by capturing their customers at home. A number of brands restructured their portfolio of licenses in Japan and started substantially increasing their own retail network either in partnership with licensees or alone. By 2003, the store penetration of the larger luxury goods companies (store per capita) was the same in Japan as in Italy, despite Italy being heavily reliant on tourist revenue at its luxury shops.
The intensified competition between brands has prompted them to develop a better understanding of the local market and offer products that are better tailored to local needs. Not only did stores multiply, stores also got bigger with monumental flagships opening in the fashionable districts of Tokyo, offering a wide range of products, some of them unique to the Tokyo market. Today, the major luxury players including Louis Vuitton, Gucci, Hermes, Chanel and Ralph Lauren continue to invest in Japan.