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Standing tall: Japan's resilient luxury market

$10-20 billion Annual sales in Japan's luxury market

In the immediate aftermath of the tsunami, earthquake and nuclear disaster that hit Japan last year, killing 19,000 people and battering the nation’s already shaky confidence, it was hardly surprising that people didn’t feel like shopping. At the time, the conventional wisdom was that such restraint was likely to last. People would still have to shop for essentials, of course, but the market for things like high-fashion apparel and luxury handbags was surely bound to suffer long-term damage.

Such thinking made eminent sense -- except it didn't happen. Fifteen months on, that verdict appears to have been premature. Today’s luxury market looks a lot like the luxury market that existed the day before the Great East Japan Earthquake, much as we anticipated in last year’s report. Our findings at the time were necessarily tentative, coming as they did less than three months after the disasters.

Today, we can assert this with more confidence. When asked if the disasters had changed their attitudes, for example, fewer than 20 percent of the 1,450 Japanese consumers we interviewed were less interested in shopping for luxury goods than they were before the disasters (see Exhibit 1 in the attached PDF). The Cabinet Office’s Consumer Confidence Survey report shows that consumer confidence has risen strongly since March 2011 (to 40.3) and is back to up to levels last seen in 2010.

Moreover, in a small but telling sample, when we asked 20 Japan-based luxury company CEOs about their sales outlook, every single one said 2012 would be better than 2011, and almost three-quarters said that the disasters of 2011 had no effect (63 percent) or, counter-intuitively, had a positive effect (10 percent) on company performance. Seventy percent of CEOs  were optimistic about the near future and the prospects for Japan’s luxury market (Exhibit 2).

Japan’s luxury market rings up between $10-$20 billion a year in sales (depending on how the market is defined). That figure is unlikely to grow much, given Japan’s shrinking population, slow economic growth, and cost-conscious consumer attitudes. Strictly from a sales ratio perspective, Japan’s luxury market will continue to wane in importance for most luxury manufacturers. A case in point is LVMH. Just five years ago, Japan accounted for 13 percent of the company’s global revenue. By 2011, the figure had dropped to 8 percent (and that marked an improvement from 2010). Compare that performance with the rest of Asia, where the company’s sale share rose from 17 percent to 27 percent over the same period.

And yet, such figures make it easy to lose sight of one simple reality: Japan remains the world’s third-largest luxury market, after the US and China.

To read the rest of this report, including charts, download “Standing tall: Japan's resilient luxury market” (PDF–1.95 MB).

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