Japan, with the yen at an all-time low, welcomes luxury brands | kbnmart

Luxury homes are enjoying unprecedented success in Japan. The country has been seeing a record influx of tourists for months, including many Chinese visitors who postponed their trips due to Covid restrictions. These visitors from around the world are particularly drawn by the weak yen, which has fallen to its lowest level against the dollar in nearly four decades, making Japan, a country known for its high costs, more accessible. This has boosted luxury consumption domestically, though it also poses challenges for the Japanese economy.

The depreciation of the yen against the euro has boosted the influx of tourists. Since October 2023, the archipelago has returned to pre-pandemic 2019 levels in terms of monthly visitor numbers. In 2023, the number of tourists has increased sixfold compared to 2022, according to the Japan National Tourism Organization, with their spending reaching 5.3 trillion yen (€32.7 billion), surpassing the 2019 record of 4.8 trillion yen.

This scenario has made Japan the most attractive destination in the Asia-Pacific region for luxury tourism, especially in recent months. According to Luxurynsight, “the price of duty-free goods in Japan compared to those in China fell from -18% in June 2023 to -24% a year later, with some brands dropping by -27%. Japan is now more attractive than France in terms of pricing,” the data analyst noted.

As a result, Japan’s leading luxury goods groups posted exceptional growth in the first quarter of 2024. During the period, LVMH’s sales rose 32% in organic growth, Hermès’ sales rose 25% (the leather goods maker just opened a new store in Tokyo’s Mitsukoshi Ginza shopping mall), and Prada’s sales increased 29%.

Kering’s retail sales in Japan rose 16%. Saint Laurent, which saw its global revenues fall 8% and retail sales fall 4% in the first quarter, saw a notable 34% increase in Japan. Direct sales from its “other houses” division, including Balenciaga, were up 40%. Even Gucci’s sales in Japan grew 7%.

A recent report by Bain & Company indicates that tourist flows increased by 10 to 15% compared to 2019, driven by an influx of new nationalities to Japan, including Americans and Europeans, alongside traditional Asian travelers (Chinese, Hong Kongers, Koreans, Taiwanese, Thais, Singaporeans, Vietnamese, etc.). “This has led to a significant increase in tourism from all over the world, benefiting both traditional destinations and emerging luxury venues across the country,” the consultancy noted.

But Bain & Company also pointed to the potential risks of this tourist rush to luxury stores. It warned of “crowded stores that deter local customers from shopping” and of neglecting local customers who feel they are not being served. This is particularly true in the ready-to-wear sector, where “the effort to attract customers is being diverted away from the all-important local customer base.” The weak yen is fueling inflation, which is causing Japanese to restrict their spending. Yet wealthier consumers are continuing to buy, Bain & Company reminded us.

These high-net-worth individuals are often treated in the same way as tourists, despite being central to the rise in luxury jewelry sales, which have seen modest price increases. Timeless leather goods have also spurred “investment purchases” by local customers while benefiting from the large tourist influx. This underscores the importance of brands continuing to pamper local buyers, especially as tourist inflows may wane if the yen strengthens.

Bain & Company recommends “adjusting pricing to rebalance regional disparities that undermine the purchasing power of local customers” in order to retain aspirational customers. Similarly, Luxgreensight stresses the need for luxury brands to closely monitor pricing strategy and global competition, taking into account changes in sales taxes and local currencies to ensure a comprehensive understanding of global dynamics and trade shifts.