Japan, with the yen at historic lows, delights luxury brands

Luxury houses are experiencing unprecedented success in Japan. For several months now, the country has seen a record influx of tourists, including many Chinese visitors who had postponed their trips due to Covid restrictions. These visitors from around the world are particularly attracted by the weak yen, which has plummeted to its lowest level against the dollar in almost four decades, making Japan, a country known for its high costs, much more affordable. This has significantly boosted the consumption of luxury goods locally, although it also poses challenges to the Japanese economy.

The depreciation of the yen against the euro has further increased the influx of tourists. Since October 2023, the archipelago has returned to its pre-pandemic levels of 2019 in terms of monthly visitors. In 2023, the number of tourists increased sixfold compared to 2022, according to the Japan National Tourism Organization, and their spending reached 5.3 trillion yen (32.7 billion euros), 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, “duty-free prices in Japan compared to those in China fell from -18% in June 2023 to -24% a year later, with prices for some brands down -27%. Japan is now even more attractive than France in terms of prices,” notes the data analyst.

As a result, in the first quarter of 2024, the major luxury groups recorded exceptional growth in Japan. During this period, LVMH's sales increased by 32% in organic growth, Hermès' sales increased by 25% (the leather goods manufacturer has just opened a new store in Tokyo's Mitsukoshi Ginza shopping mall) and Prada's sales increased by 29%.

Kering's retail sales in Japan rose by 16%. Notably, Saint Laurent, which saw its global turnover fall by 8% and its retail sales by 4% in the first quarter, recorded a remarkable increase of 34% in Japan. Direct sales of the “other houses” division, including Balenciaga, soared by 40%. Even Gucci's sales in Japan grew by 7%.

A recent Bain & Company report highlights that tourist flows have increased by 10-15% 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 translated into a significant increase in tourism from around the world, benefiting both traditional destinations and emerging luxury locations across the country,” the consultancy notes.

However, Bain & Company also warns of the potential risks of this tourist rush to luxury boutiques. They warn that “crowded stores prevent local customers from shopping” and that local clientele are underserved and feel less cared for. This is especially true in the ready-to-wear sector, where “customer acquisition efforts are diverted from the all-important local customers.” The weak yen fuels inflation, causing the Japanese to limit their spending. However, wealthier consumers continue to shop, Bain & Company reminds us.

These high-net-worth individuals are often treated in the same way as tourists, even though they are central to the surge in sales of luxury jewellery, which has seen more modest price increases. Timeless leather goods have also stimulated “investment purchases” by local clientele, while benefiting from significant tourist influx. This underlines the importance of brands continuing to pamper local shoppers, especially as tourist influx could decline if the yen strengthens.

Bain & Company recommends “adjusting prices to rebalance interregional differentials, which weaken local customers’ purchasing power,” with the aim of retaining aspirational customers. Similarly, Luxurynsight emphasizes the need for luxury brands to keep a close eye on their pricing strategy and global competition, considering changes in sales taxes and local currencies to ensure a comprehensive understanding of global dynamics and business shifts.