McKinsey has just published (August 2009) a market survey, "Japan's luxury shoppers move on", which has created quite a stir in the world of luxury: After interviewing 1500 Japanese consumers of luxury goods, they conclude that the habits of the Japanese are changing profoundly with regard to luxury and the significant decline in sales observed is not solely due to the economic crisis. "Some luxury players understand these changes and are adjusting to them, but many still believe that everything will return to normal, whatever that means, once the downturn has passed. Those companies may be in for a surprise". I propose to go through this study with you and analyse the main results.
The Japanese luxury market is, according to market researches, either No. 1 or No. 2 worldwide: McKinsey estimates it at 20 billion $ (as against 26 for the USA)... but if one includes the purchases made by Japanese abroad, the most important clientele for luxury brands is clearly the Japanese.
But 2008 saw a 7% fall in sales of luxury goods; and 2009 is predicted to be even worse (some of the professionals interviewed by McKinsey speak of - 20% in the first quarter). However, one needs to go further back in time to realize that the real change took place in 2006, well before the crisis.
What happened?
The McKinsey report highlights 4 major changes, of which the first two are to me the most important:
- Increasing individualism - and therefore less conventionality in brand choices: in a Nikkei survey of December 2008, 86% of Japanese said they endorsed, "I mix and match my clothes according to my own tastes".
- The transition from traditional, tangible luxury, to intangible luxury: Japanese consumers increasingly resemble their Western counterparts and are looking for experiences (food, spas, vacation, leisure, etc.)
- The increase in the number of luxury brands - attracted by what has become a veritable El Dorado – as well as less expensive Western brands such as Diesel: the traditional luxury brands face increased competition with consumers who are more individualistic, therefore more likely to mix and match brands.
- A significant decline in department-store sales (the principal channel for selling luxury goods in Japan)
The Japanese consumer is changing and luxury brands, carried away by the euphoria of recent years, will have to change their approach to this market: when Burberry has 75 stores in Japan and only 32 in the USA, Hermes 64 against 30, Prada15 against 35 and Bulgari 31 against 17 - twice as many shops in Japan than the USA, when the two markets are comparable to a large extent - one can only conclude that there is "something rotten in the kingdom of Denmark". I would be curious to know the trend in sales per square meter in boutiques in Japan...
This luxury is no longer that of exclusivity and rarity. It has to reinvent itself and Japan shows us that the Emperor is indeed naked ... I propose to revisit this subject next week.
