By Peter McGill
Asia Sentinel
For decades, the Japanese consumer has reigned as the world's biggest spender on luxury products. As word spread that ordinary Japanese women would happily part with a month's rent or even salary for a designer handbag, silk scarf, or pair of shoes, Europe's megabrands all flocked to Tokyo to partake in the miraculous bounty.
Sadly, all parties must end, and this one seems to have gone on longer than Japan's anemic economy has warranted. The decision by Versace, the favored label of Jennifer Lopez and Elton John, to close its three stores in Japan may be drastic, but is part of a pattern.
In December, LVMH Moet Hennessy Louis Vuitton said it was cancelling plans to open a 12-story showcase store in the heart of Tokyo's Ginza shopping district. Chanel has abandoned its Osaka flagship, and in March, Hugo Boss shuttered its boutique in Tokyo's swanky Aoyama.
The Japanese market for top-end luxury goods fell nearly 11 percent last year, to ?1,064 billion ($12 billion), according to Yano Research Institute, a market consultancy.
It's easy to blame economic woes. Japanese banks were largely insulated from the spread of toxic assets, but a collapse in world trade derailed the country's economic recovery and shattered consumer confidence. Wages have been falling for 15 months, average household spending last year fell by a record, and Japanese unemployment exceeds 5 percent, close to another record, compared with 9.7 percent in the United States.
Troubles with the government pension system, and a government debt that the IMF forecasts will soon reach 217 percent of gross domestic product, fuel a sense of insecurity, encouraging people to save, not spend. In turn, this makes it more difficult to escape from the deflation that has dogged Japan since the 1990s.
Economic pain, of course, spreads far beyond Japan. Luxury companies have been the worst affected by the recession gripping much of the developed world since last year. Pinault-Printemps-Redoute, the French owner of the Gucci Group, saw profit for the first half of 2009 plunge 76 percent to 189 million euros ($280 million).
Robert Polet, the chief executive of Gucci, a stable which includes Yves Saint Laurent, Boucheron, Alexander McQueen and Balenciaga, doesn't blame Japan for the downturn in the luxury industry, rather the end of ostentatious binge-buying.
"It wasn't normal, logical human behavior to buy, without thinking, a 1,500-pound handbag, or spending two minutes on that decision. This impulsive buying of expensive, high-quality products I think is really not normal," Polet was quoted as saying recently. (Less convincingly, he argues that the new mood of consumer sobriety is "fantastic" for Gucci, as it marks a return to appreciating the "real values" of quality, heritage ands craftsmanship "that were at the origin or luxury brands.")
McKinsey, a management consultancy, points to several other factors than just recession to explain changes in Japanese buying behavior.
A simple one is the bursting of a luxury-brand bubble that between 2004 and 2007 was inflated by nouveaux riches bankers, traders, property dealers and entrepreneurs buying luxury goods, and the equally unseemly scramble of European fashion houses to open up more Japan retail space.
Japanese consumer psychology has also evolved. The craze for imported luxury goods probably began in the 1970s with a belief that European products were more durable and of higher quality than goods made in Japan.
"Later on, this practical rationale evolved into an emotional and social attachment to luxury brands-owning expensive European-made products became a badge of economic success and social acceptance," a recent McKinsey report on Japan's luxury market noted. Crucially, Japanese middle-class consumers were at the heart of the boom, often foregoing travel or costly meals so that they could buy European designer bags, clothing, and jewellery.
Japanese women today are no longer slaves to the status badges accorded by fashion labels, and have much more confidence in expressing their individuality through their own taste. Not so long ago, Hong Kong merchants boasted that the Japanese possessed so little confidence that "if you can sell one Japanese a ceramic elephant, you can sell 400 Japanese a ceramic elephant."
McKinsey's survey of 1,500 consumers also found that more than half would prefer to spend money on luxurious experiences, such as holidays, or expensive meals, rather than luxury handbags, accessories, or apparel.
It is debatable whether this is the chicken or the egg, but there is no doubt that the Japanese today have a much broader range of fashion brands from which to choose. McKinsey cites Tokyo streets where budget stores such as H&M, Zara, Diesel, and Uniqlo "are located steps from more traditional luxury stores offering merchandise at prices 10 to 20 times higher."
The runaway success of Uniqlo, owned by Japanese company Fast Retailing, makes a mockery of the luxury model. Bloomberg recently reported that Parisians queuing in the rain outside a newly opened Uniqlo store in the Opera district to buy cashmere sweaters on sale at €40.
Finally, the luxury goods and fashion houses are paying for their dependence on Japanese department stores, institutions of Japanese life that once symbolised modernity but have long been in decline.
The oldest department stores began in the Tokugawa shogunate by selling bolts of cloth for making kimono. (This writer owns an ukiyo-e woodblock print by Hiroshige of one such store in the shogunate capital. It is beside the Shimbashi Bridge, which is being crossed by a daimyo procession. A bullock cart is passing in front of the store as a kimono-clad woman lifts the front curtain to enter inside. The area is now a cluster of Tokyo skyscrapers.)
Mitsukoshi, founded in 1673 by the Mitsui family, was the first building in Japan to boast central heating and escalators. The two bronze lions at the flagship entrance in Nihombashi, the old commercial centre of Tokyo, are copies of those in London's Trafalgar Square. The building's roof has a Shinto shrine.
For many Japanese, the depato or department store provided their first taste of Western lifestyle and culture. Besides endless shopping aisles of high-priced merchandise, they housed art galleries and restaurants. Their service is still impeccable, but despite, or perhaps because of this, many have been losing money. In a furious round of defensive matchmaking, Mitsukoshi has merged with Isetan, Matsuzakaya with Daimaru, Hankyu with Hanshin, and Seibu with Sogo.
There are still 312 depato across Japan, with 8.1 trillion yen in sales last year, down from 425 stores and 10.8 trillion yen in 1995.
Perhaps the biggest cultural shock to Japanese fashion retailing is the popularity among young Japanese of second-hand clothing. Hanjiro, one such 'vintage' chain, now has 19 stores, from just one in 1992. Thrift may now be de rigueur among the middle classes, but older Japanese still shrink in horror at the thought of wearing a stranger's cast-off clothing.
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