Many a high-end brand has been seeing strong sales in Japan lately. However, this is not quite the unequivocal cause for celebration that some observers might initially imagine it to be.
As recently reported by Yahoo! Finance, tourists have been heading to Japan in big numbers with a particular goal on their minds: splurging on desirable clothes and handbags at prices somewhat lower than those to which they are accustomed back home.
An unexpected growth driver for the Japanese Government – but luxury brands aren’t so happy
During June, the east Asian country attracted a record 3.1 million foreign visitors, according to official data. This has put the state on track to exceed an annual record of nearly 32 million visitors from other countries set in 2019, prior to the COVID-19 pandemic halting global travel.
The Japanese Government anticipates that tourists in the country will spend some eight trillion yen (around $54.74 billion) during 2024. This would be a significant fillip for a state where the ageing population has meant a relative lack of other growth drivers.
However, the situation presents a headache to global luxury brands. Such a discrepancy in their goods’ pricing between Japan and elsewhere in the world has arisen due to a weak yen, the currency’s recent sell-off having caused it to reach a 38-year low against the US dollar before recovering ground.
A challenging dilemma for luxury brands with a Japanese presence
Shoppers from Asia and beyond have cottoned onto the news of these prestige brands’ products often being cheaper in dollar terms in Japan than elsewhere, which has fuelled a tourist boom.
However, the brands themselves are taking hits to their profits as a result – and the volatility of the yen makes it tricky for them to put up the prices of their designer products to accurately reflect the currency. It seems that many brands, then, are forced to make do with lower margins in Japan, at least while they hope for a greater recovery for the yen.
The Yahoo! Finance report cited the example of Louis Vuitton’s Alma BB handbag, which it said was priced at 14,800 yuan in China – the equivalent of $2,050. The same item was available in Japan for 279,400 yen, which worked out as $1,875.
The sales of luxury spirits in Japan were also being fuelled with the help of tourists, according to French drinks maker Rémy Cointreau. The group’s CFO, Luca Marotta, stated on its first-quarter earnings call that lower margins were being seen on sales in the country.
Also cited in the report was the Switzerland-based luxury goods holding company, Richemont, which counts the likes of Cartier, Net-a-Porter, and Montblanc among its brands. The firm said there had been a nearly 60% rise in its Japan sales during 2024’s first quarter, with Chinese, Southeast Asian, and American tourists all contributing to this.
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