recession and japan luxury goods market

7/31/2019 Recession and Japan Luxury Goods Market

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Impact of the Recession on the Luxury Goods Market

Market Decline in Japan (1/2)

Housewives and working women in their 30s and 40s who have a lot of disposable income are beginning to hold back on buying luxurybrands, with which they previously rewarded themselves at times, because they are conscious of the current tough economic environment Yasuhiko Hashimoto, Section Chief, Ginza Store, 2008

As Japan's economy heads toward recession and its stock market hovers around a 5-year-low, shoppers are closing their wallets,and the impact on European fashion houses has been dramatic Reuters, October 2008

Note: 1Question - What is your perception of the current economic environment in the next 6 months?; 2Question - How do you expect your purchases of luxury goods will

change in the next 6 months?); Grail Analysis sample size n = 304Source: The Nikkei Weekly (Japan), June 2008; Grail Research Survey on Luxury Brands, September 2008

0%

15%

30%

45%

60%

51%44%

5%0%

20%

40%

60%

80%

22%

74%

5%

Plan to spend moremoney

Plan to spend sameamount of money

Plan to spend lessmoney

Perception of Current Economic Environment1Consumers Expectations for Luxury Goods Spending

Next 6 Months Compared to Last 6 Months2

Despite the general belief that the luxury market is recession-proof, a recent Grail Researchsurvey found signs indicating a slowdown in consumer spending on luxury goods in Japan

Economy willslowdown

Economy will stay thesame

Economy willimprove


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Market Decline in Japan (2/2)

Global recession impact on luxury brands

LVMH: Witnessed a decline in sales by 6% in H12008

Salvatore Ferragamo: Slashed prices in 2008 of 42 items by 7%-10% for thefirst time since the brand started operations in Japan

Chanel: Held a month long sale of clothes and other items in July 2008

Bally1: Slashed prices of some products by up to 20% in July 2008

Osaka2: Reported a 9% y-o-y drop in revenue of 7 overseas brand shops in2007

Other factors contributing to the decline in luxury sales are income stagnation andan aging population

Note: 1 Bally is a Swiss luxury brand; 2 Osaka is a luxury department store in JapanSource: The Daily Yomiuri (Tokyo), July 2008; Womens Wear Daily, July 2008; The Economist, September 2008; JapanInc., August 2008

The global recession and other factors specific to the Japanese market are already affectingluxury brand sales


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Strategy #2: New Channels

Recently, luxury brands have experimented with alternative channels to reach customers

e-Commercem-Commerce

Luxury brands, which have been late adopters of e-commerce, are aggressively opening online stores

In 2008, Cartier announced the start of online shoppingin Japan

In 2007, Louis Vuitton started online sales by launchingan e-commerce option on its Japanese website

I think eventually every company that runs stores will havee-commerce. Whatever the initial fears or reluctance,people are embracing it. It doesn't harm the brand in anyway, and it's also very profitable- Mark Lee, CEO, Gucci

20% of Japanese consumers report purchasing more luxurygoods using the Internet in the last year

Note: 1Question - How have your shopping habits for luxury goods changed over the last year?; Grail Analysis sample size n = 304Source: Japan External Trade Organization (JETRO); JapanMarketingNews; Grail Research Survey on Luxury Brands, September 2008; Lux Research Japan, July 2008

Luxury brands are incorporating QR codes in their mailers,ads and stores to encourage purchase

Quick response (QR) codes are images that shopperscan scan and download through their camera phone toobtain more information about products or make

purchases via their mobile phone

Gucci and Ralph Lauren have been using QR codes inJapan, with the latter being the first to launch them in theUS in August 2008

Cartier introduced mobile advertising through GQ andGlamour mobizines (small version of magazines that can beeasily viewed on mobile devices)




Strategy #3: Low Cost Markets

Source: World Luxury Association (WLA); La Tribune, September 2007; Womens Wear Daily, December 2007

More structural measures are necessary. European luxury brands will need to start looking at global diversity inmanufacturing and sales and general administration costs.

Luca Solca, Senior Research Analyst, European Apparel and Specialty Retailing, Sanford Bernstein, 2008

60% of the world's luxury brands will make theirproducts in China by 2009 due to low manufacturingcosts and increasing demand for products

Prada: Started to source and manufacture in Asia,particularly China, due to unfavorable currencysituation

Burberry: Shifted production of shirts and someother items to China

Louis Vuitton is considering setting up a shoefactory in Southeast India by the end of 2008.Shoe factories are currently in France, Spain andUS

Luxury brands are shifting their manufacturing base to emerging countries to leverage the costadvantage of these regions




Strategy #4: New Customer Segments

Note: 1 Tier 2 cities include capital cities of provinces and cities at provincial level except Beijing, Shanghai, Guangzhou and Shenzhen; 2Tier 3 cities include cities at

prefectures levelSource: The Economist, September 2008; China Daily, October 2008; China Daily, May 2007

Shifting Focus from the Middle Class to the New Rich

In Japan, luxury brands are shifting focus from the middle class (considered to bethe major consumers of such goods) to the new rich segment

This segment consists of individuals with assets worth Yen 100 MM (~USD852,100) and engaged in sectors such as information technology, finance andmedical services

The shift is driven by the belief that the middle class spending crumbles duringrecession

Armani, Bulgari and Gucci opened flagship stores along with restaurants and spasin Tokyo, with the aim of attracting the wealthy from all over Asia

Louis Vuitton sends birthday cakes to its wealthy clients and shows them anexclusive bag (not for sale in shops) made of crocodile skin priced at roughly Yen6 MM (~USD 58,961)

Opening Stores in Smaller Cities to Target the Growing Affluent Classes

Louis Vuitton and Gucci have opened stores in smaller Japanese cities, whereindividuals are still lured by the logo

Cartier shifted focus from Tier-1 cities (Beijing, Shanghai) to Tier-21 (Nanjing,Tianjin) and Tier-32 (Zhumadian, Zunyi) cities in China

Launching Less Expensive Collections

Polo Ralph Lauren announced plans of launching a lower price product range inJ.C. Penney department stores in the US

Luxury brands are polarizing, either targeting the new rich segments with highly expensiveofferings, or launching more affordable collections to expand their customer base


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Copyright 2008 by Grail Research, a division of Integreon

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recession and japan luxury goods market

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