At age 23, Maki Kusaka, an office worker in Tokyo, has 10 Gucci handbags lining her wardrobe, the fruits of an obsession she has shared with countless other Japanese to collect the world's hottest luxury brands.
Japan has one of the world's largest economies and its consumers account for an outsize portion of all luxury goods sales. Last year, nearly a quarter of luxury products were bought by the Japanese, according to Deutsche Bank, more than any other single region. But life's priorities have taken on a starkly different cast after the devastating earthquake, tsunami and nuclear disaster.
“I realise how much I have wasted,'' Ms. Kusaka said as she hurried with her boyfriend one recent evening through empty streets in the normally glittering Ginza shopping district, where streetlamps were still darkened to save electricity two weeks after the earthquake. “This whole incident has changed people's outlook,'' she said.
Indeed, a broad dimming of consumer optimism in Japan is affecting many industries automakers and cellphone companies, among them.
In the luxury industry, however, nearly every company Louis Vuitton, Hermes, Coach and Tiffany still counts on Japan for an average of 13 per cent of total profit, even as they open boutiques in China at a breakneck pace. Japanese consumers at home and abroad accounted for 24 per cent of all luxury goods sales in 2010, according to Deutsche Bank, compared with 22 per cent in Europe, 20 per cent in North America, 19 per cent in China and 15 per cent in other markets.
Though luxury products are viewed as a sign of the upper class in other countries, in Japan, they have long been seen as an integral part of middle-class life. Middle-class consumers often skimped on vacations or expensive meals so they could buy luxury clothes or handbags. Now, analysts say, the triple disaster has jolted the Japanese into a new reality, sapping the materialist, feel-good spirit and replacing it with a focus on helping others and a mood of back to basics.
It is impossible to say whether the shock of recent events will lead Japanese consumers to retrench for a long period, or whether the impact will be more short-term, as it was after September 11 in the U.S. Analysts are rushing to reduce their projections for growth and earnings in the luxury sector, on expectations that Japanese demand could tumble as much as 30 per cent this year and remain tepid for up to five years.
Deutsche Bank is one of several banks that slashed its outlook in large part because of the predicted drop in Japanese consumption. It now expects growth in luxury sales worldwide this year to average just 2.1 per cent, down from the 8.9 per cent it predicted just a few months ago.
Some analysts say the picture in Japan is unlikely to be so dire. After the smaller 7.2 magnitude earthquake razed parts of the Kobe region in southern Japan in 1995, for example, luxury sales declined for just one quarter before rebounding.
“The impact tends to be very emotional and strong in the short term,'' said Luca Solca, a senior luxury goods analyst at Sanford C. Bernstein & Co. “But as we learned from Kobe, things tend to go back to the normal trend, so I'm a bit sceptical that this will cause a dent in luxury goods for the years to come.''
Shares regain losses
In a sign that some of the concern may be overdone, shares in major luxury companies have regained at least half of the 7 to 14 per cent declines they suffered in the days after the March 11 earthquake.
Given the larger magnitude of the current disaster, however, the impact this time could unfold in a variety of ways, and over a more drawn-out period. Among the most exposed are Hermes, Bulgari, the Gucci Group, Richemont and LVMH Moet Hennessey Louis Vuitton, which derived 9 to 19 per cent of total sales from Japan last year.
“We expect the luxury volumes sold in Japan and to Japanese consumers elsewhere in the world to tank significantly,'' Edouard Crowley, an analyst at Exane BNP Paribas, wrote in a recent report. “The negative news flow coming from Japan should not be underestimated.''
Uncertainty remains particularly high about the Fukushima Daiichi nuclear plant. Fears of radiation have prompted evacuations from Tokyo, a locus of high-end shopping, and kept free-spending tourists especially from China away from the lucrative Ginza district, home to one of the biggest luxury enclaves in the world.
On Friday last, officials began encouraging people to evacuate a larger area around the plant, a sign that the crippled facility may not be brought under control soon.
“Ginza is totally empty,'' said G. C. Amarit, an employee at an Indian restaurant normally buzzing with Ginza shoppers. “People don't come here anymore,'' he said. “We are getting 50 per cent less customers.''
Kusaka, the office worker, did not rule out eventually buying another Gucci product. But for now, she said, the disaster has jolted her into focusing on personal relationships and on people in need. “I want to devote more of myself to those who are suffering from the earthquake,'' she said.
Louis Vuitton, Gucci, Hermes, Tiffany and many other top brands began to reopen hundreds of stores they shuttered in Tokyo and across the northeast regions of Japan affected by the tsunami and nuclear concerns. Some, like Tiffany, are prepared to continue with periodic store closings, or reduced hours, amid rolling blackouts or other uncertainties that might emerge.
None of the companies would discuss their outlook or comment on whether the events would change their strategy for the Japanese market, other than to indicate they were reviewing the situation.
“We remain vigilant and continue to monitor the situation, as it is continuously changing,'' said a spokesman for PPR, which owns Gucci, Bottega Veneta, Yves Saint Laurent and many other high-end brands.
Tiffany earlier this week reduced its first-quarter earnings guidance amid expectations that sales in Japan would fall by 15 per cent.
Nonetheless, over time, any drop-off in Japanese purchases will be made up for by the industry's continued expansion in China and the fast-growing economies of India, Brazil and Russia.
China has become the new El Dorado for every major brand, and is expected to pass Japan as the world's top consumer of luxury goods by 2015. But a decline in Japanese demand for goods made in China could then affect the Chinese economy, further distorting the near-term outlook.
Many of the luxury brands have been rushing to put down stakes in dazzling shopping malls across China, including the second- and third-tier cities where growing numbers of Chinese are stepping into the middle-class and thirsting for visible logos to broadcast their ascent.
“I hope for Japan that the impact will be less serious than some people fear,'' said Yuval Atsmon, an associate principal at McKinsey & Co. in Shanghai and the author of a recent report on China's luxury market.
“At the same time, despite how big luxury consumption is in Japan, it is doubling in China today, so China will be of massive importance going forward,'' he said.
— New York Times News Service
