May/June 2011

No seismic shift for luxury in post-quake Japan

By Brian Salsberg and Naomi Yamakawa

Dealt an earthquake and a nuclear crisis, Japan’s luxury consumers still could not be stopped for long. With travel during the May break known as Golden Week down 30 percent, shoppers took to the streets closer to home and once again opened their wallets at crowded luxury boutiques. They did so with caution, however: continuing a two-year trend, consumers are increasingly looking for a deal or other specific “reason” to purchase, and planned buys are far outweighing impulse buys. With a continued focus on quality, service, and marketing, Japan’s luxury market should recover to pre-March 11 levels.

Japan remains one of the world’s most important markets for luxury goods. Based on publicly available data, it accounts for about 18 percent of global sales for Tiffany, Hermès, Coach, and Bulgari; 14 percent for Gucci; 9 percent for LVMH; and 8 percent for Burberry.

As a result of the global recession, 2008 and 2009 were difficult years for the industry. But in 2010, there were signs of improvement and 2011 began with promise. Then came the terrible natural and nuclear disasters of March 11. Rocked by these crises, Japanese consumers, and especially those in eastern Japan, including Tokyo, lost their shopping mojo, adopting a spirit of jishuku or “voluntary restraint.” Will they recover their taste for luxury? Or will jishuku reign? McKinsey & Company Japan set out to try and answer these questions in May 2011 by meeting with, and also conducting a survey of, senior executives from more than two dozen of the world’s most renowned luxury-goods companies, representing leather goods and accessories; apparel; jewelry and watches; and the skincare and cosmetics sectors. We also talked to officials of three premium automakers.

The picture that emerges, while not definitive, is that the desire to own luxury goods has not waned in the wake of what has been called the nation’s worst crisis since World War II. Besides the most powerful earthquake on record in Japan, the devastating tsunami that followed, and a lingering nuclear crisis, the country has had to deal with collateral damage related to a general state of anxiety, a crippled economy due largely to supply chain disruptions, a sharp drop in tourism, and the looming threat of disruptive power outages in July and August.

Despite this gloomy backdrop, just 10 weeks after the disaster the situation is not nearly as bleak as many had predicted. In particular, most companies report no meaningful changes in shopping behavior in the west of Japan (which includes Osaka and Nagoya). Many luxury consumers agree, for instance, that active consumption is important today precisely because of the crisis.

Purchases of watches and jewelry have held up well, largely for two related reasons: in the aftermath of the earthquake and continuing aftershocks, consumers are afraid to be alone, leading to a flurry of engagements and weddings, and jewelry and watches are among the few items of value that are easy to bring along in case of evacuation. Even in categories that are seeing a slip in purchases, such as premium skincare, the drop is just as likely to reflect normal, cyclical downturns as changing consumer behaviors post-March 11 (including, for example, consumers who are too anxious to sit for facials or makeovers due to fears of aftershocks).




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