Liz Alderman
At age 23, Maki Kusaka, an office worker in Tokyo, has ten Gucci handbags lining her wardrobe, 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 earthquake, tsunami and nuclear disaster.
?I realise how much I have wasted,? Kusaka said as she hurried with her boyfriend 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, Herm?s, Coach and Tiffany?still counts on Japan for an average of 13% of total profit, even as they open boutiques in China at a breakneck pace. Japanese consumers at home and abroad accounted for 24% of all luxury goods sales in 2010, according to Deutsche Bank, compared with 22% in Europe, 20% in North America, 19% in China and 15% 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 US. 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% 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%, down from the 8.9% 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.
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% 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 Herm?s, Bulgari, the Gucci Group, Richemont and LVMH Mo?t Hennessey Louis Vuitton, which derived 9 to 19% 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,? 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.
Louis Vuitton, Gucci, Herm?s, 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. ?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%.
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.