TOKYO, Japan - Once upon a time, for big luxury brands, Japan was the largest and most important market in the world. Japanese customers, young and old, rich and middle-class, would faithfully spend their money on standard Louis Vuitton bags, Hermès scarves and Gucci shoes. These loyal customers could deliver up to 35% of a luxury brand's global revenue, a reliable cash cow, even while the Japanese economy was sputtering in the 1990's and early 2000's.
And so, a formula for luxury brands slowly gelled over the years: build gigantic retail temples of luxury, influence the editorial of powerful magazines that have a grip on the Japanese psyche, and appeal to the innate Japanese desire to fit in and show status.
But, what would the luxury brands do if this tried-and-tested business model stopped working its magic?
Tokyo’s fashion and luxury scene is complex, with hundreds of brands and thousands of stores, in scores of neighbourhoods spread across the city. Lucky for me, I had an excellent guide in the form of W.David Marx whose fashion expertise, cultural insights and Japanese language skills helped me navigate Tokyo's labyrinthine streets and rapidly changing market landscape.
As we began our tour, it quickly became clear that the major international luxury brands are struggling. The first obvious signs were quiet stores in Ginza and Omotesando, two of Tokyo's most important luxury neighbourhoods. Chanel. Armani. Dior. Gucci. Prada. For the most part, these massive retail emporia, costing millions of dollars to build and maintain, were empty.
A purchase I made late in the afternoon at one flagship store was the first purchase of the entire day. Via Busstop, a 5-storey fashion mecca in Shibuya selling Alexander McQueen, Marni and Galliano, was completely devoid of shoppers.
But this is a city of more than 20 million people, in a country that is obsessed with fashion and style. So I asked David, "Where are all the shoppers?"
Teenage women, who ten or fifteen years ago may have been decked out head-to-toe in Chanel or Prada, are shopping at the low-priced Tokyo Girls Collection (TGC) brands in Shibuya 109 , which is a better match for their smaller budgets. While this would have been unthinkable a few years back, it is now de rigueur for young girls to shop at low-priced stores, which deliver better value and perceived individuality.
TGC uses the codes of high fashion and the power of mass media and celebrity to get the word out in massive fashion festivals held twice a year which are open to the public, in addition to buyers and press. Its clothes are marketed as “real” and "accessible" unlike the clothes shown on European high fashion runways which are perceived to be over-processed and over-priced.
As for the young guys, who are amongst the most well-dressed and stylish you will see anywhere, they are drawn to the vibrant Japanese menswear brands which strike a balance between European trends and a special Japanese flair for colour, cut and layering. Brands like N. Hoolywood,Soe and John Lawrence Sullivan are tucked away in lower-cost locations off the main fashion boulevards or in neighbourhoods like Nakameguro. For their own low-cost options, young Japanese men can by high-quality, sharply-cut suits at Comme Ca Du Mode or trendy clothes at Halb.
Older, advanced luxury customers, many of whom still have money to spend, are also shunning luxury brands, except for their most expensive and exclusive products. Instead of shelling out $2000 for yet another Gucci bag, they might spoil themselves with a custom-made shirt, dress and trousers from the bespoke tailor ICHO, one of my favourite Japanese brands. ICHO rarely makes more than one of the same garment and designs clothes specifically for their customers, offering a different kind of luxury altogether.
Economic challenges, present here in Japan as much as they are in other major economies, only explain part of this shift. Over and over again, I’ve heard the same thing during my stay in Tokyo: Japan’s society and cultural fabric are also undergoing a transformation unlike anything seen before. One person told me the Japanese are reversing years of "brain-washing" which led them to believe that their self-worth and social status could only be derived from having the right luxury-branded products.
The Japanese customer has become more clever. There is a strong desire for better value -- either delivered by getting good design at lower prices or getting something so special and different that it is worth a splurge. Over the next few posts, I will continue to explore how both local players and international brands are responding to this change and what may happen in the years to come. This is the market to watch for a shift that is emerging in other advanced luxury markets as well.