Japan luxury retail in dire straits – but will bounce back, analysts say

Fashion labels and other brands at the luxury end of Japan’s retail spectrum are, perhaps not surprisingly, playing their cards close to their chests when it comes to the impact of the coronavirus pandemic on their sales so far this year. While retail in 2020 will be remembered for all the wrong reasons, analysts are confident that major brands from Louis Vuitton to Uniqlo will ride out the storm. That is, however, scant relief for the here and now. This time last year, the stylish boutiques of Ginza, Omotesando, Shinjuku and Harajuku were thronged with shoppers from around the world. Today, those same streets are eerily quiet. The pedestrians are virtually all Japanese and they are all wearing masks, with precious few lingering to shop. Doormen stand idle with their hands behind their backs while sales assistants – many of them bilingual and hired largely to communicate with Chinese shoppers – fold and refold the stock. It wasn’t that long ago that foreign tourists who pulled up in buses in Ginza were derided by some for clogging up the pavements and sweeping store shelves of every commodity. How they would be welcomed back now. Does Hainan duty-free shopping boom spell doom for Hong Kong, Macau? Some 2.5 million foreign tourists arrived in Japan in October 2019, up from 2.1 million three years earlier. At the turn of this year, the confident belief was that Japan would hit the target set by the government of 40 million foreign arrivals in 2020, up from 31.88 million in 2019. Instead, the number of tourists arriving has plummeted since the first cases of coronavirus swept the region. Just 8,700 foreign nationals arrived in Japan in August, down 99.7 per cent from the same month in 2019. The largest foreign contingent was from China, with 1,600 arrivals, while 700 came from South Korea, 400 from Taiwan and 40 from Hong Kong. It’s possible these firms may face pressure due to poor results globally but, at the luxury end, Japanese management teams are generally some of the best in the world Roy Larke, expert on retailing and consumer behaviour in Japan Apologetic officials from brands including Louis Vuitton and Chanel said they were unable to comment on the impact that the plunge in the number of visitors has had on their operations. Similarly, they were reluctant to speculate on what the future might hold. A spokeswoman for high-end Japanese cosmetics brand Shiseido was also unwilling to divulge much information, although the company has confirmed that net sales are down more than 34 per cent in the second quarter of 2020 from the same period last year. Operating profit has contracted by 9.9 billion yen (US$95.7 million) and an official assessment of sales to foreign tourists was a terse “close to zero.” The company was keen to point out, however, that sales appear to have bottomed out in April and have been gradually recovering since, driven in part by solid sales in China. In a statement released in August, Shiseido president Masahiko Uotani confirmed that it is likely to be the second half of 2021 before Japan’s beauty market recovers, assuming a rebound in inbound tourists. But like high-end fashion and other retail sectors, it will bounce back, said Roy Larke, senior lecturer in marketing at the University of Waikoto in New Zealand and an expert on retailing and consumer behaviour in Japan. “I think it is a temporary thing and there will be a recovery at some point in both domestic and tourist demand. It has been tough for all luxury brands in tourist locations like Ginza, but these brands are in it for the long haul. While short-term fluctuations are a challenge, they are not major challenges as the experienced, savvy brands here always take a long-term view when investing in flagships,” he said. “The same attitude pervades boom times – these brands know that markets fluctuate and they do not assume that boom times last, [just] as they know bleak periods of trading will also end. Wuhan gets new Louis Vuitton global travelling show first “It’s possible these firms may face pressure due to poor results globally but, at the luxury end, Japanese management teams are generally some of the best in the world. Most headquarters back in Europe and North America know that Japan is a very high-quality market and that customers are very knowledgeable and willing to buy for brand value rather than mainly for status – which is the case in some countries,” he added. The same applies to the tourism sector, Larke said, on which luxury retail is so dependent. “I suspect there will be a flood of tourists to Japan when the time is right – and those people will have lots to spend, given how much restraint there has been in the last six months,” he said. “Tourism in Japan is a long-term growth story, irrespective of short-term fluctuations.”