JAPAN. The Japanese are often referred to as the touchstone of the Asian travel retail market. When they travel, they expect to see ideas and brands not available at home, new products every time they travel, and they demand that retailers keep up with their needs.
Certainly Japanese travel trends seem to indicate that the country is adrift from the recovery that is evident elsewhere in Asia; and it is not just a case of smaller bonuses, less job security and the lower value of the Yen – which stood at Â¥90 to the US Dollar in 1995 compared wtih Â¥120 today. A new wave of deregulation and discount retailing in the Japanese domestic market has affected perceptions of the traditional duty free price advantage.
Japanese travellers today rate shopping as only the third most important reason for travel – after scenic attractions and historic and cultural draws – whereas five years ago shopping was the main reason for travel.
Today, the price gap between Japanese and overseas stores is dramatically reduced. Meanwhile, changing consumer attitudes, more rights for consumers and a mood of “escapism” have contributed to an enormous luxury goods boom within Japan in 2002 and 2003. And the travel retail channel faces a complex set of challenges if it is to recover the hearts and minds of Japanese shoppers.
The Moodie Report talked to Naomi Moriyama, an expert on marketing to Japanese consumers and founder of New York-based luxury goods consultancy, Digital Powerhouse.
The Moodie Report: For the benefit of our readers who may not know Digital Powerhouse, could you describe the origins of the company and your consultancy work?
Naomi Moriyama: Digital Powerhouse is a marketing consulting firm for global luxury brands, specialising in selling to the Japanese consumer.
I was born and raised in Japan, and was one of the original so-called “parasite singles”. I grew up in the shoppers’ paradise of Tokyo, and worked in Tokyo and New York for companies and clients like Grey Advertising, Proctor & Gamble and HBO. I started the company in 1998 because I saw a gap in the market. Japanese consumers buy some 40% of the world’s luxury goods, but to many companies the Japanese consumer is a total mystery.
Our speciality is helping luxury and fashion companies understand and sell to this crucial audience. Our mission is to de-mystify the market and maximize the success of luxury brands in Japan.
The Moodie Report: In particular, how have you worked with Polo Ralph Lauren?
Naomi Moriyama: In 2001 to 2003, we served as chief marketing consultant for Ralph Lauren Japan.
We worked with Ralph Lauren executives in Tokyo and New York on the entire spectrum of marketing to Japanese consumers – brand positioning, consumer research, media and new marketing initiatives.
Today, at US$500 million in sales, Japan is Ralph Lauren’s number-two market in the world, and the company believes it can double its Japan business to US$1 billion.
The Moodie Report: And what about other recent client work on marketing strategy or feasibility studies?
Naomi Moriyama: Other recent projects include a marketing feasibility study for a major US luxury apparel brand that is planning to launch in Japan, and an advertising campaign for a Japanese government agency promoting investment in Japan. We also bring emerging new fashion and luxury brands to Japan.
The Moodie Report: How much do luxury brands understand Japanese consumers and focus on them the way they should?
Naomi Moriyama: Right now, the luxury market in Japan is red-hot. At the retail level, many luxury brands are focusing intensely on Japan. Tokyo, for example, is seeing a flurry of luxury store openings – Christian Dior, Prada, Ferragamo, De Beers LV, Barney’s, Chanel, Cartier and Coach are all launching new stores in 2003/2004. Shopping districts like Ginza and Omotesando are booming with new store construction.
The Gucci Group president and ceo Domenico De Sole recently declared, “Japan is the most important market in the luxury goods industry”.
But we also see a real thirst for more knowledge about Japanese consumers on the part of luxury goods executives. There is a realisation that Japanese consumers are increasingly selective, finicky and demanding, and that they should be understood and marketed to much more strategically.
ON THE RECORD: “THERE IS A REALISATION THAT JAPANESE CONSUMERS ARE INCREASINGLY SELECTIVE, FINICKY AND DEMANDING, AND THAT THEY SHOULD BE UNDERSTOOD AND MARKETED TO MUCH MORE STRATEGICALLY” – NAOMI MORIYAMA
The Moodie Report: How do you view the dynamics of Japanese consumers in the duty free and travel retail markets?
Naomi Moriyama: Japanese consumers have a huge impact on the duty free and travel retail markets. By one estimate, some 65% of DFS stand-alone store sales are to Japanese travellers.
At the same time, Japanese consumers are highly sensitive to travel and terrorism fears like the Iraq and SARS crises. The two crises slashed May 2003 Japanese overseas passengers on Japan Airlines by an estimated -50% over the prior year, an even deeper plunge than the deepest post-September 11 drop of -41% in November 2001.
For the peak Summer period of 18 July to 17 August 2003, Japanese airlines are reporting a -20% drop in international bookings compared with last year, as Japanese business travel recovers steadily but tourist traffic stays weak. This, of course, will damage both duty free sales and luxury sales in Europe and the US.
These trends make it increasingly urgent for luxury brands to strengthen their marketing programmes inside Japan itself, both as a defence against shocks in the travel market and to capitalise on the sustained domestic Japanese demand for luxury goods. That is where we come in.
The Moodie Report: What are the lessons of Louis Vuitton’s success in Japan?
Naomi Moriyama: As a company, LVMH Group has devoted itself to intensively studying and catering both to Japanese shoppers in Japan, and, through DFS and LVMH Selective Distribution, to Japanese consumers travelling overseas.
LVMH has created effective merchandising, pricing and product strategies for Japanese consumers. And the firm has very strong local management. In Japan, the business is run by Kyojiro Hata, who is widely regarded as a visionary leader.
The payoff has been a passionate US$1 billion-a-year Japanese love affair with the Louis Vuitton brand. The highly successful September 2002 opening of the stunning Louis Vuitton Tokyo flagship in Omotesando built further excitement for the brand, and in first quarter 2003, Louis Vuitton Japan sales were up +20% in local currency compared with the previous year.
Louis Vuitton recently opened its 45th store in Japan, a 5,000 sq ft (465sq m) location in the city of Kochi. In September 2003, LVMH Group will open the One Omotesando building in Tokyo for four of its brands: Fendi, Loewe, Céline and Donna Karan.
The lesson of Louis Vuitton is that the brands that devote themselves to analyzing the complex psychology and idiosyncratic behaviour of Japanese consumers can not only reap enormous returns, but build loyalty over the long term.
ON THE RECORD: “THE LESSON OF LOUIS VUITTON IS THAT THE BRANDS THAT DEVOTE THEMSELVES TO ANALYSING THE COMPLEX PSYCHOLOGY AND IDIOSYNCRATIC BEHAVIOUR OF JAPANESE CONSUMERS CAN NOT ONLY REAP ENORMOUS RETURNS, BUT BUILD LOYALTY OVER THE LONG TERM” – NAOMI MORIYAMA
The Moodie Report: In your new publication, “The Japan Luxury Report: News From the Mini-Super-Rich Nation,” you refer to different segments of Japanese luxury goods consumers. Could you elaborate on that?
Naomi Moriyama:The “Mini-Super-Rich” is our name for the 100 million-plus Japanese consumers who consider themselves upper-middle or middle-class. Of these, 44 million Japanese consider themselves upper-middle-class.
Who are the Japanese Mini-Super-Rich? They include:
• Parasite Singles: 5 million trend-leading young professional women
• Renaissance Japanese Men: style-conscious young men in their 20s
• Globetrotters: world-travelling women and mothers aged from 35-59
The Japanese “Mini-Super-Rich” are the powerhouse behind much of the global luxury business. They are increasingly “bi-polar” in their consumption, gravitating to the highest top-tier luxury products, searching for bargains on apparel and staples and spurning the middle market.
The Moodie Report: What does your research show about Japanese consumer attitudes?
Naomi Moriyama:Japanese consumers are extremely demanding. They are increasingly obsessed with product quality and expect near-perfection in product performance and service. They are fascinated with product heritage and craftsmanship.
They are also high-spending, brand loyal and hungry for new products and global brands. They aspire to enjoy an emotional connection with luxury brands.
They also are willing to pay more for quality, even in the face of ongoing price deflation. Louis Vuitton in Japan, for example, successfully absorbed two price increases in November 2002 and March 2003 of 6% each.
The Moodie Report:Consumer confidence is at an historically low level. Yet the investment in brand luxury stores within Japan seems to be exploding. Why?
Naomi Moriyama:The Japanese economic headlines are, of course, dismal. The banks are in perpetual crisis. Unemployment is up. Personal savings are down. Deflation keeps cutting into prices. Retail and department store sales are in a long-term slump.
But at the same time, Japan is the number-two market in the world, and a gigantic, vibrant and fiercely competitive market for luxury products.
Why? The reason is the Japanese “Mini-Super-Rich” psychology. Japanese consumers continue to be devoted to global luxury brands – as expressions of self-reward and self-esteem, as an emotional refuge in troubled times, and as vehicles for status and aspiration.
The Moodie Report: What other brands are “hot” in Japan?
Naomi Moriyama:In addition to Louis Vuitton, a number of global luxury brands are reporting strong Japan performance in 2003, including Hermès, Bvlgari, Christian Dior, Polo Ralph Lauren, Coach and Prada.
Bvlgari is enjoying its third straight year of strong performance in Japan, with first-quarter 2003 Bvlgari Japan sales up a whopping +28% in constant currency compared with the prior year (vs +9% globally), with no major store launches. Bvlgari cfo Ernesto Greco said in May 2003 that “the resilience in Japan is really tremendous.”
Hermès first-quarter 2003 Japan sales rose an impressive +14.2% compared with the prior year (vs +5.5% globally), continuing 40-plus years of sales increases in Japan. Hermès considers Japan to be its biggest, most loyal customer segment, accounting for 28% of global sales in 2002, compared to 20% from France. The brand is still benefiting from the spectacular opening of its Ginza flagship in 2001.
Gucci’s early 2003 sales were reportedly good in Japan, a market that accounts for an estimated 20% of Gucci revenue. Gucci has opened seven stores in Japan since 1998, and plans to open a 10,800 sq ft (1,004sq m) Ginza flagship in Spring 2005.
Prada Japan sales hit US$250 million in 2002, with a +15% increase projected for 2003. On 7 June 2003, Prada launched a stunning six-storey, 28,000 sq ft (2,602sq m) “epicentre” concept store in Tokyo’s Aoyama district. The company expects the store to have year-one sales of US$20.8 million.
Christian Dior has just reported that its January-to-June 2003 sales were up +31% compared with the prior year.
The Moodie Report: What is the news in the Japan leathergoods business?
Naomi Moriyama:The big news is Coach.
Coach is booming in Japan, a market that spends four times more per capita on handbags and accessories than the US. With the 2001 launch of its Coach Japan joint venture with giant trading company Sumitomo Corporation, and the May 2002 unveiling of its Ginza flagship store, Coach has really taken off.
Coach’s fiscal 2003 Japan revenues are projected to exceed US$150 million from almost 100 retail locations, a sales increase of over +40% from 2002. Today the Japanese consumer accounts for 20% of Coach sales, which could jump to 35% by 2007. The 5,400sq ft (502sq m) Ginza store accounts for 10% of Coach Japan sales and is now the highest-volume Coach location in the world.
In April 2003, Coach opened a freestanding store in the hip, young Tokyo shopping district of Shibuya. The 7,300sq ft (678sq m) two-storey shop is the biggest Coach location in the world and registered an estimated US$200,000 in day-one sales.
The Coach success story highlights the potential of an “affordable luxury” positioning in Japan. Coach Japan is conducting ten store openings this year, including the hot shopping spots of Roppongi Hills in Tokyo, Shinsaibashi in Osaka and the new Daimaru department store in Sapporo.
The Moodie Report: What is the outlook for the Japanese luxury goods market?
Naomi Moriyama:The Japanese passion for luxury products should continue for the foreseeable future, but volatility, shakeouts and downturns for individual segments and brands are inevitable, and the degree of difficulty for launching new brands is increasing.
Second-quarter 2003 company results will reveal if Japanese consumers stayed in Japan and kept shopping for luxury in the wake of Iraq and SARS (as they did post-September 11) creating a luxury mini-boom.
Now more than ever, luxury brands must build long-term relationships and emotional bonds with Japanese shoppers, through effective consumer research, sales strategy and consumer marketing.
See also www.digitalpowerhouse.com
Naomi Moriyama can be contacted on email naomi@digitalpowerhouse.com or telephone +1 212 844 0100.
