By and  on February 19, 2014

TOKYO — Japan’s economic growth appears to be losing momentumas a consumption tax hike looms and a weak yen ushers in price increasesfor luxury brands like Louis Vuitton and Hermès.

The country’sgross domestic product grew 0.3 percent in the October-to-Decemberperiod from the previous quarter and 1 percent on an annualized basis,Japan’s cabinet office said. Those figures are below market expectationsand raise questions about Prime Minister Shinzo Abe’s drive to restoresustainable growth to the world’s third-biggest economy.

Privateconsumption rose 0.5 percent in the quarter, higher than the 0.2 percentin the previous three months. But Japan’s sales tax will jump from 5percent to 8 percent in April, which is likely to impact consumers’spending habits and could dent a recent rebound in luxury goods sales.

Meanwhile,a weak yen is starting to pose problems for European companies. Lastweek, Hermès said its fourth-quarter sales in Japan declined 18.3percent because of the weak yen. The French company said it plans toraise prices in Japan by as much as 10 percent this week to compensatefor the weak currency. Similarly, Louis Vuitton Japan recently revealedthat it will increase its prices by an average of 7 percent as of Feb.26.

The yen has shed about 8.4 percent of its value against the dollar and about 10 percent against the euro over the past year.

Brandslike Hermès and Vuitton that have ranges of evergreen products thatlast for years rather than seasons tend to feel the impact of currencyshifts more acutely than labels with a higher percentage of seasonalmerchandise with a shorter shelf life.

Prada is still“analyzing” the pricing situation, while Giorgio Armani is not planningto raise its prices at the moment, according to spokeswomen for bothbrands. Similarly, Tiffany & Co. has no current plans to change itsprices, a spokeswoman said. Gucci declined to comment on pricing whileChanel and Dior did not respond to requests for comment as of presstime. Coach said its prices are stable for its ranges of Madison leatherand saffiano handbags, key components of its March product offering.

Aspokeswoman for Isetan Mitsukoshi Holdings downplayed the impact ofbrands’ price increases on actual sales for the department store.

“Inthe past as well, there have been times when luxury brands have raisedtheir prices due to the effects of foreign exchange rates, but we didn’treally see a drop in sales because of that, so this time we’re lookingat it in the same way. We just want to do what we can to ensurecustomers are not confused,” she said.

Shoppers are alreadybracing themselves for higher prices when the consumer tax hike to 8percent goes into effect in April. It will jump to 10 percent next year.

Retailersare trying to come up with creative solutions to the tax increase.Takashimaya is planning to change up its merchandise mix from Aprilonwards so consumers are seeing new products rather than familiar oneswith marked-up prices, according to a spokesman for the retailer. Hesaid the store is also putting an emphasis on products that helpconsumers save money, like kitchen goods for cooking at home as peoplemight opt to eat out less.

Nomura Bank economist Tomo Kinoshitasaid demand ahead of the tax increase has centered on durable consumergoods until now but that should change next month.

“[J]udgingfrom consumption behavior in the run-up to the previous consumption taxhike in April 1997, we expect the rush in demand to spread to nondurablegoods such as food and other daily necessities in March,” the economistwrote in a note. “Although the labor market has been tightening,considering economic measures to be implemented we maintain our viewthat the consumption tax hike will negatively affect quarterly GDPgrowth only in [April to June].”

In an interview earlier thismonth, Gucci president and chief executive officer Patrizio di Marcoexpressed caution on the tax rise but he said it’s important to keepthings in perspective.

“I’m concerned about the tax increase,but…for years the concerns [about Japan] were so many and so significantthat this becomes something easier to digest,” he said, adding thathe’s hopeful that Japan’s economy will stay strong and consumers’optimism will continue.

Japanese retailers posted strong comps inJanuary, thanks to brisk demand for winter apparel and high-endproducts. Fast Retailing said same-store sales at its Uniqlo stores inJapan grew 15 percent. Isetan Mitsukoshi Holdings said sales at its ninemajor stores were up 10.5 percent. But February comps might not fare aswell given that two major snowstorms have hit the country, disruptingpublic transportation and roadways over the past two weekends.

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