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TOKYO — “Cheap, isn’t it?” one young female shopper remarked to her friend on a recent Wednesday afternoon as she brushed past racks of oversize sweatshirts on sale for 1,999 yen, or $21 at current exchange, at youth-oriented shopping center Shibuya 109.
This story first appeared in the February 24, 2009 issue of WWD. Subscribe Today.
She and scores of other consumers in Japan’s recession are becoming more price- and value-conscious than ever, shunning luxury labels and traditional department stores in favor of cheaper but equally trendy alternatives like Uniqlo and Hennes & Mauritz, or opting to curtail their fashion spending altogether as they worry about the economy and job security.
“Now consumers are keeping their wallets shut tight and have the time to consider very carefully the products they need,” said Andrea Fenaroli, president of Furla Japan, which is keeping the average retail price of its handbags at 54,000 yen, or about $576. “It’s necessary to fill their needs by providing something novel and creative.”
It’s a challenge to distract consumers from near constant news of discouraging economic data. Japan, which officially entered a recession in November, saw its GDP shrink 3.3 percent in the last quarter of 2008 — its biggest drop since 1974. The world’s second-largest economy is struggling to cope with declining demand for its key exports like cars and electronics. Blue chips such as NEC, Sony, Pioneer, Nissan and Panasonic have announced plans to slash tens of thousands of jobs. Unemployment was 4.4 percent in December, a sharp increase from 3.9 percent a month earlier.
Late last year, Louis Vuitton scrapped plans for a new 10-story flagship in Ginza, sending yet another negative signal to an already flagging luxury goods market. Parent company LVMH Moët Hennessy Louis Vuitton saw sales in Japan fall 10 percent in 2008 in yen terms, deteriorating from the 6 percent decline posted in the first six months of the year. Rival PPR’s Gucci Group luxury division reported a 3 percent drop in Japan revenue in 2008.
Coach Japan president and chief executive Victor Luis said he’s detected a drop-off in weekend traffic as customers reduce trips to stores and spend more time window shopping before making a purchase. “We do not see a rebound in the near term. While the total market for imported handbags and accessories has not grown for over five years, it decreased this past year and especially in the last six months,” he said. “All signs indicate that consumer confidence will take time to rebound.”
Nevertheless, he said Coach has outperformed the rest of the market, thanks to its competitive pricing strategy. Coach Japan’s sales in the most recent quarter ended Dec. 27 were down only 1 percent.
Traditional retail formats are some of the biggest losers in the current climate. Japanese department stores saw their January same-store sales slump 9.1 percent, registering their 11th consecutive month of decline. Smaller specialty retailers have also taken a hit, and the number of empty storefronts in areas like trendy Jingumae, near Omotesando Avenue, has grown over the past few months.
Last month, Deutsche Bank initiated coverage of leading department store operators Isetan Mitsukoshi, Takashimaya and J. Front Retailing and warned that the retailers are heading into a “prolonged and unprecedented sales downturn.” Department stores’ sales have been waning for more than a decade, however, owing to Japan’s declining population, as well as competition from other retail formats, like shopping centers and luxury brand flagships. The current economic situation risks cutting even more into traditional retailers’ business, the bank said.
“Unlike previous economic downturns, the slump in department store sales seems to be driven largely by consumer uncertainty about the future. We think the sales downturn is likely to last until the economy recovers and people’s concerns for their livelihood are dispelled,” wrote Deutsche Bank analyst Daisuke Kameyama.
Still, there are plenty of active, budget-conscious shoppers in Japan and the fast-fashion segment is thriving. H&M said the flagships it opened in Ginza and Harajuku in 2008 were its most successful openings ever. Forever 21 plans a large store in the spring right next to H&M and a few doors down from a recently enlarged Topshop/Topman. Fast Retailing’s Uniqlo chain, which offers low-priced, colorful basics heavy on textile innovations like heat retention or moisturizing capabilities, has been a top performer. Same-store sales rose 5.7 percent in January as consumers snapped up spring items like machine-washable sweaters and skinny stretch jeans.
Coach’s Luis noted how Japanese consumers are increasingly less influenced by the prestige factor that drove the luxury business in years past.
“Consumers are increasingly looking for value,” he said. “As they become more confident and independent, they are less likely to choose traditional luxury brands that represent external status symbols and more likely to choose brands that are relevant to their modern lifestyle and meet internal emotional needs.”
A survey from the Nikkei Research Institute of Industry and Regional Economy released Friday backs up that point: 32 percent of the 900 Japanese surveyed were “very much” or “somewhat” interested in high-end foreign brands, against 51 percent in 2004.
In terms of favorite brands, Burberry came out on top with 38 percent. Uniqlo, with 29 percent of the vote, managed to beat out Louis Vuitton for second place. LV came in third with 25 percent. Muji, another retailer known for high-quality, low-priced clothing, was fourth with 22 percent.
Consumers’ tendency to spend less is forcing retailers and vendors to rethink their strategies. Restir, one of Tokyo’s premier specialty stores located in Tokyo Midtown, has weathered the downturn thus far by catering to its core clientele of ultrarich shoppers and celebrities like Lindsay Lohan, said president and ceo Hiroaki Takashita. Still, he forecast the April-to-June period to be “very tough” so he’s planning to shift some of the store’s merchandising mix away from European luxury labels to cheaper gift items, T-shirts and more competitively priced apparel, such as Ashley and Mary-Kate Olsen’s contemporary brand, Elizabeth and James.
“Restir has the image of being a super exclusive brand, but along that line we want to mix in more reasonable products,” he said.
Retail and residential complex Roppongi Hills has managed to keep customer traffic and sales relatively stable in January and February, thanks to the development’s diversification beyond retail. Atsushi Matsunaga, general manager for retail development at Mori Building Co. Ltd., noted that visitors are still coming to the development to visit the Mori Arts Center and dine in its restaurants. “People are enjoying Roppongi Hills more like a town or a city,” Matsunaga said, adding that strong-performing stores like Zara and Diesel are helping compensate for the luxury downturn.
Tokyo-based jewelry firm E.M. has been having a hard time convincing consumers to shell out for its gold and platinum rings and necklaces, but it’s faring much better with more accessibly priced hair accessories like brass bobby pins and grosgrain ribbon headbands adorned with oversized faux gemstones. “People can’t afford expensive items, but they can still buy a few smaller things,” spokeswoman Rika Aizawa said during last week’s trade show Rooms.
A designer who goes by the name Lica and runs a small fashion label called Zechia said she hasn’t felt the effect of specialty store closures so far. The brand, which has been going for three seasons, has added about two to three new wholesale accounts each season. Lica said she and her colleagues stand to gain from consumers’ waning appetite for imported brands. “I think that this bad economic situation is a kind of chance for younger designers,” she said.