TOKYO — Don’t be fooled by the abundance of Christmas lights here — retailers have little to cheer about when it comes to the Japanese market.
This story first appeared in the December 10, 2008 issue of WWD. Subscribe Today.
Department stores are on track to post their 12th consecutive year of declining sales in 2008 and the outlook for next year is just as grim. Last week, Louis Vuitton and Dior cut their retail prices by 7 and 8 percent, respectively, joining a growing list of brands engaging in early markdowns here, including Prada, St. John, Tiffany & Co., Cartier and Montblanc. With spending slumping, Salvatore Ferragamo and Bally unveiled price reductions on fall-winter merchandise as early as the summer.
A Prada spokesman in Milan confirmed that discounts on private sales of certain items varied by country and that this was normal at this stage of the season. He added there was no change in company policy in this respect compared with previous years.
“They have to cut prices to get demand moving again,” said Harrison Bates, a Tokyo-based analyst with KBC Securities Japan. The retail environment continued to deteriorate in November ahead of the key yearend shopping season when Japanese get their bonuses, he said, adding he wouldn’t be surprised if department stores have to slash their full-year forecasts yet again. “The sales figures have been pretty awful.”
Last month, Japan’s largest department store, Isetan Mitsukoshi Holdings Ltd., trimmed its forecast for its fiscal year ended March 31. It now sees net income coming in at 27 billion yen, or $290 million, versus May’s estimate of 33 billion yen, or $355 million. Sales are seen coming in at 1.48 trillion yen, or $15.92 billion, compared with the previous forecast of 1.54 trillion yen, or $16.56 billion.
Japan’s sluggish economy was already struggling before the global financial crisis struck earlier this year, pushing it into an official recession. The country accounts for 12 percent of the 175 billion euro, or $225 billion, global luxury goods market, according to a recent study by Bain & Co. The consultancy said the Japanese market contracted by 2 percent in 2007 and will shed another 7 percent this year.
Bates said even department stores, like Isetan Mitsukoshi, that were once critical of other retailers’ discounting ways are starting to realize they have no choice in the current climate. “It’s sort of a defensive move,” he said.
But it’s clear that fashion houses aren’t restricting their approach to Tokyo by simply adjusting price tags in a quest to bolster their share of a shrinking market: with its scale — a population that’s still more than 125 million even if shrinking — and influence, Japan remains a significant place to be, and be seen. The slowdown in spending hasn’t discouraged fashion houses from staging a slew of recent events here, including the worldwide debut of Sofia Coppola’s range of handbags and shoes for Louis Vuitton, fashion shows for Etro and Missoni and the launch of Comme des Garçons’ collection for H&M.
Bulgari chief executive officer Francesco Trapani, who was in town recently to celebrate the one-year anniversary of the jeweler’s tower flagship in Ginza, said he’d seen sales trends “worsening” in November, although he’s bullish in the longer term — even to the point that the company is considering opening a second flagship in Ginza in a few years’ time.
“We think the luxury business will continue to exist in the future and Japan will continue to be a very important market,” he said.
European firms are justifying the price cuts due to the recent appreciation of the yen, which has risen about 40 percent against the euro since January. “The Japanese consumer expects price decreases-increases based on forex [foreign exchange] moves,” J.P. Morgan Chase & Co. analyst Melanie Flouquet wrote in a report Monday. Traditionally, Japan’s discounting takes place in January, but this year it’s already well under way.
Also on the price front, Japanese consumers are becoming more accustomed to affordable fashion at chains like fast-growing Uniqlo and H&M, which launched in the country this year to long lines and much fanfare.
“This kind of economic downturn that we have now, I actually think it’s a chance for us,” said H&M’s country manager and representative director for Japan Christine Edman. “When your purse strings are tightening, that’s when you want to get the best deal.”