Tokyo Fashion Week begins its six-day run today against a challenging macroeconomic backdrop as Japan’s gross domestic product continues to shrink, the country’s consumers hold back on their spending and tourist flows start to soften.
Just last week, Japan revised its fourth-quarter GDP figures to show that the economy contracted less than initially estimated — an annualized drop of 1.1 percent against an earlier estimate of 1.4 percent. Despite the slight upgrade, those figures are hardly worth celebrating. Also worrying, consumption in the country remains weak. In fact, it came through slightly worse in the second estimate. It fell 0.9 percent in the fourth quarter, compared with an earlier estimate of a 0.8 percent drop.
There are some bright spots in the market, though. Some observers noted that Japanese consumers are willing to splurge on special high-end pieces. Meanwhile, the ongoing tourism boom in Japan is buoying business for some stores, even if arrivals and tourist spending show signs of slowing down.
“The most important thing is not only selling the merchandise, we have to add more service and more promotion,” Miyako Sekimoto, fashion director for Matsuya, said of the competitive retail environment in Japan.
Yuiko Mitani, a Nomura research analyst, said Japan’s consumer segments and their preferences are becoming increasingly polarized.
“On one hand, many consumers are increasingly conscious of their spending, but on the other hand, affluent consumers are more willing to invest in higher-priced products, driving the luxury goods market,” she said, noting relatively stagnant demand for apparel and footwear but stronger sales for high-end watches and jewelry. “One general trend is that Japanese consumers are becoming increasingly savvy, and many value a fine balance of price and quality for products and services they purchase.”
To be sure, Chinese tourist flows to Japan are an increasingly important part of Japan’s retail business. But the growth in arrival figures is seen softening this year. In 2015, the number of foreign visitors to Japan increased 47.1 percent over 2014 to a total of 19.74 million, according to preliminary figures released by the Japan National Tourism Organization. Nomura analysts said they expect the number of foreign visitors to Japan this year to grow 22 percent to 24 million.
There are also signs that growth in tourist spending has started to weaken, despite the lure of a weak yen. Comparable growth for some Japanese retailers last month was softer compared with February 2015. February is a key month to monitor as the Chinese New Year holiday is a major season for Asian consumers’ travel and shopping. This year, Uniqlo’s February sales rose 1.2 percent against a 7.7 percent jump last year. Isetan Mitsukoshi’s monthly comps were up 2.1 percent compared to 4 percent the year before.
Sekimoto said tourist spending at Matsuya roughly doubled on the year in 2015. It is still growing, but it is only up about 10 percent at the moment, she said, attributing the change to the Chinese economic slowdown. Sekimoto stressed that the retailer can’t risk neglecting its core Japanese customer base and shift too much attention to tourists. Inbound spending is bound to be volatile due to economic and political factors; China and Japan have a complicated geopolitical relationship, she noted.
“We cannot depend on Chinese customers,” she said.
Still, others observing the market are taking a longer-term view. Brian Buchwald, cofounder and chief executive officer of consultancy Bomoda, said tourism to Japan will continue to be an important factor shaping the country’s retail landscape and international brands’ strategies.
“Many companies have started to invest meaningfully in not just opening or expanding doors in the market, but also investing in the ecosystem around retail tourism — from Mandarin-speaking sales associates in stores, to more Chinese-tailored restaurants and hotel spaces,” he said.