JAPAN’S SLOW ECONOMY SENDS CAUTION SIGNAL TO EUROPE’S LUXE SET

Byline: Koji Hirano

TOKYO — For the recession-resistant luxury sector, worries about global economic slowdowns have been marginal — as long as Japan was doing fine.
But a downturn here could spell trouble, or at least sound a cautionary note, for the international luxury crowd. In recent months, high-end labels have been aggressive about expanding ventures and opening stores in this country, based on the idea that Japan was holding its own, economically. Among these
developments:
In January, Christian Lacroix said it would increase distribution and open in-store shops and freestanding stores in Japan over the next few years. Lacroix president Jean-Pierre Debu said “a strong presence in Japan is essential to a global fashion brand.”
Sephora opened five stores in the country in the past year.
Fendi in January formed a joint venture with its longtime distributor in Japan to boost its presence in the country.
Bottega Veneta in July will take control of its distribution and marketing in Japan, which accounts for more than 35 percent of its overall sales.
Marc Jacobs announced a long-term distribution deal for the Japanese market.
Louis Vuitton opened its largest store in Japan last November and plans another next year, while sales for the brand here grew to a record $860 million for 2000.
Hermes will open a flagship in Ginza this spring.
Additionally, late last month, Domenico De Sole, Gucci Group ceo, said sales in Japan were surpassing the 38 percent rise they had seen in the fiscal third quarter and were integral to the group’s overall solid performance.
Even with all the positive movement, high-end companies are watching the situation in Japan closely. Overall apparel and footwear spending per household in Japan dropped 7 percent in 2000 compared with a year earlier, according to the Statistics Bureau & Statistics Center in the Ministry of General Affairs.
The economy here is having an impact on the climate for luxury companies planning public offerings elsewhere in the world. John Wakely, a luxury goods analyst with Lehman Bros. in London, told WWD last month that conditions should improve once “the Japanese economy begins to recover and the perception that the yen is going to collapse [is] dispelled.”
A spot check of European luxury stocks last week showed they’re trading at an average of 21 percent off their 52-week highs, and some observers attribute that in part to jitters about Japan.
There are several elements affecting the economic outlook, including deflation.
The Bank of Japan reduced the interest rate to 0.25 percent from 0.35 percent on March 1 to underpin the sluggish economy and prevent a further slide in the Tokyo stock market. The Tokyo Stock Exchange stands near 13,300, about one-third of its peak in the early Nineties.
“The recovery of the nation’s economy was slowed down further, due to the decelerated overseas economy and downturn of stock prices. The outlook of the economy is unclear,” executives from the Bank of Japan revealed at a press conference discussing the rate cut, the second reduction since Feb. 13.
The average Consumer Price Index in 2000 showed the second consecutive annual drop, by 0.7 point, the first time that has happened in 30 years. Apparel prices dropped 1.7 points compared with a year earlier.
“The feeling of uncertainty toward the future prevails,” said Shun Tanaka, an analyst for Sakura Friend Research Center. “A blockade feeling covers the nation. Worries about unemployment and low pensions in the future keep us from shopping.”
According to the Japan Department Stores Association, sales at department stores in the Tokyo area in February declined 0.8 percent to $1.23 billion, while apparel sales dropped 1.7 percent from a year ago. Dollar figures are converted from yen at current exchange rates.
Also according to the association, sales from the nation’s 297 department stores dropped 4.7 percent, before adjustments in store numbers (after the adjustments, sales fell 2.5 percent) from last year to $4.8 billion in February, the fifth consecutive month of decline. Apparel sales, 38 percent of the entire picture, dropped 5.5 percent (before adjustments) to $1.8 billion.
Sales of women’s wear fell 3.6 percent, while men’s wear dropped 9.1 percent. Last year, total sales at department stores in Japan dipped 1.8 percent, whereas apparel sales in the same period dropped 3 percent against a year earlier.
At chain stores, sales in February dropped 6.2 percent to $9.6 billion. Apparel sales, with a 14.9 percent share, dropped 8.7 percent to $1.4 billion. Women’s wear decreased 8.4 percent from a year ago, while men’s wear plummeted 18.4. percent.
The CPI as of February dropped 0.1 point, compared with the same month a year earlier, following declines in four of the five previous months. The apparel index dropped 3.8 points in February.
According to wire service reports, the Prime Minister, Taro Aso, said a recession is “possible” in the months ahead. But some economists still hold out hope for the consumer sector.
“There are still many people of high income who buy branded goods,” said Tanaka of Sakura Friend Research Center.
“It is hard to say [economic difficulties in Japan and internationally have] no effect on sales of luxury brands here,” said Ohnishi of Cosmo Securities. “But the total power of the brand talks. Brands with strong merchandise and clear strategy can survive in Japan.”

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