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Special Report:Japan Luxury Goods Survey 2011
Brian Salsberg
Naomi Yamakawa
No seismic shiftfor luxury in post-
quake Japan
McKinsey Consumer and Shopper Insights
June 2011
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Japan remains one of the worlds most
important markets for luxury goods.
Based on publicly available data, it
accounts for about 18 percent of global
sales for Tiffany, Herms, Coach, and
Bulgari; 14 percent for Gucci; 9 percent
for LVMH; and 8 percent for Burberry.1
As a result of the global recession, 2008
and 2009 were difficult years for the
industry. But in 2010, there were signs
of improvement and 2011 began with
promise. Then came the terrible natural
and nuclear disasters of March 11. Rocked
by these crises, Japanese consumers,
and especially those in eastern Japan,
including Tokyo, lost their shopping mojo,
adopting a spirit ofjishuku or voluntary
restraint. Will they recover their taste for
luxury? Or willjishuku reign?
McKinsey & Company Japan set out
to try and answer these questions in
May 2011 by meeting with, and also
conducting a survey of, senior executives
from more than two dozen of the
worlds most renowned luxury-goods
companies, representing leather goods
and accessories; apparel; jewelry and
watches; and the skincare and cosmetics
sectors. We also talked to officials of three
premium automakers. The picture that
emerges, while not definitive, is that the
desire to own luxury goods has not waned
in the wake of what has been called the
nations worst crisis since World War II.
Besides the most powerful earthquake on
record in Japan, the devastating tsunami
that followed, and a lingering nuclear
crisis, the country has had to deal with
collateral damage related to a general
state of anxiety, a crippled economy due
largely to supply chain disruptions, a
sharp drop in tourism, and the looming
threat of disruptive power outages in July
and August.
Despite this gloomy backdrop, just 10
weeks after the disaster the situation is
not nearly as bleak as many had predicted.
In particular, most companies report
no meaningful changes in shopping
behavior in the west of Japan (which
includes Osaka and Nagoya). Many luxury
consumers agree, for instance, that active
consumption is important today precisely
because of the crisis. Purchases of watches
and jewelry have held up well, largely for
two related reasons: in the aftermath of the
earthquake and continuing aftershocks,
consumers are afraid to be alone, leading
to a flurry of engagements and weddings,
and jewelry and watches are among the few
items of value that are easy to bring along
in case of evacuation. Even in categories
that are seeing a slip in purchases, such as
premium skincare, the drop is just as likely
to reflect normal, cyclical downturns as
changing consumer behaviors post-March
11 (including, for example, consumers
who are too anxious to sit for facials or
makeovers due to fears of aftershocks).
Even before March 11, McKinsey and
others had identified a trend toward
nestingthat is, spending more
time at home.2 In the aftermath of the
disasters, some consumers are staying
even closer to home, with shopping
patterns changing accordingly. This
Dealt an earthquake and a nuclear crisis, Japans luxury consumers still couldnot be stopped for long. With travel during the May break known as Golden Weekdown 30 percent, shoppers took to the streets closer to home and once againopened their wallets at crowded luxury boutiques. They did so with caution,however: continuing a two-year trend, consumers are increasingly looking for adeal or other specific reason to purchase, and planned buys are far outweighing
impulse buys. With a continued focus on quality, service, and marketing, Japansluxury market should recover to pre-March 11 levels.
1 Based on publicly available inormation, and not independently verifed by McKinsey.
2 See, or example The New Japanese Consumer, McKinsey Quarterly, March 2010.
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seems to be particularly true in eastern
Japan (including Tokyo), where at least
anecdotally, some have been refraining
from shopping in the center of Tokyo, and
would rather shop closer to home.
Of course, Japan is not, and will not, be
a growth story for luxury, but rather a
share game. A meaningful proportion
of consumers (between 13-20 percent,
depending on age group) are buying
less frequently now than they were in
the past 12-24 months [Exhibit 1] , and
specify two main reasons, their income
is less than it has been in the past, and, as
many responded in our survey, they have
fewer needs or occasions to use luxurygoods. We have also seen the highest
percentage of people (25) agreeing with
the statement, I dont feel the need to
buy luxury brands, since more affordable
(non-luxury) brands also offer good
style since we started the survey three
years ago. This is particularly true among
fashion and apparel buyers, where there
is continued trading down to less
expensive alternatives, especially among
consumers who are aged 40 and over.
Finally, value is still king: for the thirdyear in a row, 20 percent of respondents
say that they will only buy luxury goods if
they are discounted.
Online luxury retailers are benefiting
from all of these trends, and continue
to see strong growth, albeit off a still-
small base, as consumers learn to value
the convenience of shopping by theclick and the ability to compare prices.
Moreover, online retailers are steadily
earning the trust of Japans famously
finicky consumers. In the 2011 survey,
the percentage of those concerned about
after-sales service, including the ability
to return goods, declined more than five
percentage points, to 41 percent and 46
percent of consumers in Tokyo and rural
areas, respectively [Exhibit 2] .
In a sense, our findings simply help
to confirm that the heady days of the
1990s are not back and probably never
will be. But when it comes to luxury,
Japans consumers remain ready to buy
as their economic circumstances permit.
March 11 shook their behavior, but only
temporarily. As long as luxury retailers
continue to promote the value of luxury
and help them justify their purchase, theindustry will almost certainly withstand
the recent tragedy and any subsequent
aftershocks, in much the same way that
it achieved a modest recovery after the
Lehman collapse.
The one wild card, of course, is power
outages. If stores are forced to shut their
doors early, or open late, a complete
recovery will be more challenging.
Here are some of the other highlights of
our research:
Ups and downs: Until March 11,
sales in the luxury sector were higher
across the board compared to 2010.
Indeed, for many luxury-goods
companies, 2011 was shaping up to
be the best year since 2007. After
the earthquake, not surprisingly,
sales slumped. Almost half of the
companies surveyed reported a 10
percent to 20 percent decline; one
in five reported a drop of more than
1 Have purchased luxury good in defined category within last 24 months
SOURCE: McKinsey Japan Luxury Consumer Survey 2011
Exhibit 1:
Among luxury consumers who have changed their shopping behavior, those in their 20s appearmore resilient than others
How have your luxury shopping activities in category X changed over the last 24 months? by age group
Percent who answered Yes, current category luxury purchasers by age group1; n = 1,028
I am purchasing luxury g oods . .. I have switched to buying ...
20sn = 259
30sn = 214
40sn = 215
50s+n = 220
16
20
20
13
14
11
9
9
2
1
4
6
0
1
3
4
Less often More oftenCheaper
brandsHigher-end brands
SOURCE: McKinsey Japan Luxury Consumer Survey 2011
Exhibit 2:
Online purchase attitudes show no meaningful difference by region
How strongly do you agree with the below statements?Percent; respondents who answered agree or strongly agree (top 2 on scale of 6); n = 1,378
28
65
56
53
41 49
26
65
60
54 56
45
26
68
59
68
24
46
52
54
Tokyo 23Regionalmega Rural areasPref capitals
I am worried that some products may not fitme (e.g., apparel, shoes)
I do not feel comfortable buying a high-ticket luxury items online without seeingand touching the product
I am worried that I will buy a fake product ifI purchase through an online channel
I am concerned about after-sales service
for goods purchased online (e.g., difficultyto return)
The upscale service that I get from land-based stores when I purchase a luxuryproduct is important for me
-5% from 2010
+5% from 2010
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20 percent [Exhibit 3]. Coach, for
example, publicly reported losing $20
million in quarterly sales directly due
to the catastrophe in Japan.
Forecastpartly sunny:While
40 percent of executives surveyed
believe that the events of March 11
and their aftermath (including likely
power cuts) will result in lower salescompared to 2010, 60 percent still
predict the same or higher sales
[Exhibit 4] . And 85 percent maintain
a bullish outlook on Japan in the long
term as an important luxury market.
The looming talent gap: Most
leading luxury companies are
European; they need their best
and brightest to work in Japan as
expatriates. But when we spoke to
them in May, two months after the
earthquake, many were worried about
their ability to bring fresh talent to
Japan, given the ongoing perception
that Tokyo could be vulnerable either
to nuclear or seismic events.
The consumer perspective
For the third year in a row, McKinsey also
surveyed more than 1,300 Japanese luxury
consumers, defined as those who have
purchased any one of 60 brands across four
categories (accessories and leather goods;apparel; shoes; and watches and jewelry)
in the past 24 months. We conducted the
online survey in April from a sample across
the country, excluding people from the
tsunami-hit areas.
Here is what they told us:
The March 11 effect: Almost 20
percent of respondents said that, in the
wake of the disasters, they were less
interested in buying luxury goods. In
addition, there was a sharp increase
in the percentage of those who agreed
that showing off luxury goods is in
bad taste from 24 percent in 2010
to 49 percent in 2011 [Exhibit 5] . But
10
30Somewhatworse
Significantly
worseSignificantlybetter
20Somewhatbetter
25
Same
15
SOURCE: McKinsey Luxury Goods Executive Survey 2011
Exhibit 4:
Among senior luxury executives, 60 percent still believe 2011 will be as good or better than 2010
What is your overall outlook for 2011 performance (sales) vs. 2010?
Percent; n = 19
49
24
31
2009 2011 (n = 1,028)2010 (n = 750)
SOURCE: McKinsey Japan Luxury Consumer Survey 2009/2010/2011
Exhibit 5:
There has been a material increase in the number of consumers wishing to avoid conspicuousconsumption
I feel that showing off luxury goods is in bad tastePercent who selected agree or strongly agree (top 2 on scale of 6)
SOURCE: McKinsey Luxury Goods Executive Survey 2011
Exhibit 3:
March sales in Japan declined by 10 percent or more for most luxury goods players
How did the Earthquake impact your March sales for 2011 as compared with 2010?Percent; n = 20
55
25
Better than2010Same
as 2010
Under 10% dropfrom 2010
10-20% dropfrom 2010
45
Over 20% dropfrom 2010
20
Note: Based on Japan revenues
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this self-restraint appears to be both
temporary and selective: only 4 percent
of respondents thought that people
should cut back on luxury consumption
because of the disasters, while 38
percent agreed that Consumption/
shopping should continue, as it is
important to keep Japans economic
activity going. Still, there is a broad
sense that all cannot be business as
usual. Almost 30 percent said that
luxury-goods companies have an
obligation to use some of their profits
to support ongoing quake relief efforts
[Exhibit 6]. And many players report
seeing younger buyers coming back,
including to department stores, much
more quickly than those age 50 and
up. Finally, there appear to be some
differences in behavior between
eastern and western Japan (Osaka,
Nagoya), which shows a richer degreeof consumer confidence [Exhibit 7].
Justifying luxury: A new question
in this years consumer survey
attempted to test the hypothesis
that consumers need a reason to buy
luxury beyond the simple satisfaction
of ownership. We asked: What was
the main reason you decided to make
your last luxury purchase? About
28 percent said they just wanted
to or liked to treat themselves on
occasion. But 61 percent went further,
citing quality or durability as their
reason [Exhibit 8] . And retailers tell
us that they increasingly hear their
customers looking for reassurances
that their major purchases are
rational or justified, and ask more
questions about sustainability
and charitable giving. While such
concerns tied to making luxury
purchases are universal, those we
spoke with told us that, in the wake
of the March 11 disasters, consumers
are applying these reasons atunprecedented levels in making their
purchase decisions.
Share of wallet:Another new
question in this years survey
probed respondents on what they
SOURCE: McKinsey Japan Luxury Consumer Survey 2011
Exhibit 6:
Nearly 40 percent of luxury shoppers believe that active consumption is necessary in this timeof crisis
In the context of the earthquake and tsunami of March 11, please tell us how much you agree/disagree with thefollowing statements
Percent who selected agree or strongly agree (top 2 on scale of 6); n = 1,378
38
29
15
4
Consumption/shopping should continue as usual, as it
is important to keep Japans economic activity going
People should refrain from spending money on luxurygoods at this difficult time
I feel peer pressure to save because of todays
environment
Luxury goods companies doing business in Japan
have an obligation to use some of their profits tosupport quake relief efforts
Exhibit 7:
Our survey identified meaningful differences in attitudes between eastern and western Japan
In the context of the earthquake and tsunami of March 11, please tell us how much you agree with thefollowing statement
Percent of those who strongly agree and agreeon a scale of 1-6
SOURCE: McKinsey Japan Luxury Consumer Survey 2011
Im significantly/somewhat less interested in
shopping for luxury goods since the
earthquake and tsunami"
"I feel pressure to save because of today'senvironment"
"Luxury goods companies doing business in
Japan have an obligation to use some of theirprofits to support quake relief efforts"
1924
1318
2531
East (including
Kanto/Koshinetsu)
n = 719
West (including
Kansai/Chubu)
n = 607
Difference
+5
+5
+6
11
41
7
The quality (i.e., materials,skill) is worth the money
20
21
Other
I like to buy somethingnice for myself a fewtimes a year
If it will last a long time,I dont think its expensive
"No reason I just really want it"
SOURCE: McKinsey Japan Luxury Consumer Survey 2011
Exhibit 8:
More than half of todays luxury purchasers appear to need a justification to buy
Why did you make your last luxury purchase?Percent; n = 1,372
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would do if they won 300,000 yen
(about $3,800). The breakdown
among the 1,408 consumers was as
follows: 25 percent of the sum would
go to luxury purchases; 29 percent
for travel; 9 percent for hobbies; 7
percent for living expenses; and 28
percent for savings.3 The responses
were remarkably consistent
across age groups, with the only
significant dif ference being that the
50-and-overs spent more on travel
(37 percent) and allocated less to
savings (20 percent).
Tightening the purse strings:
Our survey considered only people
who have previously bought luxury
products; even among this select
group, though, caution is the norm.
Among the 15 percent to 20 percent
of those reporting a change in theirluxury spending patterns over the
past 24 months, most say they are
buying fewer luxury products and
cheaper brands.
Accelerating shift to online:
Across the board, luxury consumers
say they are buying and spending
more online. For example, 62 percent
said they bought more fashion online
and 54 percent said the same of
leather goods. Only 13 percent and 7
percent said they bought less in thesecategories [Exhibit 9] . This represents
good news for pure plays such as
Glamour Sales, Brands4friends.jp,
and market leader Gilt Groupe; it also
means that there is opportunity left
for those who have been late to the
virtual party. Shiseido, for example,
announced the impending launch of
a new website to promote and sell the
skincare brands products (although
how and whether the site will offer
pure e-commerce remains to be seen).
Have time, will travel: Nearly 25
percent of our respondents purchased
luxury goods outside Japan in the
past 24 months, largely because
theyre much less expensive; indeed,
shopping for high-end goods is
one of the major reasons Japanese
give for travelling overseas. The
recent strengthening of the yen has
exacerbated these price differentials,
and the ability of consumers to
compare prices over the Internet
means Japanese retailers cannot
hide their higher prices. This year,
we saw a jump in duty free purchases
within Japan (20 percent of travelers,
compared to 9 percent last year), as
well as in Korea and North America
(excluding Hawaii) [Exhibit 10].
SOURCE: McKinsey Japan Luxury Consumer Survey 2010/2011
Exhibit 9:
Online luxury purchasing behavior continues to accelerate
How has your online purchasing behavior changed over the past 24 months?
Percent of respondents who purchased online within last 24 months
39
49
54
62
25
20
25Leather goods
Shoes
Fashion goods
Watches/jewelry
N/A
51
49
39
25
58
57
57
N/A
10
2
7
13
23
18
17
N/A
More Same Less
2011
2010
SOURCE: McKinsey Japan Luxury Consumer Survey 2010/2011
Exhibit 10:
Compared with last year, luxury sales been stable in Korea and increased in North America
Where did you buy it? a comparison of 2010 and 2011
Percent of respondents who bought luxury fashion products abroad within last 12 months; multiple answer
20
5
12
19
2
7
17
22
25
5
10
21
32
9
4
16
17
22
Korea
Hawaii
Europe
Other Asian countries
Hong Kong/Macau
North America (excluding Hawaii)
Australia/New Zealand
Duty free stores within Japan
Mainland China
2011
2010
3 Remaining 2 percent recorded as Other.
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Taking overseas sales into account, the
Japanese luxury market is likey about
25 percent larger than the headline
figure for domestic sales, putting it
between $15-20 billion, depending
on which categories are included.
Car talk: Although cars are not the
focus of our survey, we threw in a few
questions about luxury automobiles.
Perhaps because good performance
is taken for granted, we found that
todays consumers value comfort,
safety, and eco-friendly features
most when it comes to luxury autos
[Exhibit 11] . As one chief of a major
luxury automaker told us, Less
than 10 years ago, the first thing a
consumer did when they entered our
showroom was to open the hood of
the car and enquire about the engine.
Today, most people care more about
service, fuel efficiency, and whether
they can connect their iPhone. This
is an important insight, considering
the rocky recovery among Japans
carmakers. While production rose a
healthy 21 percent in 2010, it fell in
the first three months of 2011, and
dropped off the cliff in March (down
57 percent) due to post-earthquake
disruptions.
Implications
Our research, among both executives
and consumers, suggests that there
are four trends luxury executives andmanufacturers should bear in mind.
We expect to see Japanese
consumers continue to seek
some justification to buy that
extends beyond mere affinity
for the luxury label or brand.
Whether this is represented by a good
deal, a limited edition item, some
ties to charity or sustainability, or
something more closely related to
the products quality or outstanding
service, manufacturers must pay
attention. In addition, planned
purchases continue to trump
impulse buys, which underscores
the need for strong marketing,
including digital marketing.
Parallel imports (that is, luxury
products meant for markets
outside of Japan) are likely to
continue to pose challenges,
so long as Japan is much more
expensive than other places.Asurging yen, coupled with overseas
shopping and increased comfort
with online buying, will make it
ever more difficult for luxury goods
companies to justify significant price
differences. Luxury brands would
be wise to begin thinking through
the implications of moving toward a
standard global pricing model.
Rally the younger generation.
Conventional wisdom is that
Japanese in their 20s and early 30s
are the post-luxury generation,
eschewing expensive crafted goods
in favor of consumer electronics and
experiences. This is true to some
extentbut not entirely. Of those
surveyed who said they were buying
more luxury goods than before, most
are in their 20s and 30s. Luxury goods
companies should notand cannot
ignore this future consumer base.
Instead, they should nurture it by
carefully selecting the messages and
tools they use to communicate to this
segment, including the use of digital
marketing. Naturally, the Internet has
to be a crucial component in the mix. It
is a sign of the times that on a beautiful
weekend in mid-May, an army of
women in black t-shirts reading
Zozotowna wildly successful high-
end online fashion malltook to the
streets of Omotesando and, standing
in front of the worlds most famous
luxury retail establishments, handed
out 3,000 yen in online coupons to
those passing by.
SOURCE: McKinsey Japan Luxury Consumer Survey 2011
Exhibit 11:
Luxury consumers also seem to need a justification, such as eco-friendliness, to buyhigh-end autos
Regarding luxury cars, do you agree/disagree to the below statements?
Percent who selected agree or strongly agree (top 2 on scale of 6)
39
33
30
37
50s +
40s
30s
20s
11
13
10
9 50
47
44
52
Luxury cars have characteristics
that justify the premium price
Its worth the money to buy a
luxury car for the superb driving
experience
Being eco-friendly is as
important for luxury cars as
design or driving experience
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Reimagining Japanese luxury
In the forthcoming book edited by
McKinsey,Reimagining Japan:
The Quest for a Future That Works
(Shogakukan, July 2011), two well-known
observers offer contrastingindeed,
diametrically opposedviews on the
future of the luxury market in Japan.
Bernard Arnault, Chairman and CEO of
LVMH, argues that Japanese consumers
have remained constant in their
appreciation of high-quality products and
services. He notes that Japan continues
to play a global role in setting trends
and generating strong followings when
new brands and stores are launched. In
sum, Arnault points out, Japan is notmerely an important luxury market
because of consumers high incomes, but
because of their exacting standards and
sophistication.
From Tyler Brl, editor-in-chief of
Monocle magazine and a columnist for
the Financial Times: What everyone
has failed to identify . . . is that Japan has
steadily transformed itself into the worlds
first post-luxury economyand has
become a more interesting place in the
process . . . This shift is not an after-effect
of the Tohoku disaster; its been going on
for the better part of a decade.
For the complete text of both essays,
plus insights from more than 75 other
thinkers, including the leaders of
Shiseido, Procter & Gamble, Starbucks,
and many others, order or pick up a
copy ofReimaginingJapan. Visit www.reimaginingjapan.com for more details.
Take a more segmented view of
physical channels. Consumers
across the country behave differently,
and the approach to stores in
each region must be customized
accordingly (size, assortment, and
perhaps even services). Brands will
likewise need to be more discerning
about which department stores arebetter to invest in, rather than take a
blanket approach to all.
There is no way to downplay the
significance of the traumatic events
that hit this island nation on March
11, and their impact to consumer
behavior continues to evolve. But
Japanese consumers often have short
memories. In the three years that we have
conducted our luxury survey, we have
seen a resilience in Japan that few other
markets can match. Yes, consumers are
acclimating to online channels. Yes, they
are finding a need to justify purchases
more than in the past. And yes, they do
place a premium on value over brand
name. Perhaps most importantly, theJapanese luxury consumer continues
to become more sophisticated.
Regardless, luxury players can deliver
attractive offerings that shape buyer
decisions, even as buyer behavior evolves.
To tap into what continues to be one of the
worlds most robust luxury markets, they
simply must.
Brian Salsberg is a partner in McKinsey
& Companys Tokyo office and the leader
of the Japan Consumer and Shopper
Insights center and the Japan Consumer
and Retail Practice.
Naomi Yamakawa is a consultant in the
Marketing practice.
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June 2011
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