By M. Isi Eromosele

The Japanese are the world’s largest individual consumers of luxury brands and form the second largest market for luxury goods after the U.S. The Japanese were the driving force behind the exponential growth of the European luxury industry and the resulting democratization of luxury brands.

This concept of giving everyone access to luxury branded goods is a paradox because it abandons the exclusivity that was the original basis for the European luxury industry in the hands of skilled designers and craftsmen.

In Japan, as in most countries in the world, the ongoing financial crisis reduced consumers’ discretionary spending, but in addition it also accelerated the fundamental shift in the attitude and behavior of Japanese luxury consumers.

The concept of democratization of luxury was actually inspired by the Japanese luxury brand consumer and their voracious need for conspicuous consumption in pursuit of social esteem.

This conspicuous consumption need is not limited to Japan. It has spread all over Asia and today, luxury brands are modern symbols Asians wear to redefine their identity and social status.

The noteworthy decline of luxury brands sales in Japan can be attributed to four factors: the financial crisis that started in 2008; the bursting of the luxury brand bubble of the early 2000s; the rapid aging of the Japanese population which outweighs that of all other nations and a possible long-term shift in consumer attitudes and behavior toward luxury brands by the Japanese.

The financial crisis is the most recent factor, but it is one that has affected all markets. As such, it alone does not singularly explain the behavior of the Japanese luxury consumers. However, the financial crisis may have been responsible for triggering the bursting of the luxury brand bubble that had begun in Japan in the early 2000s when newly rich bankers, traders, real-estate agents and entrepreneurs started spending money on luxury goods.

This spending was further encouraged by a massive expansion of luxury brand stores in Japan, as exemplified by luxury retail extravaganzas such as the $138 million eleven-story glass-brick Hermes flagship store in the Ginza, Tokyo’s primary shopping district; the $100 million six-floor Louis Vuitton flagship store in Omotesando, a tree-lined neighborhood in Tokyo known as an art and culture hotspot; the $80 million six-story Prada temple to postmodernism flagship store, also in Omotesando and the $240 million ten-floor Chanel flagship store in the Ginza with its absurdly expensive décor including glittering silver dust on the pillars and gold-ribbon panels on the walls. All these edifices to luxury retailing were built in the 2000s.

The Japanese Motivated Spread Of Luxury Brands

By the early 1970s, Japan’s GDP had been growing at an average of some 9.5 percent per year with per capita income rising to reach that of Western Europe. This was also the period when the Japanese tourist-shoppers became a noticeable phenomenon in Europe.

The French, Italian and Swiss luxury houses saw the opportunity and started setting up store branches in Japan. Gucci opened its first store in Tokyo in 1972 in response to demand from Japanese tourists in Europe, while Louis Vuitton followed for the same reason in 1978.

With the opening of luxury fashion boutiques in Japan, the Japanese began buying luxury goods furiously at home while also still shopping maniacally in Europe. A study by JP Morgan estimated that Japanese tourists represented more than 80 percent of Luis Vuitton’s Champ Elysées store sales.

The wider the Japanese traveled, the more branded stores were opened at all their favorite destinations, from Hawaii’s boutiques on Kalakaua Avenue to Hong Kong’s plush Landmark shopping center, followed later by the mall at the International Financial Center.

The Japanese were the driving force behind the growth of luxury fashion retail all over Asia and were responsible for the growth in duty-free luxury sales in all their travel destinations such as Seoul, Taipei and Bangkok to mention only the more important ones.

The success with the Japanese generated extraordinary profits for the luxury fashion industry and encouraged the firms to expand globally into the traditional luxury markets such as Paris, London, New York, Rome, Milan and Hong Kong following the Japanese shoppers but also attracting rich local clients.

The success in these markets motivated further expansions to new locales such as Beverly Hills and Las Vegas. Today the major luxury fashion brands have boutiques in all the major luxury galleries in the world.

The Luxury Brands Addicted Japanese

The Japanese addiction to Western luxury fashion brands arose in the 1960s and 1970s with the extraordinary economic growth of the country and the resulting rapid expansion of the new middle class that wanted to show off their success.

In the densely populated island nation, the Western way to enjoy as well as to exhibit one’s riches, such as buying or building grand homes and large properties in plush neighborhoods was near impossible.

As such, the Japanese chose to show their wealth by dressing richly. Additionally, the dense traffic and tight parking discouraged luxury cars, giving further impetus to the trend of wearing Western luxury fashion brands to show off their success and social status.

To the post Second World War generation of Japanese, the wearing of more expensive luxury articles, the higher the status of the person wearing them. The ultimate status symbols in Japan are luxury fashion goods such as couture clothes, leather purses, shoes and accessories, silk scarves, watches, furs, and jewels.

In Japan and across much of Asia, making money is only part of an individual’s success. To gain social stature they have to let the world know that they have it. For this reason luxury fashion brands became modern symbols used to redefine individual’s identity and social position.

The paradox in Japanese society however, is that the Japanese are aggressive conspicuous consumers but they never show off. This is because conformity is imprinted into them from childhood. The guiding principle behind conformity is the creation of harmony. The natural corollary to conformity is that they stop thinking for themselves and adopt neatly packaged concepts.

With individual thinking discouraged, the average Japanese relies on higher authority to provide guidance. Leading luxury fashion magazines have a certain influence in building fashion trends in the world. In Japan these magazines enjoy a different level of power: they dictate fashion.

The Japanese do not question what luxury fashion editors recommended, they just follow these recommendations as if they were law. The Japanese consumers are such diligent followers of luxury fashion magazines and the lifestyle they present that they form tribes that are nicknamed after the magazines.

For this reason the Japanese consumers of luxury brands never show off. They simply conform with their social group by wearing the right luxury fashion or they wear the luxury fashion of the social group they aspire to belong to.

Japan is a very egalitarian society, so nobody wants to stand out. If a particular social group carries Luis Vuitton bags, an individual that aspires to belong to that group also has to wear one and she will make all the necessary personal and financial sacrifices to acquire it.

The only way to shine in Japan’s very egalitarian society is by demonstrating a superior savoir faire. For this reason Japanese consumers are amazingly diligent readers and followers of luxury fashion magazines.

Showing off is done in a very subtle way, through the sophisticated use of up to date fashion knowledge. The point is not to buy the most expensive thing: it is to buy the latest trend in luxury fashion.

The Japanese consumers don’t want to show only that they have money, they also want to let their social group know that they have a sophisticated knowledge of luxury fashion.

An additional factor is that Japanese women have an extremely low status in what is essentially a male-dominated society. Women are discriminated against at work with only a small chance of rising above clerical level.

At home, they have to serve their husbands, at work their bosses. As a result women’s self esteem is extremely low. For them, buying luxury fashion goods becomes an affirmation of their existence and of momentary power.

The luxury stores in Japan with their outstanding levels of service are the only places they are pampered and respected. Women in Japan go shopping just to experience the pleasure of being served.

The Uncertain Future Of Luxury Brands In Japan

The explanation for the significant and exceptional decline in the Japanese luxury market lies beyond the financial crisis that started in 2008 that affected the entire world, or even the bursting of the luxury brand bubble that started in the early 2000s when newly rich bankers, traders, real-estate agents and entrepreneurs started spending money on luxury goods.

The financial crisis may have been responsible for the initial triggering of the luxury brand bubble that was fueling the growth of the luxury market and for some part of the recent fall in sales, but certainly cannot account for such a significant decline.

The explanation for the extraordinary decline of 7 percent lies in the rapid aging of the Japanese population, and (in a more significant and worrisome trend for the luxury industry) in the long term shift in Japanese behavior toward luxury brands.

Today, Japan has one of the highest life expectancies in the world at 81 years, and also the highest proportion of elderly citizens: 22 percent over the age of 65. This demographic group is expected to increase to 40 percent by 2055.

The rapid graying of Japan can also be seen by the fall in the youngest proportion of the population, where those aged up to14 years represent only 13.5 percent of the total population. The consequence is that the productive population, or those aged 15 to 64, is expected to decline from 81.64 million to 45.95 million by 2055.

Japan’s equalitarian society is a possible explanation of why the Japanese are so addicted to luxury brands as this consumption allows them to recreate some degree of social stratification.

Because of their relatively good financial means, they are able to use luxury fashion goods to define themselves socially as they wish. Thus they use luxury as badges for their social aspirations, which is why they have such a need to show the brands.

Long before the financial crisis of 2008, fundamental shifts in the attitude and behavior of luxury consumers were underway in Japan and the rest of the world. The crisis has brought these shifts to the fore, suggesting that they are not temporary.

One of the most important trends is that luxury consumers and even designers are becoming disillusioned with the democratization of luxury brands.

The factors contributing to the decline of the luxury market in Japan reflect permanent changes in Japanese demographics and consumer attitudes and behavior. For the luxury industry to continue to be successful in Japan and probably in the world, it must find ways to learn and adapt its marketing strategy to the new reality.

Eventually the large luxury conglomerates will have to return to the origin of their luxury brands and make fine high quality and exclusive luxury goods for selected few consumers that can afford them, or otherwise accept the popularization of their traditional luxury brands which means that they have become mere premium brands that will compete with other premium brands in the middle market.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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