Japan's comeback

Post-Covid re-openings are breathing new life into the Japanese fashion and luxury market. The late-March easing of the strict restrictions aimed at slowing contagions that marked the first part of the year has not generated the rebound in retail consumption to which the sector had been accustomed by the performance of neighboring China. The dynamics in the Land of the Rising Sun, affected in the first quarter of 2022 by what Goldman Sachs called a «quasi-state of emergency», are indeed very different.

«Based on the most recent developments and the easing of restrictions, we are monitoring the market situation to see if a rebound of domestic consumption is possible. In general, the Japanese customers have a buying profile that is quite more cautious in times of crisis than the Chinese one», Claudia D'Arpizio, Senior Partner and Global Head Fashion & Luxury at Bain & Company, explained to MFF. «We expect market value in Japan to recover to pre-pandemic levels during 2023». According to estimates in the latest Bain & Company luxury study conducted in collaboration with Fondazione Altagamma, the Japanese luxury market has not yet recovered to pre-Covid-19 levels and last year stood at about 20 billion euros, a decrease of 17% compared to 2019. A rather small but still significant share within the total luxury personal goods market, which last year increased by 29% to 283 billion euros (+1% over 2019).

«The Japanese market’s performance during the pandemic was particularly impacted by slower adoption of anti-Covid-19 restrictions that affected not only domestic consumer flows, but obviously also access by tourists, especially those from Asia», Claudia D'Arpizio continued. «During the 2020-2021 two-year period, we witnessed extremely polarized performance among brands in the local market, with those brands deemed timeless by local consumers and therefore a good investment recording better results». The Japanese customers constantly focused on big established brands, with a few exceptions that managed to intercept younger generations, more open to experimentation and novelty.

This is demonstrated by the latest financial statements of major fashion & luxury companies, such as Swiss high jewelry and watchmaking giant Richemont, which in Japan, its fourth most important geographic region, reported sales of 1.2 billion euros in the fiscal year ended on March 31, with a 28% increase compared to 940 million euros in the previous fiscal year. «Revenue in Japan, which accounted for 6% of the group's total turnover, recovered more slowly than in other regions as international travel to the country, and related tourism sales, remained contained», the holding company explained in an official statement. Salvatore Ferragamo reported as well that the Japanese market recorded a 17.7% increase in revenues in the first quarter of 2022.

The capital Tokyo remains the luxury hub within the country, with the most elegant boutiques concentrated in the Ginza district, followed by Osaka. «Both cities have been strongly affected by the crisis period, not only in terms of local purchases but also because they historically represent important tourist locations», Claudia D'Arpizio specified. Other relevant locations include Nagoya, Kyoto and Fukuoka, which has emerged as a rising star in recent months, according to Bain & Company.

«Department store sales are the most weighted factor in Japan in our macro tracker and were down significantly last January, when they recorded -24% compared to January 2019», Goldman Sachs analysts stated. «In February, Japan Consumer Confidence Index, a survey on the Japanese consumer confidence among a sample of households, fell to its lowest level since May 2021, when the country was in the midst of a state of emergency». However, the investment bank's experts pointed out how the year-on-year trends seem more resilient, with four of the five monitored indicators improving on a sequential basis in the first quarter of this year compared to the fourth quarter of 2021.

While the country had only partially regained ground last year, as pre-Covid performance was mainly linked to the recovery of the global travel industry, sentiment also appears more positive at the moment among insiders who, after a two-year halt in which local consumption was affected by slow vaccine implementation and, more recently, restrictions, are now reporting high demand and a slow but gradual recovery of local consumption. Great expectations are focused on exports, after data from the Confindustria Moda Study Center showed that Italian textile-clothing exports to Japan fell by 9.5% last year. The same data reported in detail how Italian menswear lost 6.6% in 2021 with revenues at 267 million euros.

«Despite the fact that during the first quarter of 2022 Japan also had to take note of the onset of inflationary phenomena in its economy, albeit with relatively low values compared to world standards, we believe that the country's reopening, with the state of emergency finally lifted at the end of March, will offer important investment opportunities», Richard Kaye, Manager of the Comgest Growth Japan fund at asset management firm Comgest, stated.

Undoubtedly, there is buzz among the brands, both in and out of the country. Just a few days ago it was announced that, after a two-year absence due to the health emergency, Comme des Garçons Homme Plus will return to the Paris runways on June 24 with new menswear creations by designer Rei Kawakubo. This is a hopeful sign of the beginning of a new era for the entire luxury market in Japan. (all rights reserved)