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JAPAN’S
                                                       CHANGING
                                                       CONSUMER
                                                       drivers of change
                                                       for luxury brands
  J A P A N M A R KE T R E S O U R C E N E T W O R K
2007




                                                       JMRN Insights Briefing
                                                       October 2007

                                                       © Japan Market Resource Network
                                                       All rights reserved.
                                                       Reproduction or distribution prohibited
                                                       without prior written consent of JMRN.
Japans Changing Consumer
table
of contents               Introduction: State of the Japanese
                          Luxury Brands Market                     Page : 01

                          Chart:
                          Total Declared Annual Revenue
                          of Top 45 Luxury Brands in Japan         Page : 02


              section1    Sidebar:
                          Luxury Branded Goods vs. New Luxury      Page : 02
                          Women Drive Purchases
                          of Luxury Branded Goods                  Page : 03
                          Profile:
                          Parasite Single                          Page : 03
                          Profile:
                          Emerging Wealthy Female                  Page : 04
                          Quality Trumps Brand                     Page : 04



                          Changing Consumer Attitudes
              section2



                          & Mindsets: Five Key Trends              Page : 05

                          Sidebar:
                          Top Ten Luxury Brands Popular in Japan   Page : 05
                          Chart:
                          Non-Branded Clothes Are Acceptable       Page : 08
                          Chart:
                          “Made in China” is Not Accepted          Page : 09
                          Conclusions                              Page : 10 - 11
               addendum




                          Sources                                  Page : 11

                          About JMRN                               Page : 12




                                                                   Researched and prepared by JMRN.

                                                                   Debbie Howard, Mari Nomoto,
                                                                   Tomomi Yamaguchi and Carolyn Kopf.
Introduction: State of the Japanese
section1   Luxury Brands Market
           J apanese consumers are unparalleled in their value to the world’s luxury brands, driving
           over 40% of worldwide revenue 1 in a global luxur y branded goods market valued
           at $50 billion (USD). 2

           Foreign luxur y branded goods began to transform the retail landscape in Japan during
           the early 1980s, their success fueled onward by the prosperity of the intoxicatingly affluent
           bubble years of the late 1980s. The shopping- enthused Japanese responded to their
           newfound prosperity in a collective “lux-aholic” splurge.

           As the 1990s began and the so-called economic bubble burst, Japanese consumers found
           their previous sense of identity rattled as the concept of lifetime employment broke down
           and many were laid off from their companies. This apprehensive period of economic
           recession, along with the emergence of more independent-minded women, helped to
           contribute to a break down of traditional social codes and the creation of a Japanese
           consumer with values that differed markedly from the bubble years.

              “An area the size of Montana, Japan is studded with 34 Bulgari stores, 37 Chanel stores,
              115 Coach stores, 49 Gucci stores, 64 Salvatore Ferragamo boutiques,
              50 Tiffany & Co. boutiques, and 252 stores of the LVMH Group…”
              Source: Japan External Trade Organization, Februar y 14, 2007 1


           O ver the past decade, lux-aholic behavior has quelled relative to the 1980s thirst. Yet today,
           while the Japanese Consumer Confidence Index still hovers below 50, consumer sentiment
           is comparatively optimistic as the countr y and its citizens cautiously climb out of a
           recessionar y period. 3 Fur ther, unlik e in the West where luxur y branded goods are an
           expression of social class, income and refined taste, allowing consumers to distinguish
           themselves from the mainstream, in Japan luxury branded goods represent the mainstream.
           In a society that once claimed everyone was middle class, luxury branded goods evolved
           from status symbols into social codes, identifying the owner as belonging to the larger
           collective group. In this social context, not having the same “status” could cause discomfort.
           These consumer mindsets have allowed luxury branded goods to maintain a strong presence
           in Japan despite macro-economic pressures.

           Today, Japanese consumers are emerging from the security of the collective group as they
           become increasingly comfortable expressing their individuality – whether through the
           articulation of opinions previously construed as overly assertive or rebellious, or through
           purchasing decisions that reflect individual identities. Confidence in expressing individual
           preferences is a radical departure in a culture where conformity has been the standard.
           And Japanese consumers are more sophisticated than ever in their purchasing behavior.

           In order to shed light on key changes in the luxury branded goods category, Japan Market
           Resource Network (JMRN) drew upon its 22 years of listening to Japanese consumers,
           analyzed existing secondary data and conducted consumer focus groups and an Internet
           survey to illuminate Japanese perceptions, attitudes and desires toward luxury branded goods.




                                                                                                             01
section1
           This insights briefing reflects the changing attitudes and mindsets of consumers toward
           purchasing luxury branded goods. JMRN’s research revealed, that while a strong interest in
           luxury branded goods remains among a core group of Japanese consumers, for a far larger
           segment – two-thirds of those interviewed – interest in luxury branded goods has declined
           over time. 4
                                                                                                                                      Nonetheless, there is ample evidence
                                                  Total Annual Declared Revenue of Top 45 Luxury
                                                                 Brands in Japan                                                      that luxury branded goods that
                                                                                                                                      maintain relevancy in meeting
            In Millions of Jpn. Yen




                                      140,000
                                      120,000                                                                                         changing consumer desires will
                                      100,000                                                                                         naturally find continued success.
                                       80,000                                                                                         After all, during the gloomier
                                       60,000                                                                                         economic years, total revenue for
                                       40,000                                                                                         leading luxury brands sustained
                                       20,000                                                                                         an upward trend and consumer
                                            0                                                                                         sentiment continues to skew
                                                  1993

                                                         1994

                                                                1995

                                                                       1996

                                                                              1997

                                                                                     1998

                                                                                            1999

                                                                                                   2000

                                                                                                          2001

                                                                                                                 2002

                                                                                                                        2003

                                                                                                                               2004
                                                                                                                                      positive. 5

           Source: Teikoku Data Bank, Ltd., September 2005 5




                                      Luxury Branded Goods vs. New Luxury
                                      Luxur y branded goods distinguish themselves
                                      t h r o u g h p r o m i s e s o f q u a l i t y, c ra f t s m a n s h i p,
                                      authenticity, exclusivity and countr y of origin.
                                      These standards of excellence command premium
                                      prices even when there is no apparent functional
                                      advantage over comparable products of lower quality.
                                      But because the brand builds a story to appeal to
                                      consumers, an emotional connection between the
                                      brand and consumer develops.

                                      Globally, the luxur y branded goods categor y is
                                      broadening to include lower-priced premium products.
                                      This new luxury phenomenon has been unfolding
                                      at a global level, as well as in Japan. The Boston
                                      Consulting Group (BCG) defines “new luxury” as
                                      “items, products and services that deliver higher
                                      qualit y, taste and aspiration than conventional ones.” 6 I t is a categor y BCG estimates to
                                      generate $840 billion (USD) annually around the world. 6 Products include ever ything from
                                      Starbucks coffee to premium soy sauces. For the purposes of this paper, however, we will focus
                                      only on luxury branded goods.




                                                                                                                                                                             02
Women Drive Purchases of
section1   Luxury Branded Goods
           W omen’s changing attitudes and values are paramount to understanding today ’s luxur y
           branded goods market in Japan, since Japanese women tend to possess a stronger interest
           in purchasing luxury branded goods compared to men. Women’s presence in the workforce
           is a driving force, since working outside the home fuels spending on self-consumption.
           At the same time, women are delaying marriage until later in life (if they marry at all), which is impacting
           the number of women aged thirty and over in the workforce and providing these unmarried,
           working women with higher levels of disposable income to spend on luxury branded goods.

           Over the past 20 years, women have come to challenge stereotypical homemaker roles
           in order to pursue careers, or even just part-time work. Even though many of these positions
           are still predominantly clerical or administrative in nature, since 1997 the number of women
           aged 30-44 in the Japanese workforce has increased by 15%. 7 The Ministry of Internal Affairs
           and Communication repor ted in June 2007 that there are 16.5 million work ing women
           in Japan aged 20-49; those aged 30-39 have the strongest presence in the workforce. 8

           Among female consumers in Japan, “parasite singles” are among the most voracious
           purchasers of luxur y branded goods. Parasite singles include the approximately four
           million single working women aged 20-34 who live with their parents relatively rent-free. 9
           With minimal financial obligations, these women spend close to 10% of their annual income
           on fashion. 6 JMRN’s research revealed that overall many younger women purchase luxury
                                                 branded goods to reward themselves for working hard.4


             Profile: Parasite Single
             Akiko Naganuma is a 28 year- old                     Additionally, a new female wealthy class has emerged
             single woman. She commutes daily                     earning over ¥10 million (US$86,597) annually. These
             from Yokohama, where she lives with                  high-earning women are also spending 10% of their
             her parents, to Tokyo.                               annual income on self-polishing for personal and
             She is a marketing account executive                 p r o f e s s i o n a l r e a s o n s . 10 T h e s e w o m e n r e p o r t e d
             in a foreign- owned firm earning                      spending their money on “dining out,” “luxury goods,”
             ¥ 4 . 5 m i l l i o n a n n u a l l y. A f t e r a   “vacations” and “cars” – with the largest amount allocated
             stress-filled week, going to a Pilates                toward a condominium purchase of ¥30 million
             class and shopping with her friends                  (US$260,870). 10 Importantly, many of these women
             is relaxing. Her clothes are fashionable,            tend to purchase luxury branded goods and experiences
             but her style is all her own, having
                                                                  in a relatively spontaneous manner.
             come of age in the mid-90s where she
             flexed her fashion muscles for
             individuality with the “sexy gal look.”              Publishers have for years targeted working women
             Her fashion and accessories include                  in their mid to late 20s with magazines such as 25ans,
             multiple luxury branded goods chosen                 which focuses on fashion, beauty, travel and global
             spontaneously to fit her mood, including              topics. What is interesting is that magazines targeting
             items from Dolce & Gabbana, Gucci                    the underser ved segment of affluent women aged
             and Chloe. Akiko wears basics from                   in their 30s, 40s and older – such as Nikita, Nikkei EW,
             Uniqlo. Brands under future                          Grace and Marisol – have recently begun to proliferate,
             consideration are Cartier and Omega.                 indicating the purchasing power of this influential group.




                                                                                                                                                   03
section1
                                                                            Grace deconstructs how to dress elegantly by
              Profile: Emerging Wealthy Female                               featuring fashion pieces with starting prices over
              Chiaki Ogawa is a 42 year- old single                         ¥120,000 ($1,043 USD). The Nik kei E W targets
              woman. She lives in an apartment in
                                                                            business women who hold titles such as Section Chief
              the urban Tokyo neighborhood of Ebisu.
                                                                            and President. 11
              As a supervisor at a financial firm, she
              earns ¥9 million annually. She spends
              her weekends shopping and hosting
              dinner par ties with her friends. She
              expresses both her individuality and
              her sense of style through her selection
              of high-quality accessories distinct for
              each season. Her style is unique,
              reflected by her choices of colors,
              patterns and fabrics which stand out
              a g a i n s t h e r co l l e a g u e’s t ra d i t i o n a l
              business attire of dark colored suits,
              light colored blouses, minimal jewelry
              and low heels. The brands she favors
              are Bulgari, Car tier and Max Mara.

           Note : The two profiles are composites based on JMRN’s            Note : Currencies were converted at an exchange rate of
           research, and do not represent actual individuals.               1 USD to 115 Japanese Yen.



           Quality Trumps Brand
           F ocus groups with Japanese female consumers allowed JMRN to understand perceptions
           about “brands” in a Japanese context. Specifically, the key characteristics that women
           indicated make “a brand a brand” (in order of priority) are quality, followed by well-known,
           brand heritage and maintenance of consistent
           prices. Many respondents strongly connected               Importance of Brand Attributes
           quality to the experience of buying and        100%
                                                                       for Japanese Consumers
           owning a luxury brand, including customer       90%
           service and aftercare. JMRN’s research          80%                                 Quality
           also indicated that the importance consumers    70%
                                                           60%                                 Brand name
           place on brand name is decreasing. 12 This      50%
           is a significant indicator of the shift from     40%
           purchasing luxury branded goods as social       30%
           code toward purchasing based on individual      20%
                                                           10%
           preference.                                      0%
                                                                                            Important            Can't Say            Not Important


                                                                                  Source: JMRN August 2007 Consumer Sur vey :
                                                                                  Attitudes Toward Luxur y Brands 12




                                                                                                                                                      04
Changing Consumer Attitudes & Mindsets:
section2   Five Key Trends
           T oday ’s shift away from traditional social codes is changing the sources of identity for
           both men and women. Their brand choices are increasingly aligned with their desire
           for self-expression and relatively higher levels of individuality. JMRN has identified five
           current underlying needs and concerns expressed by today’s dynamic Japanese consumer.

              •   From “Me Too” to “Me First:” In an era of individualism, consumers are seeking out
                  unique products, regardless of price.
              •   Mind, Body & Soul: Consumers are looking for enriched brand experiences.
              •   Diversity in Brand Lifestyle: Consumers easily accept and believe that less expensive
                  brands can deliver value in terms of quality and functionality.
              •   What’s in a Label?: In an era of low-cost manufacturing, authenticity still reigns.
              •   The Emerald Effect: Consumers are looking toward “green” luxur y.

           From “Me Too” to “Me First:” In an era of individualism,
           consumers are seeking out unique products, regardless of price

           J MRN’s research indicated a growing resistance among consumers to owning the same
           products as “everyone else.” This trend was particularly evident across all ages of women,
           from the young parasite singles to older affluent women. 4


              Top 10 Luxury Brands               A perfect example is Louis Vuitton, a power brand within the
              Popular in Japan:                  Japanese market. Mr. Kyojiro Hata, the CEO of Louis Vuitton
                                                 Japan, has claimed that 44% percent of Japanese women own a
              1.        Louis Vuitton            Louis Vuitton bag. 13 This statistic excluded other LV accessories
              2.        Coach                    w h i c h f u r t h e r i n c re a s e s t h e b r a n d ’s p e n e t r a t i o n . J M R N’s
              3.        Hermes                   research revealed that this level of penetration is beginning
              4.        Gucci                    to be a liability in today ’s Japanese luxur y market.
              5.        Chanel
              6.        Bottega Veneta           During inter views, women of all ages expressed the sense
              7.        Bulgari                  that a luxury brand’s high penetration and visibility decreases
              8.        Car tier                 its aspirational value. Further detracting from a brand’s value
              9.        Christian Dior           is the fact that many younger women, including high school
              10.       Tiffany                   students, can now afford to purchase luxur y brands.

           Source: JMRN August 2007       Brands that succeed will be those that respond to Japanese
           Consumer Sur vey : Attitudes Toward
           Luxur y Brands 12              cons u m e r s’ desire for unique p ro d u c t s. JMRN’s research
                                          identified that the Italian luxur y house of Bottega Veneta is
           gaining brand momentum with consumers, in large part due to its quality and uniqueness.
           While only 5% of respondents claimed ownership, 20% indicated that it is a hot brand now.
           Marc Jacobs holds a similar status. On the contrar y, brands like Polo and Prada, which
           both have high levels of brand awareness and market penetration, are losing momentum
           as Japanese consumers increasingly claim that these brands are not worth their premium prices.12




                                                                                                                                                 05
section2
           Bottega Veneta’s strategy, according to its President, Patrizio di Marco, is to emphasize
           the company ’s philosophy of quality. 14 Contrar y to the recognizable logo collections of
           t h e c a t e g o r y l e a d e r s , B o t t e g a Ve n e t a’s l o g o - f r e e b a g s i n c l u d e o n l y a s m a l l b r a n d
           label inside. 14 JMRN believes Bottega Veneta’s recent brand momentum is a testament
           to consumers’ growing confidence in choosing brands and produc ts that emphasize
           craf tsmanship and qualit y, rather than those that visibly emphasize the brand name.
           E m b r a c i n g s u c h a b r a n d d e m o n s t r a t e s c o n s u m e r s’ i n c re a s i n g d e s i re t o m o ve a w a y
           from “me too” purchases.

           Mind, Body & Soul:
           Consumers are looking for enriched brand experiences

                                                                                 Brand democratization – the pervasiveness and
                                                           accessibility of luxury branded goods – is as
                                                           evident in Japan as it is globally. Mr. Hata
                                                           has referred to Louis Vuitton’s decreased scarcity
                                                           in the Japanese market as the brand’s freedom
                                                           from existence as a status symbol. 13 Market
                                                           trends beg the existence of counter-trends,
                                                           reflected in consumer shifts away from what is
                                                           too readily available. Today’s luxury branded
                                                           g o o d s e c h o e l i t e c u s t o m e r s’ d e s i re s fo r
                                                           exclusivity, uniqueness, and more individual
                                                           identities. Accordingly, leading brands are
                                                           offering limited and special editions; however,
                                                           consumers earning over
           ¥10 million annually are seek ing much deeper connec tions from brands than simply
           product purchases. 15 JMRN’s research found that one in four women “still purchase luxury
           brand products, but these days really enjoy the experience of a brand, such as its signature
           café, spa or attending an event, more than just owning the product itself.” 12

           O ver the past decade, luxur y brand marketers’ responses to consumer needs for total
           b r a n d e x p e r i e n c e h ave a c c e l e r a t e d. G o i n g b e yo n d t h e e x p e c t e d s u p e r i o r l e ve l s o f
           customer ser vice found in the mega-flagship stores in Tok yo’s fashionable shopping
           districts, successful luxur y brands now offer to enrich ever y aspect of one’s life – a total
           brand experience for the mind, body and soul. As consumers desire brand interactions
           beyond the retail environment, brands are no longer just selling to customers, but are
           providing ser vices that will be scrutinized for a cer tain level of quality.

           Chanel, for example, in collaboration with the world reknowned French chef Alain Ducasse,
           has brought the luxury brand’s essence to Beige, a restaurant located on the top floor of
           the Chanel Ginza Building. Raising the bar, Baccarat Crystal’s B Bar operates in Roppongi,
           the nightlife hub of Tokyo.




                                                                                                                                                    06
section2
           Consumers are increasingly seeking out preferential treatment at VIP lounges and events.
           LVMH has opened Celux Salon, a “member ’s only” boutique offering highly exclusive items
           from its brand line-up. The Audi TT launch married art with luxury, creating a special launch
           event for their VIP invitees at the National Art Center. The super wealthy jet set class enjoys
           summer all year long via luxury vacations at the Bulgari-branded resort in Bali. The epitome
           o f g l a m o u r a n d e x c l u s i v i t y, t h e r e s o r t i s m a r k e t i n g h e a v i l y t o e x p e r i e n c e - s e e k i n g
           Japanese consumers. However, tranquility can be pursued without leaving Tokyo; balance
           and inner beauty can be found by escaping to Furla’s Aoyama Boutique where yoga classes
           are offered. 16

           Indeed, the retail leveraging of “lifestyle” and culture by luxury brand marketers through
           a marriage of architecture, art, music and food is evident not only among leading luxury
           brands, but also among hip, young apparel brands such as I taly ’s Diesel and Gas, and
           non-apparel brands such as De’ Longhi.

           Diversity in Brand Lifestyle: Consumers easily accept and believe that less
           expensive brands can deliver value in terms of quality and functionality

           I n the late 1980s luxury brands were purchased based on their prestige and aspirational
           value. JMRN’s research showed that only 20% of consumers agreed that “owning luxur y
           b r a n d p r o d u c t s d e m o n s t r a t e s u c c e s s a n d s o c i a l s t a t u s .” A s c o n s u m e r s a c q u i r e
           higher levels of confidence, many do not feel the need to prove themselves by owning
           a luxur y brand.

           It is important to note that industr y marketers are finding it more challenging over time
           to attract and maintain loyal customers, especially as they grow older. For example, JMRN’s
           research found that as women age, they are less likely to claim that “luxur y brands give
           me confidence.”

           At t h e s a m e t i m e, consumers’ pre viously negative attit u d e s tow a rd the purch a s e o f
           discounted products are changing. Today, it is socially acceptable to purchase off-price
           or from discount stores. JMRN’s research revealed that 50% of those sur veyed “do not
           feel the need to own luxury brand products anymore because they believe non-branded
           c l o t h e s a n d a c c e s s o r i e s a r e a d e q u a t e .” 1 2 Wo m e n i n t h e i r 4 0 s t e n d e d t o fe e l m o r e
           strongly about this point compared to women in their 20s, suggesting that women in
           later life stages may naturally prioritize marriage and family over self consumption, or
           simply have more interest in product functionality.

           With a combination of increased confidence, shifting life stage priorities, and an adapted
           d e fi n i t i o n o f v a l u e , J a p a n e s e c o n s u m e r s a r e i n c r e a s i n g l y m i x i n g “ h i g h” a n d “ l o w ”
           lifestyles – a trend also obser ved across global markets. Some consumers purposefully
           cut back in one area to splurge in another. 17




                                                                                                                                                          07
section2
           Examples include driving a BMW to a 100 Yen shop, carr ying a Louis Vuitton bag and
           wearing Uniqlo or Muji coordinates, and shopping at discount stores such as Tsurukame
           and Costco in order to “stretch up” and then spending more in another area. 6

                                                                Whether Japanese consumers are
                   “ I don't feel the need to own luxury brandedpurchasing less expensive brands to
                              products… non-branded             derive value, express their individual
                       clothes and accessories are adequate ”
                                                                style, or mix high and low lifestyles,
             60%                                                t h e y n ow h ave t h e c o n fi d e n c e to
             50%                                                purchase products regardless of
             40%
             30%
                                                                brand name because they trust these
             20%                                                p ro d u c t s c a n d e l i ve r c o m p a r a b l e
             10%                                                quality and functionality. Research
              0%
                                                                on why people buy brands found that
                        Disagree            Can't Say  Agree
                                                                34% of households with income over
                                                                ¥8 million placed importance on
           Source: JMRN August 2007 Consumer Sur vey :          “functionality ” just after “quality.” 18
           Attitudes Toward Luxur y Brands 12
                                                                Head Porter is a popular Made in Japan
           brand with a utilitarian range of bags that has become successful by designing products
           with an emphasis on both functionality and quality.

           Even though lower-priced items and discount shops are increasingly socially accepted,
           only those delivering on quality will succeed. This is best explained by the Uniqlo brand
           phenomenon, which provides casual basics with a modern style. Basic t-shirts sell for ¥800.
           The brand has thrived in Japan since it offers a “safe” choice (in terms of fashion acceptability
           and quality delivered) rather than an “aspirational” one. Additionally, it has met the rigorous
           quality standards demanded by Japanese consumers while providing recognizable value. 19

           What’s in a Label?: In an era of low-cost manufacturing, authenticity still reigns

           I n the 1980s, consumers were obsessed with brand and country of origin. Foreign luxury
           branded goods from Italy and France were seen as prestigious and stylish. Today, leading
           luxury brands are opening facilities in China, chasing cost reductions and manufacturing
           efficiencies. Burberr y, a brand with a strong British heritage, announced the closing of
           its manufacturing plant in Britain to relocate to China. 20 O ther leading foreign luxur y
           brands such as Celine, Louis Vuitton, Loewe and Coach are expanding their manufacturing
           locations in China. 21 The President of Loewe has claimed “the quality is 120% Loewe; there
           is no difference with our products that are made in Spain.” 22

           Luxur y brands have commanded a premium for their products based on the premise of
           higher qualit y link ed to countr y-specific ar tisanal sk ills. M ore than 90% of Japanese
           consumers believe that in order for a luxury brand to be a true brand, it must offer quality. 9
           Maintaining premium pricing (i.e., no discounts) is critical and there is already evidence
           that Japanese consumers will not continue to pay premiums for luxury products that are




                                                                                                                        08
section2
           made in China at a lower expense to the manufac turer. A sur vey focused on images
           and possession of foreign luxur y brands found that 42% of Japanese women believe
           that “a brand ’s tradition is impor tant to its value.” I t is doubtful that a luxur y brand ’s
           image can survive the deterioration that a Made in China label will generate in the mind of
           the Japanese consumer. 23

           JMRN’s research revealed that consumers would “lose interest in purchasing items tied
           to a specific countr y ’s heritage that are produced elsewhere” – such as a French brand
           manufactured in China. In fact, JMRN’s research found that an overwhelming percentage
           (64%) would not buy a luxury brand product that they knew was made in China. 7

                                                            Clearly, Japanese consumers today purchase
               “ I would not buy a luxury branded product   luxur y brands that reflect their refined tastes
                          Made in China “
                                                            and appreciation for quality. To the Japanese
               Agree
                                                            consumer, quality is intrinsically and emotionally
                                                            connected to the overarching brand story and
            Can't Say
                                                            brand heritage which contributes to the status
                                                            and premium price.
            Disagree
                                                           A fine example is that of high-end Swiss
                    0%       20%       40%    60%      80%
                                                           watchmakers, such as Vacheron Constantin and
                                                           Rolex, which continue their long-standing
           Source: JMRN August 2007 Consumer Sur vey :
                                                           tradition of building timepieces in the more
           Attitudes Toward Luxur y Brands 12              expensive environment of their home country.
                                                           While the annual number of watches imported
           to Japan has decreased, total value has increased significantly, indicating growth among
           watch brands positioned at the high end of the market. 24 However, for the shor t term,
           unless consumers k now a product is made in China they may unk nowingly purchase it
           based on the brand’s existing image and reputation.

           The Emerald Effect: Consumers are looking toward “green” luxury

           T oday, Japanese consumers are increasingly expressing and forming their individual
           identities through the brand experiences and products they choose. As individuals further
           reflect on their consumption choices, they will inevitably demand more of the luxur y
           branded goods categor y.

           As the citizens of the world embrace the environment at all levels, JMRN believes Japanese
           consumers will look to decrease their carbon footprints. This is already occurring and is
           fur ther fueled by Hollywood and the causes celebre of global celebrities, all mak ing an
           undeniable impact on global consumer trends. Today, celebrities and early adopters of green
           technology are making statements as they trade in their luxury cars for the latest hybrid
           versions – predominantly embracing Toyota, the Japanese manufacturer leading the hybrid
           technology revolution.




                                                                                                                 09
section2
           In Japan, the distant signals of green luxury are apparent as home builder Sekisui House
           marries quality, comfortably designed homes with ecologically sound communities – all
           at a premium price. Another early indicator that luxury branded goods are moving toward
           embracing the green message is evident in LVMH's September 2007 global adver tising
           c a m p a i gn fe a t u r i n g fo r m e r S ov i e t U n i o n p re s i d e n t a n d N o b e l Pe a c e Pr i ze re c i p i e n t
           Mik hail Gorbachev. Underscoring the campaign's environmental protection message,
           Mr. Gorbachev waived modeling fees and LVMH instead made a donation to his environmental
           organization, Green Cross International. 25 In the near future, JMRN expects consumers to
           increasingly demand ecologically sustainable and ethically sound labor practices to be
           woven into the brand stories of luxury branded goods.

           Conclusions
           D rawing on recent consumer research and over two decades of experience garnering
           insights on Japanese consumers, JMRN believes the era of the individual is now. Luxur y
           brands that wish to succeed will need to continue to adapt, echoing ever changing consumer
           desires – their attitudes and mindsets driven by continually changing social demographics.

           Parasite singles and affluent women will continue to drive categor y revenue. However,
           luxur y brands that keep their pulse on developing trends may find that new segments
           and sub-segments can be nurtured beyond consumers who fall within the “luxury loyalist”
           categor y as well as among those whose interest may be declining.

           Changes impacting Japan’s luxur y branded goods landscape are already firmly in place:

              •   As consumer desire for unique products increases, the importance placed on brand
                  name is decreasing . . . creating opportunities for new entries both at the high end in
                  the luxur y categor y as well as for safe fashion choices at lower price points.

              • “Luxury loyalists” have become even more discerning than before, and demand enriched
                  brand experiences in return for their patronage . . . creating challenges for luxury brands
                  to deepen the emotional bonds between them and the brand.

              •   With a combination of increased confidence, shif ting life stage priorities, and an
                  adapted definition of value, Japanese consumers are increasingly mixing “high” and “low”
                  priced fashion . . . a positive indicator that consumers are still willing to pay for those
                  luxur y branded goods that demonstrate value.




                                                                                                                                                10
addendum
              • While Made in China may increase efficiencies for manufacturers, JMRN believes
                 maintaining the trust and respect of Japanese consumers by delivering authentic
                 products will derive higher value for both manufacturer and consumer.

              • Current global trends in green luxury will continue to influence Japanese consumers,
                 leading to the natural institution by luxur y brands of corporate social responsibility
                 measures that address consumer sensitivities.


           Sources:
           1 (2006). Japan is the World’s Most Concentrated Source of Revenue For Luxur y Brands. Japan External Trade Organization.
            Retrieved Februar y 2007, from http://www.jetro.org.
           2 Rein, Shaun (2006, August 14). Growth in China’s Luxur y Goods Market to be Fueled by 2nd Tier Cities. Retrieved March
            2007, from http://china.seekingalpha.com/ar ticle/15478.
           3 Economic and Social Research Institute, Cabinet Office of the Government of Japan. (2007, August). Monthly Consumer
            Confidence Survey for Japan.
           4 Consumer Focus Groups: Perceptions & Attitudes Toward Luxury Brands, Japan Market Resource Network, July and August 2006.
           5 (2005, September). Special Feature: Research on the Declared Incomes of 45 Foreign Fashion Brands in Japan. Teikoku News.
            Teikoku Databank, Ltd.
           6 Silverstein, Michael J., & Fiske, Neil (2003). Trends, Brands, And Practices – The Boston Consulting Group’s 2004 Research
            Update to Trading Up: The New American Luxury. New York: Penguin Group.
           7 Percentage increase derived based on 1997 and 2007 data from Ministr y of Internal Affairs & Communications:
            Ministr y of Internal Affairs & Communications. (1997). Employment Status Survey.
            Ministr y of Internal Affairs & Communications. (2007, June). Labor Force Survey: Employed Persons by Age and Industry.
           8 Ministr y of Internal Affairs & Communications. (2007, June). Labor Force Survey: Employed Persons by Age and Industry.
           9 Ministr y of Internal Affairs and Communications, Statistics Bureau. (2005). 2005 Population Census of Japan.
           10 (2006, March). New Female Wealthy Class’s Self-Help Consumption. Trend Box. Dentsu Shohisha Center.
           11 High-End Magazines For Mature Women Spring Up. (2007, April 16). The Nikkei Weekly, p. 13.
           12 JMRN August 2007 Consumer Survey: Attitudes Toward Luxury Brands, Japan Market Resource Network, August 2007.
           13 Hata, Kyojiro (2003). Louis Vuitton Japan: The Building of Luxury. Tokyo: Nikkei, Inc.
           14 Bottega Veneta Stands Out With Logo-Free Fashion. (2007, May 7). The Nikkei Weekly, p. 10.
           15 Consumption Analysis: Upper-Income Earners Choose Experience Over Products. (2007, August 4). Nikkei Marketing Journal.
           16 About Furla Yoga. Retrieved September 22, 2007, from Furla Japan Website: http:// www.furla.co.jp/yoga.
           17 (2004, March 15). Going Forefront of the Slump in Consumer Spending – Going to 100 Yen Shops Holding Louis Vuitton.
             Keiei Yosoku Eiji, Vol. 32, No. 3.
           18 (2005, December 1). Attitudes Toward Purchasing Goods. Life Design White Paper 2006-07. Dai-Ichi Life Research Institute.
           19 (2006, Januar y 1). “Polarization Phenomenon” Seen in Town. The 21. PHP Kenkyujo, 90-91.
           20 Kageyama, Minoru (2007, Januar y 15). Production of Burberr y will move to China: “ The Danger of British Brand,” Floods
              of Criticism. Fuji Sankei Business i.
           21 (2005, September 28). Luxur y Brand. Quar terly Corporate Repor t: Industry Map 2006. Toyo Keizai. 16-17
           22 Accessible Luxur y Market: Coach vs. LVMH. (2005, April 27). Nikkei Marketing Journal.
           23 (2003, Januar y 7). Images and Possession of Foreign Luxur y Brands. SRI News, No. 29. Saison Sogo Kenkyujo.
           24 Ministr y of Finance. (2006). Trade Statistics of Japan: Volume and Value of Impor ted Watches.
           25 Mikhail Gorbachev becomes the “Face” of Louis Vuitton in its Autumn Adver tisement. (2007, August 28). Asahi Shimbun .




                                                                                                                                          11
addendum
           About JMRN:
           J M R N o ffe r s i n n ov a t i ve m e t h o d o l o gi e s t h a t p rov i d e f re s h i n s i g h t i n to t h e J a p a n e s e
           mar k et and mind. Amer ican owned and operated, JMRN is the only mar k et research
           company in Japan that specializes in providing both consumer-level and industr y-level
           qualitative research ser vices, with expertise in luxur y branded goods, financial products
           and ser vices, IT and e -commerce, healthcare and pharmaceuticals.

           I n 2 0 0 5 , J M R N i n t r o d u c e d i t s s e r i e s o f I n n o v a t i o n Wo r k s h o p s , w h i c h a p p l y J M R N ’s
           know-how with progressive qualitative techniques to client strategic planning challenges.
           These customized wor kshops ar tfully blend mar k et infor mation with the intellec tual
           capital that exists in ever y company, and unleash new insights for product and ser vice
           development, as well as communications and positioning.

           Through its network of regional affiliates, JMRN offers its full range of qualitative research
           products and ser vices in tune with the ethnical distinctions, cultural nuances and social
           dynamics of selected Asian markets.

           JMRN is a member of the European Society for Opinion and Marketing Research (ESOMAR)
           and the American Chamber of Commerce in Japan (ACCJ ). JMRN president, Debbie Howard,
           is a past President of the American Chamber of Commerce in Japan (ACCJ ), having led
           the organization in 2004 and 2005, as the Chamber marked its 56th and 57th years as
           the leading international business organization in Japan. Howard served as ACCJ Chairman
           in 2006 and 2007.




           © Japan Market Resource Network

           KHO Building 5F
           3-14-16 Higashi
           Shibuya-ku, Tokyo
           150-0011 JAPAN

           Tel: +81-3-5464-1990
           Fax: +81-3-5464-1991
           Web: http://www.jmrn.com




                                                                                                                                                   12
Japan Market Resource Network

                                                   KHO Building 5F
                                                   3-14-16 Higashi
                                                   Shibuya-ku, Tokyo
                                                   150-0011 JAPAN




  J A P A N M A R KE T R E S O U R C E NETWO R K
2007




                                                   Tel: +81-3-5464-1990
                                                   Fax: +81-3-5464-1991
                                                   Web: http://www.jmrn.com

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Japans Changing Consumer

  • 1. JAPAN’S CHANGING CONSUMER drivers of change for luxury brands J A P A N M A R KE T R E S O U R C E N E T W O R K 2007 JMRN Insights Briefing October 2007 © Japan Market Resource Network All rights reserved. Reproduction or distribution prohibited without prior written consent of JMRN.
  • 3. table of contents Introduction: State of the Japanese Luxury Brands Market Page : 01 Chart: Total Declared Annual Revenue of Top 45 Luxury Brands in Japan Page : 02 section1 Sidebar: Luxury Branded Goods vs. New Luxury Page : 02 Women Drive Purchases of Luxury Branded Goods Page : 03 Profile: Parasite Single Page : 03 Profile: Emerging Wealthy Female Page : 04 Quality Trumps Brand Page : 04 Changing Consumer Attitudes section2 & Mindsets: Five Key Trends Page : 05 Sidebar: Top Ten Luxury Brands Popular in Japan Page : 05 Chart: Non-Branded Clothes Are Acceptable Page : 08 Chart: “Made in China” is Not Accepted Page : 09 Conclusions Page : 10 - 11 addendum Sources Page : 11 About JMRN Page : 12 Researched and prepared by JMRN. Debbie Howard, Mari Nomoto, Tomomi Yamaguchi and Carolyn Kopf.
  • 4. Introduction: State of the Japanese section1 Luxury Brands Market J apanese consumers are unparalleled in their value to the world’s luxury brands, driving over 40% of worldwide revenue 1 in a global luxur y branded goods market valued at $50 billion (USD). 2 Foreign luxur y branded goods began to transform the retail landscape in Japan during the early 1980s, their success fueled onward by the prosperity of the intoxicatingly affluent bubble years of the late 1980s. The shopping- enthused Japanese responded to their newfound prosperity in a collective “lux-aholic” splurge. As the 1990s began and the so-called economic bubble burst, Japanese consumers found their previous sense of identity rattled as the concept of lifetime employment broke down and many were laid off from their companies. This apprehensive period of economic recession, along with the emergence of more independent-minded women, helped to contribute to a break down of traditional social codes and the creation of a Japanese consumer with values that differed markedly from the bubble years. “An area the size of Montana, Japan is studded with 34 Bulgari stores, 37 Chanel stores, 115 Coach stores, 49 Gucci stores, 64 Salvatore Ferragamo boutiques, 50 Tiffany & Co. boutiques, and 252 stores of the LVMH Group…” Source: Japan External Trade Organization, Februar y 14, 2007 1 O ver the past decade, lux-aholic behavior has quelled relative to the 1980s thirst. Yet today, while the Japanese Consumer Confidence Index still hovers below 50, consumer sentiment is comparatively optimistic as the countr y and its citizens cautiously climb out of a recessionar y period. 3 Fur ther, unlik e in the West where luxur y branded goods are an expression of social class, income and refined taste, allowing consumers to distinguish themselves from the mainstream, in Japan luxury branded goods represent the mainstream. In a society that once claimed everyone was middle class, luxury branded goods evolved from status symbols into social codes, identifying the owner as belonging to the larger collective group. In this social context, not having the same “status” could cause discomfort. These consumer mindsets have allowed luxury branded goods to maintain a strong presence in Japan despite macro-economic pressures. Today, Japanese consumers are emerging from the security of the collective group as they become increasingly comfortable expressing their individuality – whether through the articulation of opinions previously construed as overly assertive or rebellious, or through purchasing decisions that reflect individual identities. Confidence in expressing individual preferences is a radical departure in a culture where conformity has been the standard. And Japanese consumers are more sophisticated than ever in their purchasing behavior. In order to shed light on key changes in the luxury branded goods category, Japan Market Resource Network (JMRN) drew upon its 22 years of listening to Japanese consumers, analyzed existing secondary data and conducted consumer focus groups and an Internet survey to illuminate Japanese perceptions, attitudes and desires toward luxury branded goods. 01
  • 5. section1 This insights briefing reflects the changing attitudes and mindsets of consumers toward purchasing luxury branded goods. JMRN’s research revealed, that while a strong interest in luxury branded goods remains among a core group of Japanese consumers, for a far larger segment – two-thirds of those interviewed – interest in luxury branded goods has declined over time. 4 Nonetheless, there is ample evidence Total Annual Declared Revenue of Top 45 Luxury Brands in Japan that luxury branded goods that maintain relevancy in meeting In Millions of Jpn. Yen 140,000 120,000 changing consumer desires will 100,000 naturally find continued success. 80,000 After all, during the gloomier 60,000 economic years, total revenue for 40,000 leading luxury brands sustained 20,000 an upward trend and consumer 0 sentiment continues to skew 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 positive. 5 Source: Teikoku Data Bank, Ltd., September 2005 5 Luxury Branded Goods vs. New Luxury Luxur y branded goods distinguish themselves t h r o u g h p r o m i s e s o f q u a l i t y, c ra f t s m a n s h i p, authenticity, exclusivity and countr y of origin. These standards of excellence command premium prices even when there is no apparent functional advantage over comparable products of lower quality. But because the brand builds a story to appeal to consumers, an emotional connection between the brand and consumer develops. Globally, the luxur y branded goods categor y is broadening to include lower-priced premium products. This new luxury phenomenon has been unfolding at a global level, as well as in Japan. The Boston Consulting Group (BCG) defines “new luxury” as “items, products and services that deliver higher qualit y, taste and aspiration than conventional ones.” 6 I t is a categor y BCG estimates to generate $840 billion (USD) annually around the world. 6 Products include ever ything from Starbucks coffee to premium soy sauces. For the purposes of this paper, however, we will focus only on luxury branded goods. 02
  • 6. Women Drive Purchases of section1 Luxury Branded Goods W omen’s changing attitudes and values are paramount to understanding today ’s luxur y branded goods market in Japan, since Japanese women tend to possess a stronger interest in purchasing luxury branded goods compared to men. Women’s presence in the workforce is a driving force, since working outside the home fuels spending on self-consumption. At the same time, women are delaying marriage until later in life (if they marry at all), which is impacting the number of women aged thirty and over in the workforce and providing these unmarried, working women with higher levels of disposable income to spend on luxury branded goods. Over the past 20 years, women have come to challenge stereotypical homemaker roles in order to pursue careers, or even just part-time work. Even though many of these positions are still predominantly clerical or administrative in nature, since 1997 the number of women aged 30-44 in the Japanese workforce has increased by 15%. 7 The Ministry of Internal Affairs and Communication repor ted in June 2007 that there are 16.5 million work ing women in Japan aged 20-49; those aged 30-39 have the strongest presence in the workforce. 8 Among female consumers in Japan, “parasite singles” are among the most voracious purchasers of luxur y branded goods. Parasite singles include the approximately four million single working women aged 20-34 who live with their parents relatively rent-free. 9 With minimal financial obligations, these women spend close to 10% of their annual income on fashion. 6 JMRN’s research revealed that overall many younger women purchase luxury branded goods to reward themselves for working hard.4 Profile: Parasite Single Akiko Naganuma is a 28 year- old Additionally, a new female wealthy class has emerged single woman. She commutes daily earning over ¥10 million (US$86,597) annually. These from Yokohama, where she lives with high-earning women are also spending 10% of their her parents, to Tokyo. annual income on self-polishing for personal and She is a marketing account executive p r o f e s s i o n a l r e a s o n s . 10 T h e s e w o m e n r e p o r t e d in a foreign- owned firm earning spending their money on “dining out,” “luxury goods,” ¥ 4 . 5 m i l l i o n a n n u a l l y. A f t e r a “vacations” and “cars” – with the largest amount allocated stress-filled week, going to a Pilates toward a condominium purchase of ¥30 million class and shopping with her friends (US$260,870). 10 Importantly, many of these women is relaxing. Her clothes are fashionable, tend to purchase luxury branded goods and experiences but her style is all her own, having in a relatively spontaneous manner. come of age in the mid-90s where she flexed her fashion muscles for individuality with the “sexy gal look.” Publishers have for years targeted working women Her fashion and accessories include in their mid to late 20s with magazines such as 25ans, multiple luxury branded goods chosen which focuses on fashion, beauty, travel and global spontaneously to fit her mood, including topics. What is interesting is that magazines targeting items from Dolce & Gabbana, Gucci the underser ved segment of affluent women aged and Chloe. Akiko wears basics from in their 30s, 40s and older – such as Nikita, Nikkei EW, Uniqlo. Brands under future Grace and Marisol – have recently begun to proliferate, consideration are Cartier and Omega. indicating the purchasing power of this influential group. 03
  • 7. section1 Grace deconstructs how to dress elegantly by Profile: Emerging Wealthy Female featuring fashion pieces with starting prices over Chiaki Ogawa is a 42 year- old single ¥120,000 ($1,043 USD). The Nik kei E W targets woman. She lives in an apartment in business women who hold titles such as Section Chief the urban Tokyo neighborhood of Ebisu. and President. 11 As a supervisor at a financial firm, she earns ¥9 million annually. She spends her weekends shopping and hosting dinner par ties with her friends. She expresses both her individuality and her sense of style through her selection of high-quality accessories distinct for each season. Her style is unique, reflected by her choices of colors, patterns and fabrics which stand out a g a i n s t h e r co l l e a g u e’s t ra d i t i o n a l business attire of dark colored suits, light colored blouses, minimal jewelry and low heels. The brands she favors are Bulgari, Car tier and Max Mara. Note : The two profiles are composites based on JMRN’s Note : Currencies were converted at an exchange rate of research, and do not represent actual individuals. 1 USD to 115 Japanese Yen. Quality Trumps Brand F ocus groups with Japanese female consumers allowed JMRN to understand perceptions about “brands” in a Japanese context. Specifically, the key characteristics that women indicated make “a brand a brand” (in order of priority) are quality, followed by well-known, brand heritage and maintenance of consistent prices. Many respondents strongly connected Importance of Brand Attributes quality to the experience of buying and 100% for Japanese Consumers owning a luxury brand, including customer 90% service and aftercare. JMRN’s research 80% Quality also indicated that the importance consumers 70% 60% Brand name place on brand name is decreasing. 12 This 50% is a significant indicator of the shift from 40% purchasing luxury branded goods as social 30% code toward purchasing based on individual 20% 10% preference. 0% Important Can't Say Not Important Source: JMRN August 2007 Consumer Sur vey : Attitudes Toward Luxur y Brands 12 04
  • 8. Changing Consumer Attitudes & Mindsets: section2 Five Key Trends T oday ’s shift away from traditional social codes is changing the sources of identity for both men and women. Their brand choices are increasingly aligned with their desire for self-expression and relatively higher levels of individuality. JMRN has identified five current underlying needs and concerns expressed by today’s dynamic Japanese consumer. • From “Me Too” to “Me First:” In an era of individualism, consumers are seeking out unique products, regardless of price. • Mind, Body & Soul: Consumers are looking for enriched brand experiences. • Diversity in Brand Lifestyle: Consumers easily accept and believe that less expensive brands can deliver value in terms of quality and functionality. • What’s in a Label?: In an era of low-cost manufacturing, authenticity still reigns. • The Emerald Effect: Consumers are looking toward “green” luxur y. From “Me Too” to “Me First:” In an era of individualism, consumers are seeking out unique products, regardless of price J MRN’s research indicated a growing resistance among consumers to owning the same products as “everyone else.” This trend was particularly evident across all ages of women, from the young parasite singles to older affluent women. 4 Top 10 Luxury Brands A perfect example is Louis Vuitton, a power brand within the Popular in Japan: Japanese market. Mr. Kyojiro Hata, the CEO of Louis Vuitton Japan, has claimed that 44% percent of Japanese women own a 1. Louis Vuitton Louis Vuitton bag. 13 This statistic excluded other LV accessories 2. Coach w h i c h f u r t h e r i n c re a s e s t h e b r a n d ’s p e n e t r a t i o n . J M R N’s 3. Hermes research revealed that this level of penetration is beginning 4. Gucci to be a liability in today ’s Japanese luxur y market. 5. Chanel 6. Bottega Veneta During inter views, women of all ages expressed the sense 7. Bulgari that a luxury brand’s high penetration and visibility decreases 8. Car tier its aspirational value. Further detracting from a brand’s value 9. Christian Dior is the fact that many younger women, including high school 10. Tiffany students, can now afford to purchase luxur y brands. Source: JMRN August 2007 Brands that succeed will be those that respond to Japanese Consumer Sur vey : Attitudes Toward Luxur y Brands 12 cons u m e r s’ desire for unique p ro d u c t s. JMRN’s research identified that the Italian luxur y house of Bottega Veneta is gaining brand momentum with consumers, in large part due to its quality and uniqueness. While only 5% of respondents claimed ownership, 20% indicated that it is a hot brand now. Marc Jacobs holds a similar status. On the contrar y, brands like Polo and Prada, which both have high levels of brand awareness and market penetration, are losing momentum as Japanese consumers increasingly claim that these brands are not worth their premium prices.12 05
  • 9. section2 Bottega Veneta’s strategy, according to its President, Patrizio di Marco, is to emphasize the company ’s philosophy of quality. 14 Contrar y to the recognizable logo collections of t h e c a t e g o r y l e a d e r s , B o t t e g a Ve n e t a’s l o g o - f r e e b a g s i n c l u d e o n l y a s m a l l b r a n d label inside. 14 JMRN believes Bottega Veneta’s recent brand momentum is a testament to consumers’ growing confidence in choosing brands and produc ts that emphasize craf tsmanship and qualit y, rather than those that visibly emphasize the brand name. E m b r a c i n g s u c h a b r a n d d e m o n s t r a t e s c o n s u m e r s’ i n c re a s i n g d e s i re t o m o ve a w a y from “me too” purchases. Mind, Body & Soul: Consumers are looking for enriched brand experiences Brand democratization – the pervasiveness and accessibility of luxury branded goods – is as evident in Japan as it is globally. Mr. Hata has referred to Louis Vuitton’s decreased scarcity in the Japanese market as the brand’s freedom from existence as a status symbol. 13 Market trends beg the existence of counter-trends, reflected in consumer shifts away from what is too readily available. Today’s luxury branded g o o d s e c h o e l i t e c u s t o m e r s’ d e s i re s fo r exclusivity, uniqueness, and more individual identities. Accordingly, leading brands are offering limited and special editions; however, consumers earning over ¥10 million annually are seek ing much deeper connec tions from brands than simply product purchases. 15 JMRN’s research found that one in four women “still purchase luxury brand products, but these days really enjoy the experience of a brand, such as its signature café, spa or attending an event, more than just owning the product itself.” 12 O ver the past decade, luxur y brand marketers’ responses to consumer needs for total b r a n d e x p e r i e n c e h ave a c c e l e r a t e d. G o i n g b e yo n d t h e e x p e c t e d s u p e r i o r l e ve l s o f customer ser vice found in the mega-flagship stores in Tok yo’s fashionable shopping districts, successful luxur y brands now offer to enrich ever y aspect of one’s life – a total brand experience for the mind, body and soul. As consumers desire brand interactions beyond the retail environment, brands are no longer just selling to customers, but are providing ser vices that will be scrutinized for a cer tain level of quality. Chanel, for example, in collaboration with the world reknowned French chef Alain Ducasse, has brought the luxury brand’s essence to Beige, a restaurant located on the top floor of the Chanel Ginza Building. Raising the bar, Baccarat Crystal’s B Bar operates in Roppongi, the nightlife hub of Tokyo. 06
  • 10. section2 Consumers are increasingly seeking out preferential treatment at VIP lounges and events. LVMH has opened Celux Salon, a “member ’s only” boutique offering highly exclusive items from its brand line-up. The Audi TT launch married art with luxury, creating a special launch event for their VIP invitees at the National Art Center. The super wealthy jet set class enjoys summer all year long via luxury vacations at the Bulgari-branded resort in Bali. The epitome o f g l a m o u r a n d e x c l u s i v i t y, t h e r e s o r t i s m a r k e t i n g h e a v i l y t o e x p e r i e n c e - s e e k i n g Japanese consumers. However, tranquility can be pursued without leaving Tokyo; balance and inner beauty can be found by escaping to Furla’s Aoyama Boutique where yoga classes are offered. 16 Indeed, the retail leveraging of “lifestyle” and culture by luxury brand marketers through a marriage of architecture, art, music and food is evident not only among leading luxury brands, but also among hip, young apparel brands such as I taly ’s Diesel and Gas, and non-apparel brands such as De’ Longhi. Diversity in Brand Lifestyle: Consumers easily accept and believe that less expensive brands can deliver value in terms of quality and functionality I n the late 1980s luxury brands were purchased based on their prestige and aspirational value. JMRN’s research showed that only 20% of consumers agreed that “owning luxur y b r a n d p r o d u c t s d e m o n s t r a t e s u c c e s s a n d s o c i a l s t a t u s .” A s c o n s u m e r s a c q u i r e higher levels of confidence, many do not feel the need to prove themselves by owning a luxur y brand. It is important to note that industr y marketers are finding it more challenging over time to attract and maintain loyal customers, especially as they grow older. For example, JMRN’s research found that as women age, they are less likely to claim that “luxur y brands give me confidence.” At t h e s a m e t i m e, consumers’ pre viously negative attit u d e s tow a rd the purch a s e o f discounted products are changing. Today, it is socially acceptable to purchase off-price or from discount stores. JMRN’s research revealed that 50% of those sur veyed “do not feel the need to own luxury brand products anymore because they believe non-branded c l o t h e s a n d a c c e s s o r i e s a r e a d e q u a t e .” 1 2 Wo m e n i n t h e i r 4 0 s t e n d e d t o fe e l m o r e strongly about this point compared to women in their 20s, suggesting that women in later life stages may naturally prioritize marriage and family over self consumption, or simply have more interest in product functionality. With a combination of increased confidence, shifting life stage priorities, and an adapted d e fi n i t i o n o f v a l u e , J a p a n e s e c o n s u m e r s a r e i n c r e a s i n g l y m i x i n g “ h i g h” a n d “ l o w ” lifestyles – a trend also obser ved across global markets. Some consumers purposefully cut back in one area to splurge in another. 17 07
  • 11. section2 Examples include driving a BMW to a 100 Yen shop, carr ying a Louis Vuitton bag and wearing Uniqlo or Muji coordinates, and shopping at discount stores such as Tsurukame and Costco in order to “stretch up” and then spending more in another area. 6 Whether Japanese consumers are “ I don't feel the need to own luxury brandedpurchasing less expensive brands to products… non-branded derive value, express their individual clothes and accessories are adequate ” style, or mix high and low lifestyles, 60% t h e y n ow h ave t h e c o n fi d e n c e to 50% purchase products regardless of 40% 30% brand name because they trust these 20% p ro d u c t s c a n d e l i ve r c o m p a r a b l e 10% quality and functionality. Research 0% on why people buy brands found that Disagree Can't Say Agree 34% of households with income over ¥8 million placed importance on Source: JMRN August 2007 Consumer Sur vey : “functionality ” just after “quality.” 18 Attitudes Toward Luxur y Brands 12 Head Porter is a popular Made in Japan brand with a utilitarian range of bags that has become successful by designing products with an emphasis on both functionality and quality. Even though lower-priced items and discount shops are increasingly socially accepted, only those delivering on quality will succeed. This is best explained by the Uniqlo brand phenomenon, which provides casual basics with a modern style. Basic t-shirts sell for ¥800. The brand has thrived in Japan since it offers a “safe” choice (in terms of fashion acceptability and quality delivered) rather than an “aspirational” one. Additionally, it has met the rigorous quality standards demanded by Japanese consumers while providing recognizable value. 19 What’s in a Label?: In an era of low-cost manufacturing, authenticity still reigns I n the 1980s, consumers were obsessed with brand and country of origin. Foreign luxury branded goods from Italy and France were seen as prestigious and stylish. Today, leading luxury brands are opening facilities in China, chasing cost reductions and manufacturing efficiencies. Burberr y, a brand with a strong British heritage, announced the closing of its manufacturing plant in Britain to relocate to China. 20 O ther leading foreign luxur y brands such as Celine, Louis Vuitton, Loewe and Coach are expanding their manufacturing locations in China. 21 The President of Loewe has claimed “the quality is 120% Loewe; there is no difference with our products that are made in Spain.” 22 Luxur y brands have commanded a premium for their products based on the premise of higher qualit y link ed to countr y-specific ar tisanal sk ills. M ore than 90% of Japanese consumers believe that in order for a luxury brand to be a true brand, it must offer quality. 9 Maintaining premium pricing (i.e., no discounts) is critical and there is already evidence that Japanese consumers will not continue to pay premiums for luxury products that are 08
  • 12. section2 made in China at a lower expense to the manufac turer. A sur vey focused on images and possession of foreign luxur y brands found that 42% of Japanese women believe that “a brand ’s tradition is impor tant to its value.” I t is doubtful that a luxur y brand ’s image can survive the deterioration that a Made in China label will generate in the mind of the Japanese consumer. 23 JMRN’s research revealed that consumers would “lose interest in purchasing items tied to a specific countr y ’s heritage that are produced elsewhere” – such as a French brand manufactured in China. In fact, JMRN’s research found that an overwhelming percentage (64%) would not buy a luxury brand product that they knew was made in China. 7 Clearly, Japanese consumers today purchase “ I would not buy a luxury branded product luxur y brands that reflect their refined tastes Made in China “ and appreciation for quality. To the Japanese Agree consumer, quality is intrinsically and emotionally connected to the overarching brand story and Can't Say brand heritage which contributes to the status and premium price. Disagree A fine example is that of high-end Swiss 0% 20% 40% 60% 80% watchmakers, such as Vacheron Constantin and Rolex, which continue their long-standing Source: JMRN August 2007 Consumer Sur vey : tradition of building timepieces in the more Attitudes Toward Luxur y Brands 12 expensive environment of their home country. While the annual number of watches imported to Japan has decreased, total value has increased significantly, indicating growth among watch brands positioned at the high end of the market. 24 However, for the shor t term, unless consumers k now a product is made in China they may unk nowingly purchase it based on the brand’s existing image and reputation. The Emerald Effect: Consumers are looking toward “green” luxury T oday, Japanese consumers are increasingly expressing and forming their individual identities through the brand experiences and products they choose. As individuals further reflect on their consumption choices, they will inevitably demand more of the luxur y branded goods categor y. As the citizens of the world embrace the environment at all levels, JMRN believes Japanese consumers will look to decrease their carbon footprints. This is already occurring and is fur ther fueled by Hollywood and the causes celebre of global celebrities, all mak ing an undeniable impact on global consumer trends. Today, celebrities and early adopters of green technology are making statements as they trade in their luxury cars for the latest hybrid versions – predominantly embracing Toyota, the Japanese manufacturer leading the hybrid technology revolution. 09
  • 13. section2 In Japan, the distant signals of green luxury are apparent as home builder Sekisui House marries quality, comfortably designed homes with ecologically sound communities – all at a premium price. Another early indicator that luxury branded goods are moving toward embracing the green message is evident in LVMH's September 2007 global adver tising c a m p a i gn fe a t u r i n g fo r m e r S ov i e t U n i o n p re s i d e n t a n d N o b e l Pe a c e Pr i ze re c i p i e n t Mik hail Gorbachev. Underscoring the campaign's environmental protection message, Mr. Gorbachev waived modeling fees and LVMH instead made a donation to his environmental organization, Green Cross International. 25 In the near future, JMRN expects consumers to increasingly demand ecologically sustainable and ethically sound labor practices to be woven into the brand stories of luxury branded goods. Conclusions D rawing on recent consumer research and over two decades of experience garnering insights on Japanese consumers, JMRN believes the era of the individual is now. Luxur y brands that wish to succeed will need to continue to adapt, echoing ever changing consumer desires – their attitudes and mindsets driven by continually changing social demographics. Parasite singles and affluent women will continue to drive categor y revenue. However, luxur y brands that keep their pulse on developing trends may find that new segments and sub-segments can be nurtured beyond consumers who fall within the “luxury loyalist” categor y as well as among those whose interest may be declining. Changes impacting Japan’s luxur y branded goods landscape are already firmly in place: • As consumer desire for unique products increases, the importance placed on brand name is decreasing . . . creating opportunities for new entries both at the high end in the luxur y categor y as well as for safe fashion choices at lower price points. • “Luxury loyalists” have become even more discerning than before, and demand enriched brand experiences in return for their patronage . . . creating challenges for luxury brands to deepen the emotional bonds between them and the brand. • With a combination of increased confidence, shif ting life stage priorities, and an adapted definition of value, Japanese consumers are increasingly mixing “high” and “low” priced fashion . . . a positive indicator that consumers are still willing to pay for those luxur y branded goods that demonstrate value. 10
  • 14. addendum • While Made in China may increase efficiencies for manufacturers, JMRN believes maintaining the trust and respect of Japanese consumers by delivering authentic products will derive higher value for both manufacturer and consumer. • Current global trends in green luxury will continue to influence Japanese consumers, leading to the natural institution by luxur y brands of corporate social responsibility measures that address consumer sensitivities. Sources: 1 (2006). Japan is the World’s Most Concentrated Source of Revenue For Luxur y Brands. Japan External Trade Organization. Retrieved Februar y 2007, from http://www.jetro.org. 2 Rein, Shaun (2006, August 14). Growth in China’s Luxur y Goods Market to be Fueled by 2nd Tier Cities. Retrieved March 2007, from http://china.seekingalpha.com/ar ticle/15478. 3 Economic and Social Research Institute, Cabinet Office of the Government of Japan. (2007, August). Monthly Consumer Confidence Survey for Japan. 4 Consumer Focus Groups: Perceptions & Attitudes Toward Luxury Brands, Japan Market Resource Network, July and August 2006. 5 (2005, September). Special Feature: Research on the Declared Incomes of 45 Foreign Fashion Brands in Japan. Teikoku News. Teikoku Databank, Ltd. 6 Silverstein, Michael J., & Fiske, Neil (2003). Trends, Brands, And Practices – The Boston Consulting Group’s 2004 Research Update to Trading Up: The New American Luxury. New York: Penguin Group. 7 Percentage increase derived based on 1997 and 2007 data from Ministr y of Internal Affairs & Communications: Ministr y of Internal Affairs & Communications. (1997). Employment Status Survey. Ministr y of Internal Affairs & Communications. (2007, June). Labor Force Survey: Employed Persons by Age and Industry. 8 Ministr y of Internal Affairs & Communications. (2007, June). Labor Force Survey: Employed Persons by Age and Industry. 9 Ministr y of Internal Affairs and Communications, Statistics Bureau. (2005). 2005 Population Census of Japan. 10 (2006, March). New Female Wealthy Class’s Self-Help Consumption. Trend Box. Dentsu Shohisha Center. 11 High-End Magazines For Mature Women Spring Up. (2007, April 16). The Nikkei Weekly, p. 13. 12 JMRN August 2007 Consumer Survey: Attitudes Toward Luxury Brands, Japan Market Resource Network, August 2007. 13 Hata, Kyojiro (2003). Louis Vuitton Japan: The Building of Luxury. Tokyo: Nikkei, Inc. 14 Bottega Veneta Stands Out With Logo-Free Fashion. (2007, May 7). The Nikkei Weekly, p. 10. 15 Consumption Analysis: Upper-Income Earners Choose Experience Over Products. (2007, August 4). Nikkei Marketing Journal. 16 About Furla Yoga. Retrieved September 22, 2007, from Furla Japan Website: http:// www.furla.co.jp/yoga. 17 (2004, March 15). Going Forefront of the Slump in Consumer Spending – Going to 100 Yen Shops Holding Louis Vuitton. Keiei Yosoku Eiji, Vol. 32, No. 3. 18 (2005, December 1). Attitudes Toward Purchasing Goods. Life Design White Paper 2006-07. Dai-Ichi Life Research Institute. 19 (2006, Januar y 1). “Polarization Phenomenon” Seen in Town. The 21. PHP Kenkyujo, 90-91. 20 Kageyama, Minoru (2007, Januar y 15). Production of Burberr y will move to China: “ The Danger of British Brand,” Floods of Criticism. Fuji Sankei Business i. 21 (2005, September 28). Luxur y Brand. Quar terly Corporate Repor t: Industry Map 2006. Toyo Keizai. 16-17 22 Accessible Luxur y Market: Coach vs. LVMH. (2005, April 27). Nikkei Marketing Journal. 23 (2003, Januar y 7). Images and Possession of Foreign Luxur y Brands. SRI News, No. 29. Saison Sogo Kenkyujo. 24 Ministr y of Finance. (2006). Trade Statistics of Japan: Volume and Value of Impor ted Watches. 25 Mikhail Gorbachev becomes the “Face” of Louis Vuitton in its Autumn Adver tisement. (2007, August 28). Asahi Shimbun . 11
  • 15. addendum About JMRN: J M R N o ffe r s i n n ov a t i ve m e t h o d o l o gi e s t h a t p rov i d e f re s h i n s i g h t i n to t h e J a p a n e s e mar k et and mind. Amer ican owned and operated, JMRN is the only mar k et research company in Japan that specializes in providing both consumer-level and industr y-level qualitative research ser vices, with expertise in luxur y branded goods, financial products and ser vices, IT and e -commerce, healthcare and pharmaceuticals. I n 2 0 0 5 , J M R N i n t r o d u c e d i t s s e r i e s o f I n n o v a t i o n Wo r k s h o p s , w h i c h a p p l y J M R N ’s know-how with progressive qualitative techniques to client strategic planning challenges. These customized wor kshops ar tfully blend mar k et infor mation with the intellec tual capital that exists in ever y company, and unleash new insights for product and ser vice development, as well as communications and positioning. Through its network of regional affiliates, JMRN offers its full range of qualitative research products and ser vices in tune with the ethnical distinctions, cultural nuances and social dynamics of selected Asian markets. JMRN is a member of the European Society for Opinion and Marketing Research (ESOMAR) and the American Chamber of Commerce in Japan (ACCJ ). JMRN president, Debbie Howard, is a past President of the American Chamber of Commerce in Japan (ACCJ ), having led the organization in 2004 and 2005, as the Chamber marked its 56th and 57th years as the leading international business organization in Japan. Howard served as ACCJ Chairman in 2006 and 2007. © Japan Market Resource Network KHO Building 5F 3-14-16 Higashi Shibuya-ku, Tokyo 150-0011 JAPAN Tel: +81-3-5464-1990 Fax: +81-3-5464-1991 Web: http://www.jmrn.com 12
  • 16. Japan Market Resource Network KHO Building 5F 3-14-16 Higashi Shibuya-ku, Tokyo 150-0011 JAPAN J A P A N M A R KE T R E S O U R C E NETWO R K 2007 Tel: +81-3-5464-1990 Fax: +81-3-5464-1991 Web: http://www.jmrn.com