Japan's luxury market is back on track - McKinsey

When asked if the disasters had changed their attitudes to luxury goods, less than 20 per cent of respondents said they were less interested. Moreover, when McKinsey asked 20 Japan-based luxury company CEOs about their sales outlook, all said 2012 would be better than 2011 and 63 per cent said that the disasters of 2011 had no effect, or even, had a positive effect (10 per cent) on company performance. 

 

Despite a shrinking sales market due to slow economic growth, Japan is the world's third largest luxury market after the US and China. Here are the top insights from McKinsey's study.

 

Some niches are better than others

Some segments, such as high-end Swiss watches have reported significant growth over the past year because consumers were seeking both emotional and functional benefits in their choices. "A great watch, they believe, is the kind of item that appreciates in value and can be passed down to the next generation," said the report. This presents an opportunity for marketers, recommended McKinsey. Consumers are trading up in some luxury categories, even as they trade down in others that have shorter shelf-lives such as apparel. 

 

Targeting younger audiences

Twenty-somethings are the only demographic group who are buying more high-end brands. Their spending on luxury isn't as high as other age groups, but a higher percentage of them are active in the luxury market (five per cent compared with 2.3 per cent of those aged 50 and up). They are more willing to pay full-price and are also more likely to view owning luxury goods as "something special", found the study. 

 

Targeting men

While men make up the minority of luxury shoppers in Japan, they have stayed more loyal to expensive brands. There are an estimated 3 million men under the age of 34 living alone in Japan, according to government data.  Average incomes for this group increased by seven per cent in 2011 and their spending jumped 13 per cent. Young men, the survey found, saw the 11 March disaster as a good reason to "live for the moment". 

 

Experience is valued

The in-store experience is a key element in enjoying luxury, and it may be particularly important in Japan, whose customers are renowned for their high service standards, said the report. The two most valued traits in sales staff for the Japanese surveyed were kindness and knowledge. Luxury executives told McKinsey that for their best customers, the in-store experience and overall customer relationship are nearly as important as product performance, particularly when it came to closing a sale or upselling. Experience is also key in the segment choices of Japanese consumers. Asked their level of interest in various products, those 30 and up named luxury hotels above all others (it came in second among those in their 20s). Spas and beauty services also scored highly. When asked what they would do if they won 300,000 yen (US$3,800) in a lottery, travel scored the highest among all categories except for consumers in their 20s. Also, the Japanese love to travel and shop, with 36 per cent of women likely to take advantage of Duty Free. 

 

Digital marketing has far to go

Perhaps due to the success of in-store experiences, fewer than 15 per cent of luxury executives deemed online sales a "meaningful" part of their business in Japan. Nevertheless, 90 per cent said online marketing and promotion was "somewhat" or "very" important. 

This complacency is a mistake, said the report, because women are more likely than men to turn to digital on their consumer decision journey. Women account for 75 per cent of luxury sales in Japan. Furthermore, nearly 16 per cent of 20-somethings who have a smartphone or tablet have used it for their last luxury purchase. Capturing the younger consumer is vital for luxury brands in Japan and a digital strategy could be central to these efforts, said the report. 

 

Social media is in

"Brands need to own the interplay between digital and in-store touchpoints and embrace social media," it continued. The concept that social media and luxury were mutually exclusive has been proven untrue and outmoded by the success of brands like Burberry and Tiffany & Co. Burberry  has 12 million Facebook followers, 800,000 Twitter followers and garners 12 million views on its YouTube channel. Angela Ahrendts, CEO of Burberry attributed the company's strong 2011 results to "continued investment in innovative design, digital marketing, and retail strategies”. 

A key to succeeding in this space is to deliver the brand story and heritage consistently across media while tailoring messages to the specific consumer segments that are using each format. 

"For example, in cosmetics it can be easier to introduce cosmetic routines in store, but consumers often seek out additional information and reviews online," said the report. "For apparel and accessories, customers may go to the store to buy, since they want to be able to touch items and try them on. The initial introduction and attraction often happens outside the store – from storefronts, word-of-mouth, or magazines." 

 

Embrace customisation and made-to-order luxury