MCKINSEY'S JAPAN REPORT: THE GODZILLA OF LUXURY SET FOR ANOTHER STRONG YEAR - MCKINSEY CONSUMER AND SHOPPER INSIGHTS
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McKinsey Consumer and Shopper Insights June2012 June 2013 McKinsey’s Japan report: The Godzilla of luxury set for another strong year Brian Salsberg Naomi Yamakawa Nathalie Remy
McKinsey Consumer and Shopper Insights
McKinsey’s Japan report: The Godzilla of luxury set for another strong year 1
Several years ago it seemed that Japan’s days as a premier luxury market were
numbered. The massive earthquake and tsunami of 2011 sapped consumer
confidence and put the brakes on luxury spending. In the face of human tragedy and
massive financial losses, spending on high-end goods seemed extravagant. In 2011,
McKinsey recorded the highest percentage of luxury consumers (25 percent) agreeing
with the statement: “I don’t feel the need to buy luxury brands, since more affordable
(non-luxury) brands also offer good style.”
Today there’s a different mood in Japan, An executive at a super-premium auto sales are projected to total an estimated
thanks in part to Prime Minister Shinzo manufacturer told us that his company $6.7 billion this year and $6.8 billion
Abe’s bold economic strategy known as had achieved its strongest sales on record. in 2014.1 According to McKinsey’s
Abenomics (Exhibit 1). The doubling And nearly all accessory and apparel proprietary CityScope database, in 2025,
of Japan’s money supply in two years, players reported that their store traffic and three Japanese cities will rank in the top
increased public spending and the transaction volumes had accelerated to 20 markets for luxury women’s apparel:
promised deregulation of the country’s their highest levels in three years. Tokyo at #2 (Paris comes in at #1), Osaka
notoriously non-entrepreneurial at #7 and Nagoya at #15 (Exhibit 6).
business culture has lifted spirits, at least Not only is Japan still on the map when Tokyo is also expected to be #2 for luxury
in some sectors of the economy. Over the it comes to the global market for luxury cosmetics and Osaka #12. This despite
past year, the stock market has soared goods, it is expected to remain front and a rash of new cities from China entering
more than 60 percent and a devalued yen center for some time. Japanese luxury the top 50.
has boosted exports and raised corporate
earnings. For the first quarter of 2013,
Japan’s $5 trillion economy grew at a
Exhibit 1:
brisk annualized rate of 3.5 percent, with Consumer sentiment has jumped and still rising to its highest in last 3 years,
household consumption accounting for highlighting “Abenomics” effect
much of that growth. Consumer Confidence Index (all Japan)
44.8
45
To understand just how much consumer 44.2
44 43.2
consumption patterns are changing in 43
42.8
Japan, look no further than sales of fancy 42
41.9
41.5 40.7 40.5 40.0 +12%
watches, sports cars and handcrafted 41 40.6 40.3 40.4
40.1 39.9 40.1 40.1 39.9
leather handbags. In a survey, McKinsey 40
38.9 40.0
asked 40 country managers a series of 39 38.1
39.7
38
questions about their outlook for 2013 36.8
37
(Exhibit 2). Nearly everyone (95 percent)
36
revealed that they expect their company’s 35
sales growth to be higher this year than 34 33.4
last. Some 51percent rated their outlook 33
as “significantly better,” while 44 percent 2010. Jun 2011. Apr. Jun 2012.Mar 2013
Jan Jan Jan Jan
said it was “somewhat better.”
1 Excluding one-person households
Source: Economic and Social Research Institute, Cabinet Office
1 Euromonitor International2
For the past five years, McKinsey has Exhibit 2:
What impact will the potential increase in the consumption tax (from 5% to 8% and
surveyed hundreds of Japanese luxury then 10% by 2015) likely have on luxury goods sales in Japan in 2014-2015?
consumers about what they are buying,
how they think about brands, and what 54%
they expect when they go shopping. 1. No material impact
This year’s survey includes 500+
“current” and “lapsed” Japanese luxury 2. A small negative
26%
consumers, 68 percent of whom are impact 21%
female and 32 percent male. We asked
them about their purchases of 76 fashion 3. A significant
brands, 52 leather goods/shoe brands negative impact
and 46 watch/jewelry brands.
1 2 3
As we’ve seen in previous years, Source: McKinsey Japan luxury executive survey, May 2013
the Japanese luxury shopper is an
increasingly discerning, yet fiercely
loyal consumer who is embracing digital Exhibit 3:
Impact of March 11, 2011 on luxury consumptions continues to fade into the past…
methods of browsing, price comparing Which best describes your own attitudes towards shopping for luxury goods since the earthquake and
and purchasing. This year there are tsunami on March 11?
some new findings as well. In addition Percent who selected “somewhat less interested”, Less interested
to a gathering tide of optimism not seen “less interested” on a scale of 5 Somewhat less interested
in years (Exhibits 3, 4 and 5), we found
2012 2013
that the department store channel
continues to dominate and that, despite
the increased use of digital technology, 20s 4.6 5.8 10.4 3.5 2.1 5.6
some very old fashioned modes of
marketing influence the way Japanese 30s 7.8 14.6 22.4 14.6 3.4 18.0
luxury shoppers think about brands. We
also asked consumers what brands they
are buying, providing us with a list of the 40s 8.2 12.8 21.0 10.7 6.4 17.1
most popular brands purchased in Japan
within the last 24 months.
50s+ 12.5 15.7 28.2 17.1 9.5 26.6
For fashion goods, the top five brands
in order of popularity are: Burberry, Source: McKinsey Japan Luxury Consumer Survey 2012, 2013
Ralph Lauren, Coach, Paul Smith and
Louis Vuitton.
Leather goods: Coach, LV, Gucci, the form of proudly worn and eagerly Reports of the death of department
Burberry and Loewe displayed branded apparel, handbags, stores have been greatly
Jewelry/watch: Tiffany, Cartier, jewelry, and other accessories. exaggerated: While the department
Gucci, Hermes and Rolex Conformity trumped individual store in Japan no longer monopolizes
Shoes: Ferragamo, Gucci, Bally, YSL expression. Today, the flaunting of the luxury-goods and fashion apparel
and Prada luxury goods is no longer in vogue and market like it once did, it is still the
consumers are looking to express a more #1 place Japanese consumers go to
Here are some of this year’s other notable individual style. Among the consumers buy luxury goods. Eighty percent of
findings: we surveyed, 51 percent agree that consumers say they have purchased
showing off luxury goods is in bad taste, fashion goods at a department store
Say goodbye to status symbols: up from 24 percent in 2010. within the past 12 months, with 82
Until recently, women in Japan gained percent saying they have purchased
much of their status and confidence in shoes (Exhibit 7). The difference nowMcKinsey Consumer and Shopper Insights
McKinsey’s Japan report: The Godzilla of luxury set for another strong year 3
Exhibit 4: Digital luxury: Smart phones are
Last year we saw a return to trading up, with 2013 showing an even stronger trend
increasingly becoming an important
How has your luxury shopping activities changed over last 24 months?
tool in the purchase process for
Percent who answered “Yes”, current category 2012 2013
luxury purchasers by category1; n = 1,097
younger consumers. Sixteen percent
of shoppers in their 30s, 11 percent in
I am purchasing luxury goods… I have switched to buying…
their 40s and 10 percent in their 20s
Less More Cheaper More high
often often brands end brands used their smartphone or tablet PC for
their last luxury purchase, although
Fashion apparel 30 6 17 8 not necessarily to complete the actual
n = 99
17 8 12 8 transaction (Exhibit 8). The most
Leather goods 22 4 10 3 popular use for smartphones and tablets
n = 121 was to compare prices (69 percent of
15 6 8 7
smart phone/tablet users went on luxury
Watch/jewelry 14 2 5 11
n = 100 web sites to price shop), and more often
7 2 5 13
than not this happened on a brand’s
Shoes 19 3 13 5 Japanese web site. Japanese luxury sites
n = 91 12 1 6 6 remain more popular with shoppers
than brands’ global, non-Japanese sites,
1 Have purchased luxury good in defined category within last 24 months
Source: McKinsey Japan Luxury Consumer Survey 2012,2013
although the use of global sites is on the
rise compared to last year. Forty-one
percent of smart phone users said they
is that department stores have to share relics, but an important communication browsed a brand’s global site during a
the stage with brand shops, duty free tool. Consumers gave store windows purchase, up from 20 percent in 2012.
stores, outlets, and online stores. Unlike an 8.5 rating (out of 10) in terms of As a result, the way in which a global
these other channels, department stores helpfulness when buying a luxury brand. site links to and integrates with specific
don’t have much chance of growing their Word of mouth from friends and relatives country sites is becoming increasingly
share of the luxury market. A majority received a 7.1, magazine articles a 7.0, critical. Additionally, it is important to
of luxury executives (61 percent) regard and magazine ads a 6.7. note that the use of multi-brand web sites
the future of department stores as bleak. has slowed in favor of single brand sites.
Only 3 percent of executives consider
the outlook of this channel to be good. Exhibit 5:
30s and 40s show greatest increase in spending
Luxury brands need to understand
the important role department stores Percent of respondents who selected agree and strongly agree (top 2 on scale of 6) 2012
2013
currently play, especially for women and
Owning luxury goods
older shoppers, while at the same time Average annual spend is not as special as it I would not buy at full
Thousand Yen used to be1 price2
acknowledging that their heyday lies
in the past and that future growth will 20s 160 29 21
reside in other channels. 157 38 21
30s 222 37 21
Windows matter: Even as the business 302 30 24
of luxury grows increasingly digital, the
40s 252 40 29
time-tested, analog showpiece of store
271 40 19
window displays continues to take top
billing as shopping aid. Among Japanese 50s+ 260 41 30
luxury shoppers, it’s just not true that you 244 42 24
can’t judge a book by its cover: Shoppers 227
Total
look to windows to find out what’s new average 258
and to assess a brand’s style and image.
Companies should regard windows and 1 高級ブランドの商品を持つことは以前ほど特別なことではない
2 セールや割引で買うことができる高級ブランドの商品は買う価値があるが、定価では買わない
other store displays not as superficial Source: McKinsey Japan Luxury Consumer Survey 2012,20134
Exhibit 6: are allocating up to 25 percent of their
20 largest luxury women RTW markets in 2025
marketing budget to digital marketing.
Half say they are spending between 10
1 Paris 8 Los Angeles 15 Nagoya
and 25 percent.
2 Tokyo 9 Rome 16 Miami
Vacation shopping: Japanese luxury
3 Milan 10 Seoul 17 Sydney
goods consumers are avid travelers and
4 London 11 Singapore 18 Mexico many of them visit foreign countries
explicitly to shop and take advantage of
5 New York 12 Dallas 19 Washington
favorable exchange rates. Last year, they
6 Moscow 13 Chicago 20 Saint-Petersburg spent an average of $700 per person on
goods overseas, with a large chunk of it
7 Osaka 14 Madrid
in the luxury category.2 In particular,
luxury shoppers have historically
3 Japanese cities in top 20 flocked to South Korea, thanks to a very
Source: McKinsey's CityScope database advantageous yen to won exchange rate.
As that rate has decreased over the past
year, shoppers appear to be spreading
Exhibit 7:
Department stores continue to play crucial role for the category, but three other channels also strong those dollars across other Asian
Thinking about the past 12 months, what channels did you visit to buy luxury goods? (Multiple answer) 6
countries, such as Singapore, Thailand
+5% or more vs 2012
and Malaysia. Travel spending in Europe
is also down. Today Hawaii is back as
Brand
Depart- Duty Free Multi-brand official
the top travel destination for Japanese
ment Brand shop Outlet Shop online online buying luxury goods. Of course, if Japan
Fashion goods
continues its policy of yen devaluation,
n = 99 80 38 52 38 15 12 the market for vacation shopping will
likely suffer.
Leather goods
n = 121 56 19 43 19 14 10
Store locations holding steady:
In the 2000s, luxury brands in Japan
Watch/jewelry
n = 100
67 44 11 44 14 10 went on a ribbon cutting spree. Multiple
new locations opened, irrespective of
Shoes
company performance, which inevitably
82 38 29 38 8 9
n = 91 led to the closure of many of these new
stores 9 or 10 years later. Today, the
* 3rd party online decreased heavily in 2013 (-3% for watch/jewelry, -7% in fashion and leather, -12% in shoes); number of luxury goods stores in Japan
brand online decrease slightly (-2% in each category)
Source: McKinsey Japan Luxury Consumer Survey 2012, 2013
seems to be about where it needs to be,
and despite the growth in online sales,
luxury executives are not predicting
The trend toward both digital browsing target this new digital behavior, although a wave of additional closures. Thirty-
and online sales is unmistakable. Sixty- there remains room for improvement. three percent say that the industry will
nine percent of luxury executives in Fifty-nine percent of luxury executives experience a small decline in the number
Japan say that online sales represent a say digital marketing is “very important” of physical stores over the next five
meaningful slice (more than 5 percent relative to overall marketing. Thirty- years, while 23 percent say there will be
of the total) of their Japanese business. one percent told us it was “somewhat continued modest growth in physical
As a result, many luxury companies important” and just 10 percent declared locations. Twenty-one percent say the
have already adjusted their priorities to it to be “not important.” Most companies numbers will stay the same.
2 Japan Tourism Marketing Co.McKinsey Consumer and Shopper Insights
McKinsey’s Japan report: The Godzilla of luxury set for another strong year 5
* * * Exhibit 8:
Smart phones increasingly becoming important tool in purchase process for younger consumers
Do you own Smartphone or tablet PC? Did you use these devices on your last luxury purchase?
It remains to be seen whether Abenomics
and the consumer spending it has Percent, n = 559
Shopper who used their
inspired are the engines for a sustainable, And used it on my Smartphone or tablet PC
long-haul recovery in Japan or, as some I have Smartphone/PC tablet last luxury purchase on last purchase
skeptics contend, a momentary burst
of euphoria. The outlook of luxury 20s
n = 69 84 12 10
executives polled by McKinsey falls
somewhere in the middle. Nearly half 30s
69 23 16
say they are somewhat supportive of n = 178
the Japanese government’s economic
40s 57 20 11
turnaround plan, but aren’t sure how n = 179
sustainable it is, while 35 percent say
they are very supportive and that it’s the 50s+ 45 15 7
n = 132
right thing for Japan.
19 12
In the near term, it’s clear that Japan is
Source: McKinsey Japan Luxury Consumer Survey 2013
on the road to higher consumer spending.
The luxury goods market tends to be a
leading indicator of good times ahead,
Exhibit 9:
and the renewed enthusiasm within this What percentage of the Japan luxury market (apparel, accessories, shoes, watches/ jewelry) market
sector suggests that the Japanese are no would you estimate is purchased by those 30 or under?
longer as worried about their country’s
economic future as they once were. 53%
1. 20% or less
So although the Japanese luxury
consumer is changing – placing a 2. 20% to 30%
premium on value over brand name, 3. 30% to 40% 18%
24%
becoming more discerning, embracing
online channels – they remain as among 4. 40% to 50% 5%
the most valuable luxury shoppers in 0%
the world.
5. More than 50%
1 2 3 4 5
Source: McKinsey Japan luxury executive survey, May 2013
Brian Salsberg is a principal in
McKinsey’s Tokyo office and a leader of the
Consumer & Shopper Insights center in
Asia. Naomi Yamakawa is a marketing
expert in Tokyo. Nathalie Remy is a 9
principal in the Paris office.6
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