Luxury Learnings from Japan's Recession
Radha Chadha -
Friday, February 20, 2009 9:56 PM
I was invited by the Harvard Business School to speak at their Asia Business Conference 2009 last weekend. I was on the Consumer and Retail panel - along with Ray Hatoyama, the COO of Sanrio which has made Hello Kitty a US$5 billion business globally, and Maria Olives, the AVP of San Miguel Purefoods who flew in from Manila, and Elie Ofek, Marketing Professor at Harvard Business School who did a fine job of moderating our discussion on how consumer behavior has evolved in Asia.
It was a broad topic and we covered a lot of fascinating ground - among others, Hello Kitty turning luxury and gracing hot bods in Hollywood with diamond studded pendants at US$50,000 a meow - but the question that seemed particularly pertinent to me in these tough times was what happens to luxury brands in a recession, and more importantly, are there any case studies that we could learn from?
Well, there is just one – Japan, the birth place of Hello Kitty – and thankfully it is both meaty and juicy so there are plenty of learnings we can draw from its so-called “lost decade” spanning from 1992-2002. Here are my thoughts on the subject:
As far as luxury brands are concerned, it was not a lost decade. Japan was already the world’s single largest luxury market in the world by the early 90’s – fuelled by a giddy boom in property and stocks – and the Japanese consumer continues to hold on to her numero uno position almost a couple of decades later. At its peak, the Japanese consumer accounted for 40% of global spending on luxury brands.
Dig deeper and you find that the story is more complex. The overall market for imported luxury brands declined in Japan over the lost decade, but major brands grew vigorously in the same period. Research in the early 2000’s showed that a staggering 94% of Tokyo women in their 20’s owned a Louis Vuitton piece, 92% owned Gucci, 57% owned Prada... you get the picture. (Vuitton became so ubiquitous that Kyojiro Hata, President of LV Japan, remarked in 2001: “Now that we are very big in Japan, there is a risk that people consider us as a Japanese brand.”)
What’s the consumer logic here? In tough times, consumers focus their spending on the big brands that give them the maximum “social return”. Remember, luxury brands are status markers, so the brands that do the best job of marking status are rewarded handsomely in these times. When personal budgets are tighter, the consumer thinking is let me not fritter away money on lesser known brands, let me go for the sure-shot thing that everyone understands.
The brand that embodies “opportunity in a recession” best is Coach. It launched in Japan in the mid-90’s – smack in the middle of the recession – and grew steadily until it was almost eye to eye with the giant, Louis Vuitton. Coach, of course, accomplished that feat by doing many things extremely well on many fronts, but I’d highlight two aspects of its strategy – one, it offered an exciting range of logo products, and it priced itself a notch or two lower that LV. In effect, it offered all the status marking regalia just like Vuitton, at a substantially lower price – that’s an attractive offer at any time, in a recession only that much more.
In a final twist of fate, Japan’s troubled banking industry actually helped the case for luxury brands. In the heydays of the bubble economy, there was no prime retail real estate available for love or money, and luxury brands for the large part had to be content residing in department stores. When the bubble burst, some banks merged, and retail branches with overlapping geographies were shut down, freeing up prime real estate. Many of the luxury brand flagships and free-standing stores, which played a key role in spreading the cult of luxury in Japan, are former Japanese bank branches!
As they say, every cloud has a silver lining.
Photo courtesy: left,Chanel store in Ginza, http://flickr.com/photos/panandrao/2569852619/; right, Prada store at Omotesando: http://www.galinsky.com/buildings/pradatokyo/index.htm