Coach Entering Japan's Luxury Goods Market: Analysis

Japan's Luxury Goods Market Overview

Demand for luxury products is strong in Japan. The country is one of the world's leading markets for luxury goods, and most producers of luxury goods have enjoyed tremendous success when entering the market (Prasso & Brady, 2003). The Japanese economy is the third largest in the world, and the country enjoys a GDP per capita of $32,700, roughly on par with that of France (CIA World Factbook, 2010). Japanese consumers first became attracted to luxury brands during the 1980s and have maintained demand for luxury brand products even through the country's prolonged recession. The Japanese market is of critical importance to most luxury brand producers, representing between 20–36% of total revenue for major luxury brand firms, and the country consumes as much as 41% of the world's luxury goods (JETRO, 2010).

Growth in Japan, however, has been declining in recent years. A survey of the global luxury market in 2008 saw spending in Japan decline 7%, one of the few regions to see such a decline, although this decline is attributed mainly to the high level of Japanese spending on luxury goods — they remain the world's biggest market for luxury brands and the highest per-capita spenders. Japanese consumers have maintained their focus on conspicuous consumption in the pursuit of social esteem (Degen, 2009). The market is expected to remain strong, even if sales continue to slump, and some in the industry believe Japan may see a surprise rebound (Kirby, 2010).

Competition and Market Structure

Competition in the Japanese market is intense. All of the world's major luxury brands are present in that market, and each major shopping district hosts a number of competing brands. There are no major entry barriers to the Japanese market, however. In addition, consumers are price takers, as are suppliers, allowing luxury goods companies to enjoy considerable profitability in the Japanese market despite the competition.

Infrastructure, Logistics, and Retail Locations

In general, the government does not involve itself in the luxury goods industry in Japan. Even where such products are subject to duties, there is almost no price elasticity of demand, so the company can pass any duties on to the customer. Taxes in Japan can be high, as are general operating costs, but Japanese luxury goods stores tend to be exceptionally profitable due to the high per-capita spending on luxury goods by Japanese consumers.

The Japanese market should be able to meet Coach's needs for salespeople. Japanese culture is very service-oriented, and many Japanese consumers have great respect for luxury brands. As leather goods will be transported from their place of manufacture to Japan, there are no known major supply chain or resource issues with entering the Japanese market. Transportation and marketing infrastructure is adequate: Japan has many good ports, a well-developed road network, a good rail network, and a number of airports. Many luxury goods providers use courier services such as FedEx, and these services have a strong presence in the Japanese market, including hubs at Narita Airport.

Political and Regulatory Risk

There are ample retail locations in Japan — typically in high-end shopping districts or malls, alongside other luxury brands. There are dozens of such locations throughout the country, with a particular emphasis on the Tokyo market. Examples of major shopping districts worth considering include Ginza, Omotesando, Shinjuku, and Shibuya. Online retail is also another option, one that is becoming increasingly popular with Japanese shoppers, who are showing signs of eschewing traditional shopping districts and flagship stores in favor of lower-cost shopping experiences (Sanchanta, 2010).

There is little political risk associated with Japan. The country has a stable democracy and a strongly functioning judiciary (CIA World Factbook, 2010). There is little political risk at the local level either. No luxury company has ever had its assets seized by the Japanese government, and there are no unreasonable legal or regulatory impediments to doing business in Japan. The rate of corruption in Japan is relatively low, at the same level as that of the United States (Japan Today, 2008). Given the popularity of luxury goods in Japan, there is a disincentive for politicians to treat luxury goods in a way that would make them more expensive or less accessible.