Louis Vuitton in Japan: Luxury Market Strategy and Consumer Behavior

Japan's Luxury Goods Market and Consumer Behavior

Japan is the capital of luxury and a mass-market paradise for luxury brands. As of February 2009, it was the final destination of 45 percent of luxury goods sold worldwide. For luxury brands, Japan represented between 12 and 40 percent of worldwide sales, with the precise figure varying according to how the market was defined. Luxury goods quality has always been a key factor for successful brands in the Japanese market, especially for smaller or niche brands that did not enjoy the same recognition as larger houses such as Louis Vuitton. Today, affordability is a new concept radically changing the mindset of Japanese customers, who were once eager to emulate top fashion models from famous catwalk shows.

Japan has a group-oriented culture in which there was real social pressure to possess luxury, status-driven brands, and its pattern of consumption differs from that of the West. Young women are more beauty-conscious, and the proportion of the urban population that owns a famous, expensive luxury brand item is immense — a tendency not as deeply ingrained in other developed cities such as New York, Sydney, or Paris. The cultural and social homogeneity of Japanese society helps explain its strong attachment to luxury items, while the existence of a large middle class and a high population density reinforced Japanese purchasing habits. Japanese society can be described as one in which appearance is very important and people are expected to dress in a manner corresponding to their social position.

Consumers today are becoming less willing to tolerate the high prices that once created desirability. Although young Japanese women are still eager to save money for "it" brands, they have become more aware of the value of money. Lower-priced accessories and small leather goods — such as wallets, travel pouches, and clutches — have reported a significant increase in sales in recent years. Since 2000, luxury goods have held a different position in the consumer mindset. As the market evolved toward greater sophistication, luxury brands were no longer purchased simply as badges of membership in the new urban class. The norms of mature brand behavior and consumer habits seen in the Western world began to be reflected in the Japanese luxury market. As a consequence, the ready-to-wear segment was the most noticeably affected by the new trends in Japanese women's choices.

Louis Vuitton's Entry and Success in Japan

In the mid-1970s, Louis Vuitton had become the world's biggest luxury brand by market share, and by 1977 the company owned two stores in Japan with annual profits of US$10 million. In the 1980s, riding Japan's economic boom, "Vuittonmania" swept the country. Around 20 million Japanese women out of a population of 127 million owned a bag from the brand, and each year Louis Vuitton sold more than five million units of the Keepall and the Speedy — its classic leather monogram bags. Louis Vuitton was the first multinational luxury house to open its own shops in Japan without the assistance of a Japanese distributor. When Louis Vuitton chose the controversial strategy of establishing its own subsidiary, the company proved to be a true pioneer. French headquarters relied on Japanese business expertise, believing that Japanese managers would make more efficient, market-driven decisions because of their understanding of local consumers. Louis Vuitton entered the Japanese market initially through department stores with a single brand from its portfolio, and by 2007 it controlled 54 stores through a directly owned retail network in Japan.

Louis Vuitton has always been a trend-setting brand strategist in Japan, a country that revolves around tradition and culture. Since 1995, the worldwide luxury market had been growing by approximately 10 percent each year. In 2002, the global economy faced a slowdown following the recession triggered by the September 11, 2001 terrorist attacks in the United States. The direct consequence was a decline in sales in luxury shopping destinations such as duty-free zones in international airports and prestigious locations like Tokyo's Ginza Namiki Dori. Louis Vuitton in Japan had to redefine its strategy because the economic sluggishness in the United States adversely affected Japanese consumers' purchasing power, given Japan's reliance on export income from the American market. At that time, Louis Vuitton recognized that it needed to focus on local consumers rather than tourists.