Japan’s luxury boom sparks wishful China thinking

Prada SpA

30/05/2024 12:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, May 30 (Reuters Breakingviews) - Tokyo's
boutiques are booming thanks to soaring demand for luxury
labels. Executives have been quick to point to the return of
China’s shopaholics as the reason. That, though, smacks of
wishful thinking. Japan's downtrodden currency probably deserves
more credit.
    There is no doubting that Japan is “on fire”, as Prada
 1913.HK  CEO Andrea Guerra told the FT Business of Luxury
Summit last week: the Italian company’s sales there grew nearly
50% in the three months to March from a year earlier. Industry
leader LVMH  LVMH.PA  reported “strong double-digit growth” over
the quarter, while Richemont  CFR.S  benefitted from a 20% bump
in annual revenue from Japan, once stripped of currency effects.
    Year-on-year comparisons are flattering because Japan was
late to re-open borders after Covid-19. But LVMH, Richemont and
Prada’s 2023 takings in Japan have far surpassed those recorded
in their last full financial year before the virus curtailed
global travel.
    The Japanese splurge is fuelling expectations of a global
resurgence in China’s overseas shopping, which executives at the
three companies hailed as one reason behind the positive
results. That would be good news for the sector, as it is
currently facing headwinds. Chinese tourism spending, erased by
the pandemic, had been a key engine for global bling: in 2018
Chinese shoppers made more than 70% of their estimated 85
billion euros of luxury goods purchases abroad, Bain data show.
    Yet the current picture looks more nuanced. Japan welcomed
nearly 10 million visitors from the People's Republic at the
peak in 2019, nearly a third of the total number of foreigners
entering the country that year. But so far in 2024 less than
900,000 people from mainland China have entered the country, and
they are outnumbered by arrivals from tiny Taiwan, according to
the Japan National Tourism Organization (JNTO). Outbound travel
from the People’s Republic is not expected to fully recover
before 2025 or even later, analysts forecast.
    Travellers are changing their ways, too. In 2023, Chinese
tourists spent only 38% of their budget on shopping, down from
more than half pre-pandemic, JNTO reckons. Many now prefer
selfies to souvenirs, and short-haul over long-haul trips:
inflation and more expensive airline tickets add up at a time
when property prices, stocks and other stores of wealth
languish. Chinese domestic travel has already surpassed
pre-Covid highs, unlike outbound tourism. For mainland shoppers,
there are new opportunities to spend closer to home, not least
Hainan’s giant duty-free stores.
    A better explanation for the splurge in Japan is probably
the weak yen, which has fallen to a record low close to 158 yen
to the dollar. Per capita spending by visitors to Japan hit the
highest level in more than a decade last year.
    For luxury investors, Japan’s shopping spree is welcome.
But the yen’s slide may not last, and at any rate it is less
exciting than a full comeback in Chinese tourists’ spending.
    Follow @KatrinaHamlin on X
    
    CONTEXT NEWS
    Richemont’s sales in Japan grew 8.4% to 1.8 billion euros in
the 12 months to March 31, 2024, compared to a year earlier,
according to results released on May 17. The increase was 20% in
constant currency terms, the company said. In his commentary on
the results, CEO Jérôme Lambert noted that Japan’s strong sales
were driven by Chinese visitors to the country.
    Prada reported revenue in Japan grew 46% to 113 million
euros in January to March, compared with a year earlier,
according to filings on April 24.
    LVMH also reported “strong double-digit growth” in Japan
sales in a quarterly release on April 16.

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Graphic: The return of Chinese visitors to Japan has been slow  
 https://reut.rs/3wNQHN7
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 (Editing by Lisa Jucca and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ 
katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))