Forget GDP growth, industrial output, trade balances and the Tankan survey of business sentiment.
The most telling indicator of Japan’s economic mood came in this story out on Bloomberg on Wednesday: Versace to close Japan stores, will review strategy.
Reports Bloomberg:
Gianni Versace SpA will close its Japanese stores and review its entire business strategy, as demand for luxury goods declines in the world’s second-largest economy.
“The Versace boutiques in Japan no longer represented the brand image and it was felt to be more advantageous for the company to close them and start with a clean slate,” Federico Steiner, an outside spokesman for Versace in Milan, said yesterday in a statement. The stores are now in the process of being closed, he said by phone. Versace has three stores in Japan, according to the Web site.
Versace, which entered Japan in 1981, is the latest brand to scale back operations in the country, as falling wages and job losses chill consumer confidence. LVMH Moet Hennessy Louis Vuitton SA said in December that it scrapped plans to open a store in Ginza, one of Tokyo’s busiest shopping districts.
And then the killer quote:
“Tokyo is losing its prestige,” said Naoki Iizuka, a senior economist at Mizuho Securities Co in Tokyo. Luxury goods makers see less need to sell their products in Tokyo with the increasing importance of Singapore and Hong Kong as financial centers, he said.
And the killer statistic:
Versace Japan had sales of Y1.6bn [$18.1m] 2008 compared with Y4.1bn [$46m] four years ago, according to Teikoku Data Bank.
Even more revealing, however, are related economic shifts in Asia, with booming investment by the luxury goods industry in China as well as in other nascent markets such as Singapore and Hong Kong. In fact, Versace — which has opened a slew of stores in China in the past year — predicted last November that Asia would surpass the US as its biggest market after Europe this year.
As the FT reported in June, Japan’s market for imported luxury clothes, handbags and other items fell 10 per cent to Y1,060bn ($11.9bn) last year from 2007, and is predicted to shrink to shrink to Y992.7bn this year, about half its peak of Y1,897bn in 1996, according to Yano Research Institute.
What’s more, Brian Salsberg, author of a McKinsey report on the Japanese luxury goods market, told the FT: “This is not a blip. This is a long-term shift in the market”.
Versace’s exit from Japan is also about internal shifts, following the appointment of Gian Giacomo Ferraris, former CEO of fashion house Jil Sander, who took over as Versace’s CEO in July after the departure of Giancarlo di Risio. Under Di Risio, Versace sold unprofitable units and took control of distribution in Japan and Taiwan. Ferraris, however, wants more improvements and Japan’s waning purchasing power clearly no longer fits that aim.
Related link:
Luxury sector loses its sparkle - FT