Standing Tall: Japan’s Resilient Luxury Market

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In the immediate wake of the tsunami. temblor and atomic catastrophe that hit Japan last twelvemonth. killing 19. 000 people and buffeting the nation’s already rickety assurance. it was barely surprising that people didn’t feel like shopping. At the clip. the conventional wisdom was that such restraint was probably to last. Peoples would still hold to shop for necessities. of class. but the market for things like high-fashion dress and luxury pocketbooks was certainly bound to endure long-run harm. Such thought made high sense – except it didn’t happen.

Fifteen months on. today’s luxury market looks a batch like the luxury market that existed the twenty-four hours before the Great East Japan Earthquake. much as we anticipated in last year’s study. 1 Our findings at the clip were needfully probationary. coming as they did less than three months after the catastrophes. Today. we can asseverate this with more assurance. When asked if the catastrophes had changed their attitudes. for illustration. fewer than 20 per centum of the 1. 450 Nipponese consumers we interviewed were less interested in shopping for luxury goods than they were before the catastrophes ( Exhibit 1 ) .

The Cabinet Office’s Consumer Confidence Survey study from May 15. 2012. shows that consumer assurance has risen strongly since March 2011 ( to 40. 3 ) and is back to up to degrees last seen in 2010. 2 Furthermore. in a little but revealing sample. when we asked 20 Japan-based luxury company CEOs about their gross revenues mentality. every individual one said 2012 would be better than 2011. and about three-fourthss said that the catastrophes of 2011 had no consequence ( 63 per centum ) or. counter-intuitively. had a positive consequence ( 10 per centum ) on company public presentation.

Seventy per centum of CEOs Exhibit 1: A huge bulk of consumers still have strong involvement in luxury Which best describes your ain attitudes towards shopping for luxury goods since the temblor and tsunami on March 11? Percentage choosing “Somewhat less interested. ” or “Less interested” on a 5-point graduated table Less interested 20s n = 224 30s n = 497 40s n = 414 50s+ n = 323 4. 6 5. 8 10. 4 Slightly less interested 7. 8 14. 6 22. 4 8. 2 12. 8 21. 0 12. 5 15. 7 28. 2 Beginning: McKinsey Japan Luxury Consumer Survey 2012

were optimistic about the close hereafter and the chances for Japan’s luxury market ( Exhibit 2 ) . Japan’s luxury market rings up between $ 10-20 billion a twelvemonth in gross revenues ( depending on how the market is defined ) . That figure is improbable to turn much. given Japan’s shriveling population. slow economic growing. and cost-conscious consumer attitudes. Strictly from a gross revenues ratio position. Japan’s luxury market will go on to decline in importance for most luxury makers.

A instance in point is LVMH. Just five old ages ago. Japan accounted for 13 per centum of the Exhibit 2: Most executives we surveyed maintain an optimistic position of the hereafter of Japan’s luxury market Which best represents your position on the mediumterm hereafter of the luxury goods market in Japan? Percent ; n = 20 Somewhat pessimistic 30 35 Optimistic 35 Somewhat optimistic Beginning: 2012 Luxury CEO study 1. hypertext transfer protocol: //csi. mckinsey. com/Home/Knowledge_by_region/Asia/Japan/japanluxury. aspx 2. Cabinet Office of Japan. hypertext transfer protocol: //www. esri. cao. travel. jp/en/stat/shouhi/shouhi-e. hypertext markup language 3 “When it comes to tickers. we see clients merchandising up to higher-end trade names and higher-end merchandises. ”

—Japan president. luxury ticker maker company’s planetary gross. By 2011. the figure had dropped to 8 per centum ( and that marked an betterment from 2010 ) . Compare that public presentation with the remainder of Asia. where the company’s sale portion rose from 17 per centum to 27 per centum over the same period. 3 And yet. such figures make it easy to lose sight of one simple world: Japan remains the world’s third-largest luxury market. after the US and China. more high-end trade names than cheaper trade names.

Not surprisingly. their disbursement on luxury is non every bit high as for other age groups. but a higher per centum of them are active in the luxury market ( 5 per centum compared to 2. 3 per centum of those age 50 and up ) . This cohort are more likely to be willing to pay full monetary value and are besides more likely to see owning luxury goods as something particular. As for work forces. while they make up a minority of luxury shoppers in Japan. they have stayed more loyal to expensive trade names. There are an estimated 3 million work forces under the age of 34 populating entirely in Japan. Harmonizing to authorities informations. mean incomes for this group increased by 7 per centum Exhibit 3: in 2011. and their disbursement jumped by 13 per centum.

Compare this to individual adult females. whose disbursement grew less than 2 per centum. and the mean Nipponese consumer. whose disbursement dropped. 5 Young work forces. it seems. saw the March 11 catastrophe as a good ground to populate for the minute. and Japan’s luxury goods market appears to be a beneficiary. Finally. when we look at cleavage by income. Nipponese who spend more than a million hankering ( about $ 12. 000 ) a twelvemonth on luxury goods are more than three times every bit likely to state they are exchanging to high-end trade names than to low-end trade names ( Exhibit 3 ) .

Those who spend less than half as much are describing the antonym. What we learned Here are some of the most dramatic penetrations from McKinsey’s 2012 Luxury Consumer Survey: ? Japan is a market of markets That is. some niches and sections are more promising than others. In footings of merchandises. for illustration. highend Swiss tickers. such as Rolex. Omega. Piaget. and TAG Heuer. have reportedly enjoyed important growing in the past twelvemonth. 4 Why? Because luxury consumers seek both emotional and functional benefits.

A great ticker. they believe. is the sort of point that appreciates in value and can be passed down to the following coevals. In footings of behaviour. there is chance on the gross revenues floor. For grounds that range from a more stable economic system to better upselling accomplishments. consumers are merchandising up in some luxury classs. even as they trade down in others – chiefly apparel and similar classs with shorter shelf-lives and greater choices of options. Demographically. younger consumers and work forces are worthy of peculiar attending. Twentysomethings are the lone group purchasing.

Large Spenders appear to be “trading up” to higher-end trade names Annual luxury spend ( JPY ) I am buying luxury goods. . . Less frequently More frequently Above 1 mil ( n = 48 ) 15 8 I have switched to purchasing. . . More high-end Cheaper brands brands 6 21 0. 5-1 mil ( n = 100 ) 16 5 9 14 Up to 0. 5 mil ( n = 953 ) 22 4 15 5 Beginning: McKinsey Japan Luxury Consumer Survey 2012 Photograph: Abbie Chessler 3. Wall Street Journal. February 21. 2012. 4. Nikkei Weekly. April 2. 2012. 5. Statistics Bureau of Japan. “Family Income and Expenditure Survey. ” first one-fourth. 2012. 4?

Experience is progressively valued The in-store experience is a cardinal component in basking luxury. and it may be peculiarly of import in Japan. whose clients are renowned for their high service criterions. Asked what were the cardinal elements that enhanced the purchasing experience. the top two replies Nipponese consumers gave were: 1 ) The staff was sort. and 2 ) The staff was knowing. Responses were consistent across classs. Luxury executives tell us that for their best clients. the in-store experience and overall client relationship are about every bit of import as merchandise public presentation.

Luxury trade names. by definition. are about high quality and exclusivity ; supplying an first-class client experience helps to present something excess. and those we spoke with are convinced that making so is good worth the investing. One executive told us that his company. a luxury car manufacturer. saw enormous value in closely supervising the day-to-day client relationship direction activities of its gross revenues squad and utilizing the information to train staff. non merely on shuting a sale. but on upselling assorted options and characteristics. The value of experience besides comes through in what consumers tell us they want.

There is clear potency for luxury experiences to go “the following large thing. ” Asked their degree of involvement in assorted merchandises. those 30 and up named luxury hotels above all others ( it came in 2nd among those in their 20s ) . Spas and beauty services besides scored extremely ( Exhibit 4 ) . We besides asked one of our favourite inquiries from old studies: “Imagine you won 300. 000 hankerings ( about $ 3. 800 ) in a lottery today. How would you pass it? ” Except for those in their 20s. travel scored highest by a decisive border ( Exhibit 5 ) . ? Digital selling in Japan has far to travel Even the executives we spoke to hold with this.

More than twothirds of them admitted that luxury trade names have been “less successful” Exhibit 4: in capturing the altering behaviour of consumers. and merely 15 per centum called on-line gross revenues a “meaningful” portion of their concern in Japan. At the same clip. 90 per centum said on-line selling and publicity was “somewhat” or “very” of import. A expression at the demographics confirms that digital complacence would be a error for most luxury participants. For one thing. adult females are more likely than work forces Are luxury-branded experiences the following large tendency? Very interested Interested.

Think about the luxury trade names you like most. When that trade name is associated with the undermentioned merchandise or service. what would be your degree of involvement? Percentage of those who are “very interested” and “interested” on a graduated table of 6 ; n = 1. 458 Entire Hotel Perfume Home fabrics Cosmetics Furniture Spa and other beauty service Home electronic merchandises 13 10 9 10 8 9 8 26 20 21 19 19 17 17 30 30 29 27 26 25 39 20s 14 16 12 16 9 15 24 23 26 29 25 30 33 38 36 45 40 45 30s 14 11 10 12 9 10 27 21 22 20 20 23 24 32 32 32 29 33 41 40s 15 24 39 50s+ 9 5 6 26 19 19 25 25 35.

10 15 25 10 18 29 10 14 23 9 15 24 9 12 21 11 18 29 5 16 21 3 20 4 10 14 22 23 9 15 24 7 17 3 19 Beginning: McKinsey Japan Luxury Consumer Survey 2012 Exhibit 5: Overall. luxury shoppers show an increased appetency for travel Imagine you won 300. 000 hankerings in a lottery today. How would you pass it? Aggregated mean by age group ; n = 1. 458 20s 100 % = 244 Luxury goods 26 30s 224 27 40s 497 21 50s+ 414 21 467 22 410 26 257 27 323 22 Travel Hobbies Living disbursals Savings Other 27 25 29 32 26 36 37 9 5 20 2 2011 38 12 6 21 2 2012.

6 8 32 1 2011 7 7 33 1 2012 9 7 31 3 2011 9 7 30 1 2012 10 8 28 2 2011 11 6 22 4 2012 1 Includes leather goods/bags. places. watches/jewelry Beginning: McKinsey Japan Luxury Consumer Survey 2012 5 “We see large tickets going even bigger. The degree of customization on luxury public presentation autos has hit a recent high this twelvemonth: this is where all the money is made. ”—President. luxury auto maker to utilize digital agencies on their Consumer Decision Journey ; 6 this affairs because adult females account for approximately 75 per centum of luxury gross revenues in Japan.

For another. about 16 per centum of 20-somethings who had a smartphone or tablet had used it for their last luxury purchase. compared to 5 per centum for over-50s ; and a full 75 per centum of younger consumers had used their device to look into monetary values ( Exhibit 6 ) . Capturing the younger consumer is critical. given the looming cloud that is Japan’s unrelentingly aging society. As established trade names strive to guarantee they remain relevant to Japan’s technologically-oriented immature people. it is plausible. even likely. that a digital constituent will be cardinal to those attempts.

Similarly societal media can non be ignored. A February 2012 Nikkei study of Nipponese smartphone users showed that about 80 per centum of adult females in ther 20s and 30s. 80 per centum of work forces in their 20s. and 60 per centum of work forces in their 30s and 40s usage societal media. 7? Old-school regulations – by default Because the luxury experience is so of import. it stands to ground that both sexes and all ages strongly prefer to make their high-end shopping in individual. They still like it best of all in section shops ( Exhibit 7 ) . It would be a error. nevertheless. to reason that the section shop format is booming.

On the contrary: while the sheer figure of section shops in premier locations all but guarantees a big audience of shoppers. the tired format has yet to happen its topographic point in today’s more dynamic. user-friendly retail landscape. What it all means Based on this research and our experience with many retail clients. we have identified several of import deductions. ? Own the interplay between digital and in-store touchpoints and embrace societal media Just a few old ages ago. at one of McKinsey’s one-year luxury leader dinners in Japan. the consensus in the room was that societal media and Exhibit 6: luxury were reciprocally sole.

After all. the thought went. societal media is inclusive by definition. and luxury is sole. Today. companies like Burberry are showing merely how backward and self-defeating that thought was. Burberry boasts 12 million Facebook followings. 800. 000 Chirrup followings. and 12 million positions on 250 different YouTube picture. In a statement attach toing Burberry’s consequences over the sixmonth period to September 30. 2011. Angela Ahrendts. the CEO. Smart phones have become an of import tool in purchase procedure for younger consumers General populace Do you have a smartphone or tablet Personal computer?

Did you use it for your last luxury purchase? Percent. n = 1. 458 Shoppers who used a I used it on my last smartphone or tablet Personal computer on I have smartphone/tablet PC luxury purchase last luxury purchase 20s n = 224 30s n = 497 40s n = 414 50s+ n = 323 12 68 36 53 26 46 20 27 Luxury purchases 23 16 22 12 17 8 19 5 Beginning: Impress R & A ; D? Smartphone/mobile usage tendency study? . 2012 Luxury CEO dinner respondent study Exhibit 7: Department shops continue to play important function for the class. but three other channels are besides strong Thinking about the past 12 months. what channels did you visit to purchase luxury goods? ( multiple reply ) .

Department Fashion goods n = 296 Leather goods n = 294 Watch/jewelry n = 270 Shoes n = 236 76. 2 58. 1 64. 2 77. 0 Brand store 35. 5 27. 0 34. 2 39. 2 17. 0 33. 0 Outlet 39. 7 39. 7 Duty Free Shop 35. 4 32. 3 28. 6 29. 7 Beginning: McKinsey Japan Luxury Consumer Survey 2012 6. The term “Consumer Decision Journey” refers to the patterned advance from initial consideration. active rating. and minute of purchase to post-purchase experience and trueness. foremost presented in the McKinsey Quarterly. “The Consumer Decision Journey. ” June 2009. 7.

Nikkei Shohi Watcher. “The ‘Smart’ Set is Chiefly Female” ( “Suma-ju” sodium hitobito shuuyaku wa josei ) . February 2012. p. 22. 6 attributed the company’s strong consequences to “continued investing in advanced design. digital selling. and retail strategies” . Tiffany & A ; Co. has besides embraced digital media. with a extremely regarded e-commerce site. Facebook presence. and even an iPad app showcasing its celebrated line of engagement rings. A key to wining in societal media is to present the trade name narrative and heritage systematically across media while orienting messages to the specific consumer sections that are utilizing each media format.

It’s besides of import to understand the function each medium plays in the Consumer Decision Journey. For illustration. in cosmetics it can be easier to present decorative modus operandis ( e. g. . how and in what sequence to use the merchandise ) in shop. but consumers frequently seek out extra information and reviews online. For dress and accoutrements. clients may travel to the shop to purchase. since they want to be able to touch points and seek them on. The initial debut and attractive force frequently happens outside the shop – from shopfronts. wordof-mouth. or magazines.

Winners will be those who can stand out at multichannel selling and gross revenues. ? Make the most of travel retail Nipponese consumers love to go – up to 20 per centum of all luxury consumers have shopped abroad in the past 24 months ( Exhibit 8 ) . This accounts for the important function of dutyfree stores. where a 3rd of luxury consumers have shopped in the last twelvemonth. Womans are peculiarly prone to halting by duty-free. with 36 per centum of them purchasing at that place. As a consequence of international travel and the Internet. consumers today know what luxury goods cost both inside and outside Japan. and they may be clocking their shopping to take advantage.

This is particularly affecting for luxury makers – they need to acknowledge that the consumer relationship with any given trade name crosses international boundary lines. That fact has deductions for after-sales service. and underscores the importance of keeping consistence with the face of the trade name across both channels and geographicss. For a figure of old ages. we have been detecting the outgrowth of “global tribes” . that is. groupings of consumers who have more in common with their opposite numbers in other geographicss than with their fellow countrymen.

Easy entree to societal media and inexpensive travel will merely intensify this phenomenon. In response. luxury makers will necessitate to make much more than merely accept that today’s consumers are planetary ; they will necessitate to do their trade names even more so. ?

Manage analogue imports Parallel imports – indistinguishable merchandises imported from a foreign state. so sold for much less – can non be prevented. but can be managed. Some trade names are seeking to curtail parallel imports by tracking consecutive Numberss to find where the imports are coming from. and diminishing Exhibit 8: borders for retail merchants who are caught. Others are seting bounds on aftersales services available to parallel imports.

Few companies have chosen to travel to one planetary. exchangeadjusted recommended retail monetary value. though that may go a more standard attack. ? Embrace customization and custom-built luxury Building off a tendency popularized by other consumer-goods companies. such as Adidas and Nike in athleticss footwear. luxury car makers. and luxury pocketbook and accoutrement participants are encompassing customization.

This is consistent with a broader consumer tendency in developed markets ( the “My” coevals ) where niche is replacing mass in many countries and consumers have grown used to custom-making everything from their play lists to their iPhone covers. Luxury has ever been synonymous with exclusivity. but with so many shops and so many new channels to purchase from. we have begun to see a “commoditization” of exclusivity. In a sense. so. customization is the ultimate in exclusivity. For illustration. Louis Vuitton late launched a service in Japan that allows clients to choose the leather and so design unique.

Nipponese consumers continue to buy luxury points abroad 2012 2011 2010 Which of the undermentioned topographic points did you do a luxury purchase in last 2 old ages? Percentage of respondents who bought luxury goods in class abroad within last 24 months ; multiple reply ; 2012 Top 5 Hawaii Korea Europe North America ( excepting Hawaii ) Hong Kong/Macau SOURCE: McKinsey Japan Luxury Consumer Survey 2011/2012 14 10 12 14 17 17 18 22 21 22 22 25 27 32 19 7 “We continue to be concerned about the relevancy and impact of section shops. We can’t stop experimenting with new constructs.

” —Japan president. planetary luxury accoutrement and dress participant merchandises. Some luxury car manufacturers tell us their strong gross growing in Japan has come non because they are selling more autos. but because purchasers are lading up on assorted bells and whistlings to make their ain personalized. ideal vehicle. Of class. customization comes at a cost to luxury makers. adding complexnesss to the supply concatenation and beyond. It must be reserved chiefly for genuinely high-end merchandises. the figure of car-sharers has increased 10-fold. to 170. 000. and grosss could billow to $ 550 million by 2016. harmonizing to estimations from Frost & A ; Sullivan.

9 This displacement to value is existent and digesting. So. we believe. is the accent on discretion. In the aftermath of the temblor. the per centum of those who said that demoing off luxury goods was in bad gustatory sensation rose aggressively. from 24 per centum to 49 per centum ; this twelvemonth. it was 51 per centum. The quest for value and a desire to avoid the visual aspect of conspicious ingestion are non needfully antithetical to an grasp of luxury. These attitudes can co-exist.

In fact. that exactly describes the province of the Nipponese market: Consumers are ready. willing. and sometimes eager to purchase. But they are making so with strict deliberation. Exhibit 9: Brian Salsberg is a principal in McKinsey’s Tokyo office and a leader of the Consumer & A ; Shopper Insights centre in Asia. Naomi Yamakawa is a selling expert in Tokyo. The writers wish to thank Georges Desvaux. Todd Guild. Ryu Iwase. Euljeong Moon. Yuka Morita. and Kohei Sakata for their aid. Conclusions Merely a little more than a twelvemonth after the worst crisis to hit Japan since World War II. the Nipponese luxury market is stable.

Ultimately. it comes down to this: despite deflation and catastrophe. Nipponese consumers continue to desire luxury goods and to purchase them at a good cartridge holder. But – and this has been true since the fiscal crisis hit in 2008 – they are more cautious about monetary value and more demanding. They do non merely desire an expensive merchandise to look great and to work attractively. but to fulfill other demands. whether emotional or even societal. Half of luxury auto purchasers. for case. state that “eco-friendliness” is of import to them ( Exhibit 9 ) . The quest for value. in all its signifiers. is going characteristic up and down the retail concatenation.

As we argued in the McKinsey Quarterly in 2010. many consumers have diverted a ball of their disbursement off from costly prestigiousness. 8 Wal-Mart. Amazon. Costco. Ikea. Daiso. Uniqlo. private-label nutrients. and the low- to middle-end forte dress participants are all making conspicuously good. Then there is carsharing – short-run leases by the hr. This service hardly existed in 2009 ( grosss were approximately $ 17 million ) . Today it has become positively mainstream. With many Nipponese deterred by the high monetary value of having and keeping a auto. Photograph: Abbie Chessler What do luxury consumers think of luxury cars?

2012 2011 Sing luxury autos. make you agree/disagree to the below statements? Percentage who answered “strongly agree” and “agree” within 6 graduated table ; n = 1. 458 Luxury autos have features that justify the premium monetary value 20s 30s 40s 50s+ 31 37 33 30 35 33 41 39 9 12 11 11 10 It’s worth the money to purchase a luxury auto for the brilliant drive experience 13 13 12 Being “eco-friendly” is as of import for luxury autos as design or driving experience 51 47 48 50 56 52 52 44.

Beginning: McKinsey Japan Luxury Consumer Survey 2012 About the Japan Luxury Consumer Survey McKinsey conducted this national online study of 1. 450 consumers in April and May 2012. for the 4th twelvemonth in a row. Concentrating on four classs ( manner. leather goods. places. and watches/jewelry ) . we interviewed 250 to 300 luxury consumers ( defined as those who have purchased any one of 174 trade names in the last two old ages ) . We besides spoke to 350 “lapsed” luxury purchasers. Two-thirdss of the respondents were female. 8. McKinsey Quarterly. “The new Nipponese consumer. ” March 2010.

hypertext transfer protocol: //www. mckinseyquarterly. com/The_new_Japanese_consumer_2548 9. Frost & A ; Sullivan. “Strategic Analysis of the Car-Sharing Market in Japan. ” July 2011 8 What McKinsey’s Consumer and Shopper Insights portal has to offer Where make more than 15. 000 executives get their day-to-day dosage of consumer penetrations? csi. mckinsey. com. Sign up now. It’s free. ? ? ? ? ? How are China’s hypermarkets different from Western 1s? ( One hint: those unrecorded poulets in the nutrient aisle. ) How is the digital consumer altering? ( In six major ways. )

How are Mexican consumers experiencing? ( Not great. ) Are planetary luxury shoppers cutting back? ( Not so much. ) Is Poland assuring district for online retail merchants? ( Yes. ) The twenty-first century has already seen the impossible and the unlikely. But here is one certainty: The universe is about to see the biggest addition in ingestion in history. Learn all about it—and be portion of the conversation—at csi. mckinsey. com. These are merely a few of the inquiries asked and answered on csi. mckinsey. com. As a planetary consultancy. McKinsey has the resources. and the desire. to research the ever-changing. ever-elusive planetary consumer.

To take merely one illustration. we have spoken with more than 60. 000 Chinese shoppers to spot what they are believing. buying—and believing about purchasing. Here’s another illustration: Since August 2008. McKinsey has interviewed a representative sample of Americans every six months to track their attitudes and disbursement. How do the world’s digital consumers spend their online clip? We can state you that. excessively. While csi. mckinsey. com is a rich forum for McKinsey’s work. we besides spotlight the best of others. non merely on the site. but on our Facebook and Twitter histories ( @ mckinsey_csi ) .

By uniting the best of McKinsey and the best of the remainder. we add something new to the site about every twenty-four hours. We believe this makes csi. mckinsey. com the go-to topographic point for those who need the freshest. smartest believing on why consumers do what they do. What’s following? We want to acquire our users more involved ; we’d besides like to diversify how we present our stuffs. So we hope you will fall in us as we continue to better csi. mckinsey. com. Just snap the sign-up button on the top right of the site. or e-mail us at [ electronic mail protected ]com. We’ll send you notices of what’s new about twice a month.

hypertext transfer protocol: //csi. mckinsey. com 9 McKinsey Consumer and Shopper Insights You can dowload McKinsey’s old luxury studies at hypertext transfer protocol: //csi. mckinsey. com July 2010 McKinsey Asia Consumer and Retail McKinsey Asia Consumer and Retail Luxury goods in Japan: Fleeting suspirations or long adieu? How luxury companies can win in a altering market Japan’s luxury consumer: Detecting a pulsation? Particular Report: McKinsey & A ; Company Japan Luxury Goods Survey 2010 Brian Salsberg Naomi Yamakawa Luxury goods in Japan: Fleeting mark or long adieu? ( June 2009 ) Japan’s luxury consumer: Detecting a pulsation? ( June 2010 ) June 2011

Consumer and Shopper Insights August 2011 August 2010 CSI Insights Flash June 2010 McKinsey Consumer and Shopper Insights McKinsey Consumer & A ; Shopper Insights Korea’s luxury market: Demanding consumers. but room to turn McKinsey Asia Consumer and Shopper Insights No seismal displacement for luxury in postquake Japan Special Report: Japan Luxury Goods Survey 2011 Understanding China’s Growing Love for Luxury By Aimee Kim and Martine Shin Key subjects from the 2011 McKinsey Korea Luxury Consumer Survey Every twelvemonth since 2006. gross revenues of luxury goods in South Korea have risen at least 12 % 1. to an estimated $ 4.

5 billion in 2010. In the first four months of 2011. gross revenues at section shops were up more than 30 % compared to 2010. 2 This continues an established tendency. as last year’s study on the market showed ( see study at csi. mckinsey. com: “Living it up in luxury. ” ) Still. insiders are inquiring whether it can last. For one thing. harmonizing to McKinsey’s study. the per centum of family income that luxury consumers spend on luxury is already higher in South Korea ( 5 % ) . than in Japan ( 4 % ) 3—and the Nipponese luxury market has been stagnant in recent old ages.

Furthermore. the public presentations of celebrated trade names in Korea have been mixed. For illustration. LVMH and Ferragamo continued to make good. but others. like Gucci Group and Dior. saw gross revenues bead in existent footings in 2010. 4 1 2 3 4 5 6 Therefore. while the headline intelligence is that the luxury market is still turning strongly. uncertainness is besides mounting. In this year’s study. McKinsey addresses these concerns. which come in the signifier of three cardinal inquiries: Can South Korea maintain it up? What’s altering? And what do these tendencies mean for the participants in the luxury industry?

To reply these inquiries. for the 2nd twelvemonth in a row. McKinsey surveyed 1. 000 Koreans who had purchased at least 1 million Korean won ( $ 930 ) in luxury goods in the old twelvemonth across four classs —fashion dress. leather goods. places. and watches/jewelry. Among the respondents were 200 “heavy purchasers”—those who had spent at least 10 million Korean won ( $ 9. 300 ) . We besides interviewed 24 senior executives of luxury-goods companies. Here’s what we found. 5 Let’s start with the proposition that non all consumers are created equal ; to

a startling grade. it is chiefly the heavy buyers who are maintaining the Korean luxury market turn overing with such force. For illustration. Lotte section shop estimated that the figure of “Most Valuable Customers”—those who spend 15 million won ( $ 14. 000 ) or more a year—rose 14. 4 % in 2010. compared to 9. 2 % for other sorts of luxury consumers. The figure of VIP clients at Shinsegae section shop —those who spend more than 8 million won ( $ 7. 400 ) —grew 35 % . compared to 12 % for other consumers. 6 Shopping at the high terminal besides appears to be addictive.

McKinsey found that heavy buyers are much more likely to state that they enjoy their dainties “as much as I ever have” vs. non-heavy clients ( 33 % to 12 % ) . This difference in attitude was reflected in their existent disbursement: The big-spenders indicated that they had spent more on all four luxury classs in the old 12 months. Non-heavy purchasers were pickier: While they spent more on tickers and leather. they spent less on South Korea: Life it up in luxury Particular Report: 2010 Luxury Goods Survey McKinsey & A ; Company South Korea Brian Salsberg Naomi Yamakawa 1. Can South Korea maintain it up?

Yes. A figure of tendencies. little and big. are making a theoretical account of sustainable growing for the following three to five old ages. McKinsey Insights China Euromonitor Ministry of Knowledge Economy McKinsey analysis Financial Supervisory Service The study surveyed at least 200 luxury consumers for each merchandise class ; luxury consumers were screened based on purchase history of choice luxury trade names ( runing from low-cost “masstige” trade names to “super premium” trade names ) and included 85 luxury manner dress trade names. 57 luxury leather goods and places trade names. and 47 luxury watch/jewelry trade names.

Asia Economy. “VIP clients have increased at section shops. ” August 28. 2010 No seismal displacement for luxury in post-quake Japan ( June 2011 ) Understanding China’s turning love for luxury ( March 2011 ) Korea’s luxury market: Demanding consumers. but room to turn ( August 2011 ) South Korea: Life it up in luxury ( August 2010 ) .

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