As Japanese Abandon Luxury, Versace Abandons Japan

Luxury's turbulent ride through the harsh global economy continues, with Italian designer Versace the latest casualty. The company is closing all its boutiques in Japan, following Louis Vuitton, whose parent company abandoned plans to open a large store in Tokyo.

Luxury demand dropped 10% in Japan from 2007 to 2008, says the Yano Research Institute, and is expected to shrink again this year. This follows a global trend: A recent Bain report predicted luxury sales would fall 10% this year worldwide and 15% in the US.

The affluent consumers who helped luxury survive past recessions are turning away. A Luxury Institute survey found that 62% of the wealthy said they were changing their views on luxury purchases, with reasons ranging from being more budget-conscious to being more sensitive about appearances. At a Wharton School luxury panel last May, Roxanne Paschall, senior merchandise director at Bottega Veneta, observed: "It's a little bit gauche to be ostentatious with your purchasing. [Customers] don't want to flaunt."

The Times of London notes "the change is not all directly economic." As in other countries, Japanese have seen discount chains morph into fun and trendy brands:

Experts on Japanese consumerism say that necessity has pushed many Japanese to spend more carefully, but they were heading in that direction anyway. Cheaper clothes and accessories of the sort produced by Uniqlo, Gap and other brands have lost any sense of being downmarket. Jeanie Chen, a retail analyst at CLSA, the brokerage, said that in the case of Uniqlo, the perception of the brand had shifted radically from unstylish to “cool”. The Japanese apparel market, she said, was undergoing a “structural change”.

Greg Furman, Chairman of the Luxury Marketing Council, says luxury brand marketers "are for the first time being forced to re-think their traditional approach and are exploring tactics more akin to packaged goods marketing." The definition of luxury "is radically changing," says Furman, but luxury brands will continue to be distinguished by their "inherent value."