Japan sees surge in luxury shopping as weak yen draws global tourists

As the yen’s decline continues to make headlines, Japan is experiencing an unprecedented surge in luxury shopping fueled by international tourists seeking bargains.

Tourists are flocking to Japan to take advantage of significant discounts on luxury goods, thanks to the weak yen, Caliber.Az reports citing the foreign media.

Major brands like LVMH, which owns Louis Vuitton, would prefer shoppers stayed away from their stores.

The yen recently fell to a 38-year low against the dollar before showing some recovery, leading to an unprecedented influx of tourists from Asia and beyond seeking bargains. However, this surge is not welcomed by global luxury brands. With luxury items such as designer sneakers and whisky being cheaper in Japan compared to other markets, these companies are facing squeezed profits.

Chinese tourists, in particular, are postponing luxury purchases at home to splurge in Japan. The yen’s volatility complicates price adjustments, leaving companies with reduced margins as long as the yen remains weak.

Zhang Lei, a 29-year-old DJ from Hunan, visiting Japan for the first time, expressed enthusiasm about returning.

"It's cheaper," Zhang Lei said as he strolled through Tokyo's upscale Ginza district, clutching two Louis Vuitton shopping bags and one from Onitsuka Tiger. On that sweltering Saturday, about 15 people were lined up outside the Louis Vuitton store, fanning themselves in the heat.

Zhang had already bought shoes and a bag, with plans to add a Rolex watch to his collection, he said, pointing to his wrist.

The trend has caught French luxury giant LVMH, which owns brands like Dior and Fendi, off guard. "We're seeing a significant shift of business from Asia to Japan," Chief Financial Officer Jean-Jacques Guiony remarked during a recent earnings call. This shift has had a "deflationary" impact on LVMH's China sales, as customers delay purchases at home, squeezing profit margins.

Guiony also highlighted the challenges posed by currency fluctuations. The yen’s recent surge, following the Bank of Japan's interest rate hike on Wednesday, exemplifies this issue. Louis Vuitton's popular Alma BB handbag costs 14,800 yuan in China (about $2,050), but is priced at 279,400 yen in Japan (around $1,875). Last month, during the yen's weakest period, it was available for as low as $1,725. For the bag's Japanese price to match its Chinese counterpart, the yen would need to strengthen to approximately 136 to the dollar. As of Thursday, the yen stood at 149.30, close to its strongest level in four and a half months.

Chinese tourists are also driving Japanese sales of luxury spirits, according to drinks maker Remy Cointreau. The company's CFO, Luca Marotta, reported strong sales growth in Japan for the first quarter, fueled by tourism and the weak yen, though these sales came with lower profit margins.

Swiss luxury group Richemont, which owns Cartier, saw nearly a 60 per cent increase in sales in Japan during the same period, thanks to an influx of Chinese, Southeast Asian, and American tourists.

"Shopping, shopping, shopping," said Fumiko Annisa from Indonesia, detailing her plans. "High-end brands are cheap here. We’re planning to buy Dior, but we’re going to Chanel first."

Annisa also intends to visit Osaka and Gotemba, which features a large outlet mall offering everything from Arc'teryx to Zegna.

Japan saw a record 3.1 million foreign visitors in June, according to official data, putting it on pace to surpass the nearly 32 million visitors recorded in 2019, before the pandemic disrupted global travel. The government expects tourist spending to reach 8 trillion yen ($54.74 billion) this year, viewing tourism as a rare growth engine for an economy challenged by an aging population.

New Yorker Yadwinder Singh was surprised by the prices at stores like Zara, finding them much cheaper than back home, which prompted him to shop more than he had originally planned.

The 26-year-old said he was buying plenty.

"Clothes, jewelry, shoes - the whole outfit."