By Henry Hilton

Commentary Oct. 13, 2009 - 04:18AM JST ( 7 )

News that Versace is pulling the plug on Japan confirms the problems facing the luxury brand market as the economy keeps on stuttering.

After three decades in Japan, Versace’s decision suggests that the middle-class Japanese consumer is becoming increasingly budget-conscious. Yet it is still the case that overseas hotel chains keep opening their doors in Tokyo and the market for expensive imported toys, such as cars, never grinds to a halt.

The fashionistas and playboys are currently in trouble but somehow enough folk continue to find the loot to shell out on all that conspicuous consumption. Maybe the fact that more and more young and not-so-young Japanese are having to live with their parents or relatives will still encourage enough consumers to get out there and shop. Splurging on a fancy item could be seen by some as a way of driving away the economic blues.

We are always being told that the day of the Japanese desire for brand names, weekend
holidays abroad and condos in the sun is over; yet it is doubtful if this is really the case. Versace is leaving but Ginza and Omotesando remain jam-packed with boutiques and cafes that are booming. The demise of one Italian chain that has long been big on bling should not be taken as the end of the story. Others, such as Chanel, Prada and Armani, appear to have read the market better and look likely to keep going ahead.

Certainly there won’t be many foreign CEOs who are planning to open flagship stores in Japan in the coming months. Their shareholders are too suspicious of any investment that is not a guaranteed winner in the short to medium term, but there are still plenty of niche markets.

Japan remains a highly affluent society where ambassador after ambassador reports back to
his foreign ministry that all the talk of permanent recession appears overdone. Winter bonuses are going to be down and consumers are certainly pickier but the shops look extraordinarily full to outsiders.

Mitsukoshi on the Ginza, for example, was teeming recently as late afternoon shoppers met OLs rushing in to the food section for their pre-cooked evening meals. Perhaps the crowds there can be slightly deceptive as some were clearly window shopping but the racks of expensive dresses were being given a careful once-over and it would be difficult to argue that the recession has killed off the consumer.

Japan is going to remain the world’s second largest economy. Its per capita income is huge and its public still has deep pockets. Certainly, the days of automatic success for foreign brand names may be ending but successful entrepreneurs who are prepared to stay the course could yet reap rewards. Astute ones are also going after visiting Chinese tourists who are able now to come over on non-group visas.

What is probable is that the luxury brands with firm reputations will win through and the cheap but trendy retailers, such as Uniqlo and H&M, will also continue to do well. The losers will be those who are caught between the two groups and who fail to establish a really loyal following.

Japan has its economic troubles but the consumer here has long been known for requiring quality products with up to the minute flair. What the downfall of Versace suggests is that retailers who forget the highly demanding nature of the Japanese public will eventually fade away. Top brands can still make it here, though they will have to add on those extras, such as decent restaurants and cultural events, to make certain of their position.
The discriminating consumer remains at the center of the economy. Disposable income may be facing a lengthy squeeze but the best products will still find eager buyers.