By David Dolan
TOKYO (Reuters) – Tourists are flocking to Japan in search of high-quality clothes and bags at a discount thanks to the weak yen. Luxury goods companies like LVMH, the parent company of Louis Vuitton, would rather stay home and shop.
The sell-off in the yen – which hit a 38-year low against the dollar last month before regaining ground – has triggered an unprecedented tourism boom, attracting savvy buyers from Asia and elsewhere.
Global luxury brands are not applauding because their products, from designer sneakers to whiskey, now tend to be cheaper in dollar terms in Japan than elsewhere, hurting profits.
Some tourists, especially Chinese, are putting off buying designer goods at home and splurging in Japan. The yen’s volatility means companies can’t easily raise prices to accurately reflect the currency, leaving them stuck with lower margins in Japan – at least as long as the yen remains weak.
Zhang Lei, a 29-year-old DJ from the southern province of Hunan, was visiting Japan for the first time but said he already wanted to return.
“It’s cheaper,” said Zhang, who was carrying two shopping bags from Louis Vuitton and one from the sportswear brand Onitsuka Tiger on a recent Saturday in Tokyo’s upscale Ginza neighborhood.
Nearby, about 15 people lined up to enter the Louis Vuitton boutique, fanning themselves in the sweltering heat.
Zhang said her purchases so far have included shoes and a bag. He planned to buy a watch next, he said, pointing to his wrist while repeating “Rolex.”
The trend caught French luxury giant LVMH, which also owns Dior and Fendi, by surprise.
“We really have a big business shift from Asia to Japan,” Chief Financial Officer Jean-Jacques Guiony said on a recent earnings call. This was having a “deflationary” impact on LVMH’s business in China as customers avoided shopping at home, putting significant pressure on margins, he said.
He also mentioned the difficulty represented by exchange rate volatility, as currencies can reverse movements “very quickly”. This became even more evident this week when the yen rose after the Bank of Japan raised interest rates on Wednesday.
DIOR, CHANEL, MONTE FUJI
Louis Vuitton’s popular Alma BB bag costs 14,800 yuan in China, the equivalent of US$2,050. In Japan, it sells for 279,400 yen, or $1,875. Last month, it would have been available for just $1,725 when the yen was weaker.
The yen would have to strengthen to about 136 per dollar to bring the Japanese bag price on par with China’s. The currency was trading at 149.30 on Thursday, not far from its strongest level in 4 1/2 months.
Chinese tourists have also helped boost Japanese sales of luxury spirits, drinks maker Remy Cointreau said.
Japan generated strong sales growth, driven by tourism and the weak yen, Remy Cointreau CFO Luca Marotta said on the company’s first-quarter sales call, adding that sales were lower margin.
Swiss luxury group Richemont, owner of the Cartier brand, saw sales in Japan increase almost 60% in the first quarter, helped by Chinese, Southeast Asian and American tourists, it said.
“Shopping, shopping, shopping,” Fumiko Annisa, who was visiting from Indonesia, said of her itinerary.
“High-end brands are cheap here,” she said. “We’re going to buy Dior, but let’s go to Chanel first.”
She also planned to visit the western city of Osaka and Gotemba, near Mount Fuji, home to a sprawling shopping center selling brands from outdoor clothing maker Arc’teryx to Italian fashion house Zegna.
Japan had a record 3.1 million foreign visitors in June, official data showed last month, putting it on track to beat an annual record of nearly 32 million foreign arrivals set in 2019 before the pandemic shut down global travel.
Tourist spending is expected to reach 8 billion yen ($54.74 billion) this year, according to the government, which sees tourism as a rare engine of growth in an economy long hampered by an aging population.
New Yorker Yadwinder Singh said he didn’t expect to do much shopping until he saw prices at fast-fashion retailer Zara and other stores that were much cheaper than at home.
The 26-year-old said he was buying a lot.
“Clothes, jewelry, shoes – the complete outfit.”
($1 = 7.2171 Chinese yuan)
($1 = 148.8700 yen)
(Reporting by David Dolan; additional reporting by Sophie Yu in Beijing, Dominique Patton in Paris and Emma Rumney in London; Editing by Sonali Paul)
