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At the new Azabudai Hills, described as a “modern urban village” in Tokyo’s well-heeled Toranomon business district, the vibe is almost utopian. Upper-floor restaurants are filled with suited salarymen clinking glasses over lunch while shoppers grab colourful pastries and coffee before milling around the pristine boutiques.
Comprising a complex of gardens and village-like streets that weave under the shadow of the 64-storey Mori JP Tower, the new 150-store development officially opened in November 2023, costing approximately 640 billion yen ($4.26 billion). Celine opened a store there in February, while other major players like Dior, Cartier and Hermès stand poised to follow in the coming weeks. Conceived by Mori Building Co. (whose founder Taikichiro Mori was once the richest man in the world), it is pegged to be Tokyo’s newest hotspot for luxury shopping. When everything is up and running, management hopes to attract an annual 30 million visitors to the complex.
However, the idea of a blowout luxury village in Japan may seem out of step with the times. The country officially went into recession this month and lost its place as the world’s third-largest economy to Germany. Even so, the Japanese luxury consumer remains characteristically resilient. With luxury sales volatile in China and slowing down in the West, Japan is bucking the trend with strong growth across the luxury sector. Retailers and market insiders say that the weak yen is attracting tourists and keeping Japanese spenders in the country, while investments in brand storytelling and experiential retail are enticing them into stores.
Danish womenswear brand Ganni has dipped its toes into Japan’s pop-up space, opening three at the tail end of 2023, with more planned this year across Tokyo and Osaka. The goal is to gently test the market before making any permanent moves. “Japan is an extremely sophisticated fashion capital, and so having a tailored approach to the market…is key,” says Andrea Baldo, the brand’s CEO. To make sure they got this right, Ganni partnered with local PR and consulting agency Seiya Nakamura 2.24 to draw on its local network and influence. “As with all endeavours in Asia, it’s crucial to work closely with local teams to ensure that the approach to the brand is aligned with local best practice and adaptation. You can’t operate locally without highly empowered teams on the ground,” adds Baldo.
A buoyant landscape
The luxury market in Japan is now worth over $41.1 billion, according to Euromonitor, and is expected to grow steadily to $42.3 billion by 2026. The number of high-net-worth individuals in the country decreased over the pandemic but is steadily recovering.
On a recent weekday at the Chanel flagship in Ginza, a long line of international tourists brave the mid-winter chill, queuing for around an hour to enter. Things are similarly buzzy at Gucci, despite its sales struggling in the West: while the Italian brand reported a drop of a fifth in sales in the US in 2023, Japan’s sales were up 26 per cent. Japan has also remained the best-performing market for Prada, with sustained growth of 47 per cent, driven mostly by local demand, the brand says.
“Generally speaking, the luxury market is quite strong, both for Japanese customers and for tourists,” says Loic Bizel, a French consultant and Japan market expert who works with companies including LVMH. According to Bizel, brands such as Chanel and Hermès have substantially increased their prices in recent months. “Inbound sales are playing one part of the growth because the yen is cheap, but prices have increased nonetheless,” he says.
So far, wealthy spenders appear unfazed by the hikes. In the Vogue Business Index, 63.3 per cent of respondents said higher prices wouldn’t impact how they shop designer fashion, while almost a quarter said they had spent over $10,000 on luxury fashion products in the past year.
Luxury beyond Tokyo
Outside of Tokyo, the appetite for luxury is just as healthy. Hermès posted a 26 per cent increase in sales across Japan for 2023, citing the renovation and expansion of the Takashimaya department store in Kyoto and its Daimaru outpost in Sapporo. Sapporo, in particular, has seen an influx of tourists to the city in recent seasons, attracted by the nearby skiing town of Niseko, nicknamed the “Aspen of Asia”. Park Hyatt and Ritz-Carlton have already opened hotels there, with Aman, Hoshinoya and Six Senses set to follow in the coming years.
Over in Osaka, home to the headquarters of department store chain Hankyu and its flagship Umeda store, inbound sales growth has been turbocharged by an international approach. In April 2021, when wealthy Chinese shoppers were stuck at home during lockdown, Hankyu opened a seven-floor shopping centre in the Chinese city of Ningbo, two hours south of Shanghai, eventually developing into a popular destination for high-spending Chinese consumers.
Hankyu is capitalising on translating the customer relationships formed in Ningbo into luxury sales when shoppers visit Japan. “We’ll often get a heads up when our top customers [from China] are coming to Umeda Hankyu in Osaka, and our VIC [very important customer] team will attend them here,” says Norifumi Morii, Hankyu’s director of women’s and men’s fashion.
The strategy is paying off. Inbound sales at Hankyu exceeded 20 per cent in 2023, up from 12 per cent pre-pandemic. Sales at Hankyu’s Umeda flagship are currently at a record high, shooting up 20 per cent to reach 300 billion yen (almost $2 billion) in 2023. Automated tax-free machines dotted across their stores over the past few years have helped, says Morii. “Everything’s going well.”
Evolution of tourist behaviour
Visitor numbers to Japan have recently recovered to pre-pandemic levels, but the number of Japanese travelling overseas is down by over 52 per cent since 2019, according to figures from the Japan National Tourism Organisation (JNTO). The weak yen is a big factor: attracting more tourists to Japan while also keeping Japanese locals at home. With both demographics spending, this creates the ideal conditions for a buoyant local market that has defied economic headwinds.
At fashion-forward Dover Street Market — an international network of multi-brand designer spaces owned by Comme des Garçons (CDG) — the consumer demographic in Japan has shifted. “In the past, we had more customers from Europe, but now the market share has completely changed, with South Korea accounting for the most, followed by Southeast Asian countries like Malaysia and Singapore, and a lot more customers from Canada and Australia than before,” says Yo Arakida, general manager of the Ginza store.
It’s not just the nationality of tourists that is evolving. Gone are the days of guided tour groups that were considered the norm across Asia; instead, luxury retailers across the country report an uptick in families, friends and couples. “Before the coronavirus, tourists would come in large groups and buy a lot of cosmetics. Now, they come as couples or with their families and spend more on luxury items,” says Morii.
“People bring their children [to the store],” adds Arakida. “I think the way that families spend their time together has changed.”
Offline presence
E-commerce in Japan is slowly picking up, according to retailers, yet remains a sluggish sector — Japanese shoppers often prefer to see products in real life before making purchases. “Social media is massive and mobile phone ownership is massive, but [Japanese consumers] don’t necessarily shop on their phones,” says Fflur Roberts, Euromonitor’s global head of luxury.
To circumvent this, brands and retailers are increasingly reaching consumers through social media to boost awareness. At a recent Chanel pop-up, the brand created a “mini app” for guests to sign up and enter, while Prada uses events to connect with participants’ accounts on Line, the popular instant messaging service. After becoming a “friend” of Prada’s on the service, customers can receive weekly information on product releases or celebrity partnerships to stay up to date.
“Brands are still weak in terms of converting attention to online sales [in Japan], but they create these apps for data acquisition and to connect with [customers], so maybe they’ll follow on social media and then visit a store in real life,” says Bizel.
At Dover Street Market Ginza, visitor numbers are 1.5 times higher than before the pandemic. Online sales tripled throughout the pandemic but have since stabilised. What has changed, however, is the way in which customers use the internet to educate themselves on fashion. “Our customers who used to buy so-called entry-level items, like Play CDG and CDG wallets, have learnt about fashion from social media and are now moving onto [more expensive products],” explains Arakida.
Experiential retail reigns supreme
Inventive retail storytelling is a key means for brands to target consumers in Japan. The country’s experiential luxury market shot up from $42.3 million in value in 2019 to $87.1 million in 2023, according to figures from Euromonitor, which predicts a figure of $103 million for 2026. “In other markets, you might have a Tiffany Blue Box Café or a Ralph Lauren Polo Bar, or a handful of luxury branded bars, but in Japan, virtually every luxury brand has one,” says Roberts. “The concentration of [these stores] is just amazing.”
At Azabudai Hills, that sense of all-encompassing luxury is taken to the extreme: the constellation of high-end stores sits next to an international school, Michelin-starred restaurants and even a “preventative medicine centre”, while high-end hospitality giant Aman has just opened its Janu hotel concept flagship there. The ever-popular Teamlab Borderless exhibition has also relocated its digital art museum to the complex, which management hopes will raise awareness among foreign visitors.
Fashion-adjacent food and entertainment is not a new phenomenon in Japan — Alain Ducasse’s Beige restaurant has perched atop Chanel’s Ginza store since 2004 — but post-pandemic, brands and retailers have gone into experiential overdrive. Dior has Café Dior by Ladurée above the Ginza Six department store; Armani has both a café and a restaurant at its locations in Omotesando and Ginza, respectively; while Louis Vuitton launched its first-ever Le Cafe V in Osaka in 2020 and opened a second at its Ginza flagship a year later. “It’s about brand extension,” says Bizel. “They do it to reach new customers and to create an experience that takes you beyond the product.”
At Parco Shibuya, where 70 per cent of customers are in their 20s or 30s, executives see the store as an entertainment destination. “Young people and even the older generations are getting tired of department stores that only sell shoes or bags,” says Yugo Hiramatsu, the store’s director. Not so at Parco: the Kowloon-style mix of restaurants on its basement level tempts hungry shoppers, while the Nintendo and Pokémon stores on the sixth floor are invariably jam-packed with players. In between are five floors of fashion, where a mix of international and domestic designers compete for attention.
On the ground floor is a Gucci concession boasting a Gucci Arcade — the only one in the world — where shoppers can vaporise imaginary handbags and sunglasses Space Invaders-style, while Loewe’s latest installation of giant metallic pebbles invites guests to snap selfies.
This experiential approach has encouraged both domestic and international shoppers to open their wallets. Since the store opened following renovation in 2019, sales at Gucci have doubled, and at Loewe, they’ve tripled, says Hiramatsu. “There are many families who come to visit our Pokémon store and then will go downstairs and buy something from Loewe,” he says.
Spotlight on… Shibuya, Tokyo’s Gen Z hotspot
Japan’s ageing population remains a major concern. Such fears have prompted luxury players to dream up new and innovative ways to appeal to Gen Z, in response. “Baby boomers have all of the wealth at the moment, and luxury brands are concerned about that,” says Roberts of Euromonitor. “The biggest challenge they have is working out how they can successfully tap into and resonate with younger consumers.”
Shibuya, the Tokyo ward that spans teeny-bopper Harajuku to upmarket Omotesando, is a natural fit for these efforts. According to figures from Tokyo’s Metro Ad Agency, 20 to 40-year-olds make up well over half of the foot traffic in the area.
Brands have responded, converting the area into a pop-up paradise. BMW, Christian Louboutin, and Dior have all operated temporary concept stores in Omotesando Crossing Park over the past year. Netflix opened a pop-up in Harajuku’s Q Plaza to promote hit show Emily in Paris, and luxury resale platform Komehyo launched a concept store in Shibuya in November 2023, lowering its prices to attract a younger crowd.
Lower-ticket beauty items are also a pillar of the strategy. Prada Beauty opened its first pop-up in Shibuya in late November 2023, taking over the space previously occupied by Chanel Beauty and across the street from Shu Uemura’s global flagship. In close proximity to the main Omotesando shopping street, this beauty hub is a hotspot for luxury brands to snag the attention of next-gen customers. “Cosmetics are the first access point for young people,” says Bizel. “They can’t afford to buy a bag, but they can get a 6,000 yen ($40) lipstick.”
Key takeaway: Japan is outperforming other major markets in terms of luxury growth. Brands are capitalising on this with a steady stream of new or renovated stores and brand activations. Experiential retail remains king in Japan, with food and entertainment playing an important role in the luxury shopping experience across key cities Tokyo, Sapporo and Osaka. Fragrance and beauty are important for targeting younger Japanese consumers (who are happy to shop across the gender divide).
This article was updated to add comments from Ganni's CEO (23/2/24).
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