Not long ago, many Japanese bought so many $100 melons and $1,000 handbags that this was the only country in the world where luxury products were considered mass market.
Even through the economic stagnation of Japan’s so-called lost decade, which began in the early 1990s, Japanese consumers sustained that reputation. But this recession has done something that earlier declines could not: turned the Japanese into Wal-Mart shoppers.
In seven years operating in Japan, through a subsidiary called Seiyu, Wal-Mart Stores has never turned a profit. But sales have risen every month since November, and this year, the retailer expects to make a profit.
That is an understatement. Across the board, discount retailers are reporting increases in revenue — while just about everyone else is experiencing declines, in some cases, by double digits. As a result, the luxury boutiques, once almighty here, are reeling.
Sales at LVMH Moët Hennessy Louis Vuitton, makers of what has long been Japan’s favorite handbag, plunged 20 percent in the first six months of 2009. In December, as the global economic crisis unfolded, Louis Vuitton canceled plans for what would have been a fancy new Tokyo store.
In the 1970s and ’80s, and even as the economy limped through the ’90s, a wide group of consumers spent generously on Louis Vuitton bags and Hermès scarves — even at the expense of holidays, travel and, sometimes, meals and rent.
Now, the Japanese luxury market, worth $15 billion to $20 billion, has been among the hardest hit by the global economic crisis, according to a report by the consulting firm McKinsey & Company. Retail analysts, economists and consumers all say that the change could be a permanent one. A new generation of Japanese fashionistas does not even aspire to luxury brands; they are happy to mix and match treasures found in a flurry of secondhand clothing stores that have sprung up across Japan.
In 2008, average household spending fell a record 69,509 yen, or $762, to 3.5 million yen, or $38,475, from a year earlier, and is expected to fall again this year, said Toshihiro Nagahama, chief economist at Dai-Ichi Life.
Underlying Japan’s accelerating frugality is a “deflationary gap” of 40 trillion yen in the Japanese economy, a situation where total demand falls short of what an economy produces. When this happens, companies cut prices, but since they still do not make money, they have to lay off workers. Fewer workers mean still less demand, creating a vicious circle, and prices fall further.
The dismal economy encourages thrift, too. Unemployment is at a record high of 5.7 percent, compared with 9.7 percent in the United States. A troubled government pension system, as well as ballooning government debt, has driven a widespread fear of the future, prompting people to save, not spend.