High-end stocks face pressure but love for labels will endure

AS anyone who has visited Tokyo will know, Japan is a voracious consumer of luxury labels. A natural throwaway culture by necessity, thanks to the tiny size of Japanese homes, has led to a constant demand for the “latest thing”. According to MF Global, Japan accounts for 23 per cent of the global market for luxury goods, compared to 25 per cent for Europe and the US.

Burberry, which gets around 20 per cent of its earnings from Japan thanks to lucrative licensing deals, lost 4.68 per cent yesterday, as traders predicted belt-tightening would hit sales.

The luxury firm’s rivals are also exposed: Japan accounts for 19 per cent of Hermes’ sales; 12 per cent of Richemont’s sales; and nine per cent of LVMH’s sales. PPR’s Luxury Business Group, which owns Yves Saint Laurent and Gucci, gets 16 per cent of sales in the region. All were under pressure yesterday

We still think the sell-off in these stocks is likely overdone. The investments of wealthy Japanese will be hit and there will be a short period where the country frowns upon those who show off wealth at a time of national crisis – but Japan’s love affair with luxury is likely to endure.