What does the Japanese luxury market hold for Burberry?

Burberry has set its sights firmly on Japan, announcing plans this morning to quadruple sales in the world’s second biggest luxury market by 2017 as its licenses with local partners come to an end.

 

With those ambitions in mind – and with continued concerns over emerging market growth – how has the Japanese luxury market been performing so far this year and what does the outlook look like for luxury firms?

 

According to a note released by Barclays yesterday, Japan was the strongest market by geography in the first quarter of the year, boosted by consumers rushing to buy their luxury goods ahead of the VAT increase at the start of April from five per cent to eight per cent.

 

Some brands even increased prices ahead of the VAT increase. Louis Vuitton introduced a six to seven per cent price increase in February, Hermès hiked prices by 10 per cent, Gucci by 10 per cent on certain items within the handbag category, while the price tags on Ferragamo’s Spring/Summer 2014 collection increased by seven per cent. 

 

Now that the VAT hike has come into force, what does that mean for growth in Japan for the rest of the year? Hermès recently noted that Japan was still growing in April at a more “normalised” level, which Barclays believes is in line with last year at around a seven per cent growth. Luxury department stores have also seen better-than-feared declines in April but “hard luxury” products such as watches have been worse affected. 

 

Burberry’s Asia Pacific chief executive Pascal Perrier said the Japanese luxury market was now worth €17bn (£13.8bn) and grew at constant exchange rates at 12 per cent last year. He also pointed out that the overall tourism market in Japan grew by 30 per cent last year, an important indicator for Burberry whose major customer base is the “travelling luxury consumer”. 

 

The group generated £25m in revenues for its 14 stores, concessions, and small wholesale business in Japan last year, and is confident it can growth retail revenues to around £100m by 2017 by taking back control of its licensed businesses. With those targets on the horizon, the future for Burberry in Japan looks bright.