Comparative Analysis on the Luxury Market Between Japan and China

(Chongqing University of Technology, Chongqing 400054, China)



Comparative Analysis on the Luxury Market Between Japan and China

ZHAOYa

(Chongqing University of Technology, Chongqing 400054, China)

The boom of the luxury market in recent decades could be especially attributed to the success of Asian markets, especially for Japan and China. A comparison analysis of investment conditions including market size, consumer mentality, competitiveness and investment environment between China and Japan is made in this paper. The conclusion is that, the current and prospective growth of the Chinese market, compared to the declining market of Japan, makes it an ideal country for a company to set up shop in.

luxury market; investment conditions; China; Japan

1 Introduction

The luxury market has been growing significantly in recent decades (Euromonitor, 2011). This boom could be especially attributed to the success of Asian markets (Monkhouse, Barnes and Stephan, 2012). East Asia, which is composed of countries with different levels of economic development, has shown an increase in affluent consumers. Korea, China and Japan are all economies where investors belonging to the luxury brand market need to keep an eye on. These consumers have developed a strong appetite for Western branded luxury goods as well as exhibiting the fastest consumption growth (Jiang, 2005; Tay, 2008). Thus, Western luxury brands wanting to become successful in the world are eager for ways to tap in to investment opportunities in this fantastic market. In our scenario, we have a trendy new European luxury brand looking to expand its operations to the Orient. One country must be chosen as the site for their first East Asian outlet. Choosing one particular country in this region may be a difficult choice, but by assessing the market and investor conditions, a decision can be made as to which country offers the best investment opportunity for newcomers like our company. Two countries will be of particular interest, Japan with its mature luxury market and China with its fast expanding luxury market.

Fuelled by the post war efforts of the United States, Japan has enjoyed a steady economic growth during the past century. In terms of its luxury market, Japan was among the first in 20thcentury Asia. Japan’s luxury market has been in existence since the 1980s and now hosts almost all prominent luxury brands. As the only significant maturing luxury market in Asia, Japan has always played an integral role to the development of West to East trade. Japan, together with Europe and the United States has enjoyed being among the world’s luxury market leaders (Fujioka, 2012). However, recent events have put added pressure to Japan’s luxury market economy. The worldwide economic crisis of the past decade and the disasters of 2011 have had an adverse effect on Japan’s luxury market.

China on the other hand has enjoyed an economic resurgence following the loosening of its trade and political limitations. This economic resurgence has been fuelled in part by the decline of other world economies due to the global economic crisis as well as the entry of China into global trade. China’s 1 billion plus population and its vast resources have made it one of the global economic powers entering into the 21stcentury. Though relatively new, China’s luxury market is poised to become one of the most significant in the world in the coming years.

For a new European luxury company looking to enter the Asian market, China looks to be the best possible entry point. Though to understand why, an assessment of China’s fresh luxury market and investor conditions as compared to that of the long established Japan’s must be made.

2 The comparison of investment conditions between China and Japan

2.1Market

Market size is an important factor to consider when assessing market conditions. Japan accounts for about 40% of the world’s global luxury market prior to 2007. The main consumers of luxury items in Japan are young single professional women still living with their parents, the so-called parasite singles. Another vital demographic for the Japanese luxury market are the women who have become company heads and chiefs. These empowered women use about 10% of their annual income on fashion items, usually high end luxury goods (Howard et al. 2007). In a population of just slightly more than 100 million, this small group accounts for the majority of the $10 to $20 billion the Japanese luxury market rakes in.

China’s luxury market on the other hand, with a population of more than a billion currently has a sound base for its luxury goods market. Today’s China has an estimated 18 thousand billionaires and 440 thousand multimillionaires, consumers who have high purchasing power and eagerly aspire to buy luxury goods (Degen, 2010). The youth of China’s rich are in particular prime targets for the luxury market. Their penchant for expensive cars, clothes and watches have fuelled the growth of China’s luxury market. Another potential group of consumers for China’ luxury market is its rising middle class. China’s middle class is growing both in numbers and in spending power. According to a report from McKinsey & Company, the 13 million households in China’s upper middle class which have incomes between 100 000 and 200 000 RMB are the reserves of luxury buyers (Atsmon, Dixit and Wu, 2011). China’s growing economy fuels the growth of all potential luxury goods consumer classes, from the wealthy elite to the upper and middle class. A luxury market report says that the Chinese luxury market is worth of more than 16 billion dollars in 2011, and it is fast expanding by about 25 per cent a year. It has just recently surpassed Japan as Asia’s top luxury product market (Salsberg, 2012).

2.2Customermentality

Consumer spending mentality is another important facet of the current and future luxury market conditions for any investor. Spending mentality was a big factor in Japan’s early dominance of the Asian luxury market (Howard et al. 2007). The pompous consumer mentality was somewhat weakened in the aftermath of the collapse of the bubble. Recently, Japanese luxury market suffered another serious defeat due to the immediate shockwave sending by financial crisis, tsunami, earthquake and nuclear disaster (Degen, 2009). These disasters fundamentally changed consumers in attitudes and behaviors toward luxury goods, sapping the materialist, feel-good spirit and replacing it with a focus on helping others and a “back to basics” mentality (Alderman, 2011).Another mentality that the Japanese have is in placing importance on the pedigree of their luxury brands. Traditional and established goods held more value than new, unproven ones. Goods which already have a reputation for excellence have a good chance of having a large share in Japan’s luxury market (Howard et al. 2007)

The Chinese luxury market is now experiencing the same growth Japan did in the 1980s and 1990s. With the strong economic growth of the nation and rapidly rising incomes of individuals, the desire of displaying wealth and the appreciation for luxury is again wide awake and alive among Chinese people (Ngai and Cho, 2012). Chinese consumers, after decades of limited access to foreign goods, have an understandable hunger for them. This shift to a more materialistic culture enabled China to even weather the recent global depression; the sales of luxury goods in the mainland China rose by 16 per cent, to about 64 billion RMB in 2009 (Atsmon, Y., Dixit, V., Wu, C., 2011). In addition, due to China being an emerging market with a shorter history of luxury consumption, consumers in China are more open to new brands. There is an interesting case of Foli Folie, a trendy accessories company from Greece. When it first tapped Chinese market in the 2002, no one knew this brand. However, it took advantage of the rapid expansion of Chinese luxury market to develop its business. Now it has become quite popular and has been widely accepted by Chinese affluent consumers and has set up more than 40 shops in China (Degen, 2010).

2.3Competitiveness

Competition is a very important consideration when assessing market conditions. For a country with less than half the population of the United States, Japan had almost two times the number of luxury-goods stores as that in United States (Salsberg, 2009). Too many competitors carving up a diminishing cake will result in fiercer competition. For a European luxury company which wants to open one shop in Asia, Japan would be a poor choice since it would be difficult for a newcomer to compete against other companies which already have their own established market share. An additional competitor in an environment already plagued with economic fears will be hard-pressed to compete against established, more prominent brands. Taking into account of the Japanese mentality for brand loyalty, established excellence and the difficulties of new company intent on opening a branch in Japan becomes more apparent.

The importance of competition is slightly reduced if the overall resource, in this case, the consumers, is plentiful enough to allow for profitable coexistence (Dubois and Duquesne, 1993). China’s population, as well as the relative lack of market dominance from any number of brands, makes it a fertile ground for new companies to make a name for themselves. Established companies may have a slight edge from those elite who have knowledge of them from travels to other countries but for the rising middle class, the competition for luxury products is still a free for all. The demographic for potential luxury spenders is also a mixture of male and female, young and old. With China’s growing economy and its rising middle class, luxury companies have a diverse mix of niches to cater to.

2.4Investmentenvironment

Investment environment is also another aspect vital in determining the best country to establish an Asian foothold in. Japan’s luxury market is more mature compared to China’s. The fierce competition, consumers’ higher requirements of goods quality and prompt after-sale service make setting up shop in Japan a daunting task. Newcomers to Japan’s market would also require a high initial investment due to the high cost of both property and labor. Japan is a developed country which has become passive in its efforts to attract foreign investment, so its favorable policies regarding foreign investment are fewer than that of China. In addition, Japan’s culture of loyalty may also be hindrance to prospective newcomers, since the experienced workforce may opt to offer their services to already established companies. The high initial cost of investment, the limited market possibilities and the difficulty of entering the Japanese luxury market make it a risky choice for an European newcomer.

China’s foreign investment policies on the other hand are relatively more advantageous for European luxury companies. Due to China being a developing country, the Chinese government is taking an active hand in attracting foreign investors. Moreover, China’s relatively lower operating costs may be more attractive to luxury goods companies. Lower labor and property costs could greatly reduce company expenditures. With China on the brink of becoming a very dominant global force, international trade would be particularly fostered through various incentives.

3 Conclusion

The current and prospective growth of the Chinese market, compared to the declining market of Japan, makes it an ideal country for a company to set up shop in. The huge Chinese population translates to a large consumer market, an attractive prospect for any business. The rise of China’s middle class and the numerous established millionaires already provides a current potential market. For established brands looking to expand their business to the Orient, China is a great opportunity. The speed of China’s luxury market development makes for a huge long-term potential market. A huge amount of potential consumers is the biggest opportunity one can offer to a newcomer. Japan’s predicted luxury market decline is therefore a significant warning sign to potential investors. Although Japan is currently the biggest luxury consumer in the world; future trends, its small population as well as China’s growth, both in economy and in the number of consumers, make it more probable that it would not be so in the very near future.

As far as the development aspect is concerned, China has more attractive factors than Japan. Owing to the strong growth of the Chinese economy, China will have increasingly more luxury consumers. The middle class will have more and more potential to become luxury consumers. The shift in consumer behavior towards a flashier and more materialistic trend gives current companies in China a big opportunity. This also sends a positive signal to new investors that this market could provide a promising environment. The rise of materialistic fervor in China is in sharp contrast to the somewhat declining one in Japan.

In terms of investment environment, China, as an emerging luxury market and as such seems more flexible and tolerant to new investors. A large proportion of Chinese luxury consumers are young people, and they are more tolerant with or have more appetite for Western trendy goods. In Japan, the luxury goods are consumed more by businesswomen and the wealthy elite. So for a trendy new luxury company, it is better to open up shop first in China. The return of investment is potentially faster in a younger market than in an older one. In contrast, Japan’s luxury market, as a maturing market, already has fierce competition among the different luxury brands. And due to many Western luxury brands being already established in the Japanese market, there is smaller space for newcomers to expand their business. Furthermore, Japanese consumers are more familiar with luxury goods, so they may have higher, more specific requirements in regards to the design and quality of the goods, as well as the after-sale service. The company needs to focus on every aspect of selling goods. In terms of investment potential and conditions, it is wiser to tap China’s fertile, welcoming, and younger market than struggle to break into Japan’s more mature and competitive one.

China is a fantastic market for Western luxury companies which want to expand its new business in the Orient. China has a huge current market and an even larger potential one. The current shift in consumer values, the welcoming attitude of the Chinese government to foreign investors and relatively cheap operating costs make China an attractive country to invest in. With Japan’s market and economy on the decline, it is more beneficial for potential investors, particularly a new European luxury goods company, to tap the fertile investment opportunities that China offers.

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(责任编辑 杨梅梅)

赵雅(1990—)，女，硕士，获英国谢菲尔德大学东亚商务研究硕士，获英国布里斯托大学国际关系硕士，研究方向：酒店管理，旅游管理，国际商务,国际关系(东亚研究)等。

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1007-7111(2016)10-0040-05

中日奢侈品市场发展现状、投资条件比较分析

赵 雅

(重庆理工大学，重庆 400054)

近几十年来奢侈品市场的繁荣可能尤其要归功于亚洲市场的成功，特别是日本和中国市场。本篇论文旨在比较分析中国和日本两国市场的投资条件包括市场规模、消费者心理、竞争力和投资环境。结论是：相较于日本奢侈品市场现阶段的萧条，中国奢侈品市场的现状和未来增长趋势，使中国成为国际奢侈品企业渠道扩张的理想投资目的地。

奢侈品市场；投资条件；中国；日本

10.13769/j.cnki.cn50-1011/d.2016.10.009

format:ZHAO Ya.Comparative Analysis on the Luxury Market Between Japan and China[J].The World and Chongqing, 2016(10):40-44.