Tourists from China and across Asia are coming to Japan in search of luxury bargains, fueling the country's luxury boom.
Tomohiro Ohsumi/Getty Images
Burberry reported its Q1 fiscal 2025 earnings results on Monday, and things aren't looking good for the British luxury retailer.
The Asia Pacific area took a strong hit of 23%, with sales in Mainland China dropping by 21%.
The one country to escape the dip was Japan, where sales grew 6%.
But it isn't wealthy Japanese locals that are bucking the trend; it's tourists from China and the rest of Asia.
"The country's luxury industry has benefited from strong tourism from China and other near-shore customers in Asia," Burberry wrote in an earnings release.
Burberry is not the only luxury brand seeing its sales boom in Japan.
Richemont, the conglomerate behind brands like Cartier, and the Swatch Group — the world's biggest watchmaker — both reported strong growth in Japan compared to the rest of Asia in earnings results this week.
LVMH experienced a similar phenomenon in its first-quarter earnings this year. The luxury conglomerate, known for brands like Louis Vuitton and Dior, reported double-digit sales growth in Japan, noting in an earnings release that there had been a "strong growth in spending by Chinese customers in Europe and Japan."
Competing luxury conglomerate Kering, which owns brands like Gucci, Balenciaga, and Saint Laurent, also reported a similar sales trend. In Kering's Q1 2024 results, revenue from Japan grew 16% during the quarter, while Asia Pacific, which excludes Japan but includes China, was down 19%.
The yen has been steadily declining in value for more than three years. That means tourist dollars go further than they have for years, and luxury goods likely cost visitors less in Japan than back home.
This has led foreign tourists to flock to Japan to take advantage of the low prices and snap up cheaper products from premium brands. In March, the country broke its pre-pandemic tourist record with 3.1 million visitors.
"Right now, the devaluation of the yen is driving a lot of tourism to Japan," Amrita Banta, managing director of luxury insights firm Agility Research & Strategy, told Business Insider.
"Koreans, Taiwanese, Chinese, and Singaporeans are all traveling and shopping in Japan," she added, "they are enjoying bargains and shopping in Tokyo, where they know they can buy luxury goods much cheaper.
China has been a stronghold for luxury brands. But recently, Chinese consumers have been reluctant to spend their cash domestically.
Weak consumer spending has dragged down China's economic growth. Retail sales of consumer goods expanded just 2% in June from a year ago, according to China's National Bureau of Statistics. In June, domestic sales of cars, cosmetics, and household electronics all slumped despite an increase in household disposable income.
China's economy is facing a bunch of challenges, including a real-estate crisis, stock-market volatility, geopolitical headwinds, and demographic challenges.
The economic uncertainty means domestic consumers are less willing to spend on discretionary goods. Instead, they're opting to buy gold or spend their money on experiences.
Attracted by the cheaper prices of luxury goods, China's luxury consumers are spending their cash in Japan instead.
"Prices of luxury items in China are in many cases significantly more expensive than outside China," Daniel Langer, a professor of luxury at Pepperdine University and CEO of the luxury strategy firm Équité, told BI.
So once lockdown travel restrictions were lifted, "Chinese social media like Xiaohongshu was full of stories about the price differences between items from Hermès, Dior, and others," he added.
Traveling to other destinations to buy luxury goods at lower prices is not new. Langer said that twenty to thirty years ago, Japanese luxury clients would travel to Paris and Rome and take advantage of the then-lower prices of luxury items.
Now, the particularly weak yen has reversed that trend.
On top of that, Japan has an incredible and growing wealth, Langer added. "There is a strong internal demand for luxury, further fueled by an influx of travelers."
