Going to Japan to buy luxury goods is not cheap to the "price of cabbage"

No one doesn't welcome low prices, even in the luxury market, which is known for its resistance to inflation.

Recently, the yen did refresh its lowest record against the dollar in almost 34 years. The yen traded below 160 yen per dollar in late April, the lowest level in 34 years. This has attracted a large number of Chinese tourists to Japan to "pick up bargains".

Similar to the 30% depreciation of the yen in 2015, Chinese tourists have flocked to Japanese stores large and small to buy cosmetics, bags and clothing. Based on the "cheapest" exchange rate in 34 years, many people have started the process of buying and buying in Japan. Because of the ultra-low exchange rate, many skin care products and cosmetics can be cheaper by nearly 100 yuan. There are endless rumors about "this May Day, I buy LV in Japan and earn back the ticket money in 3 hours".

According to the big data of air travel, as of April 30, during the "May Day" holiday, more than 1,300 domestic passenger flights to and from Japan are planned, and more than 130,000 domestic air tickets are booked to and from Japan. According to the "2024 May Day Travel Trend Insight Report" released by Ctrip, Japan has become the most popular destination among China's popular outbound destinations during the May Day holiday. According to the Tongcheng platform, Japan's outbound travel booking popularity index has increased by more than 3 times year-on-year.

Many Chinese living in Japan told the Titanium Media APP that counting various discounts, a 20,000 bag can be cheaper by two or three thousand yuan. But in fact, first-line luxury goods are not cheap to the "price of cabbage". At the same time, there are only a lot of news about people who go to Japan to sweep goods and "get taxed". According to customs regulations, the total price of imported and exported goods is exempt from tax within 5,000 yuan, and those who exceed it need to pay tax at a rate ranging from 20% to 60%.

The era of low exchange rates in Japan has not been seen in 40 years, and a wave of luxury shopping and rising prices in Japan is unfolding. The far-reaching impact of this feast cannot be ignored.

A feast of luxury under the trend

The weakening of the yen against the US dollar and the depreciation of the yen have affected many industries in Japan. In the luxury market, which retains its value, it seems that the stimulus is more obvious and stronger, triggering a boom in luxury consumption. LVMH's sales in Japan in the first quarter increased by 30% year-on-year, and outdoor sports brands such as lululemon and Arc'teryx were also popular.

In particular, LVMH's first quarter 2024 report recently released by LVMH, the parent company of the LV brand, shows that in the first three months of this year, LVMH's sales in Japan increased from 7% to 9%, an increase of three percent year-on-year. LVMH management said the increase in sales in Japan was due to the contribution of Chinese tourists to Japan.

Low prices have become a trend in business competition. Consumers' decision-making mechanisms are getting higher and lower, and prices are king. This also made Japan's luxury consumption, which was once silent due to the epidemic, unprecedented.

In fact, Chinese tourists have long been considered to be the largest spenders of luxury goods, and they cannot be ignored as the main force behind luxury consumption. According to a Bain & Company report, Chinese mainland consumers currently account for about 22 to 24 percent of global luxury spending, and this proportion is expected to increase to 35 to 40 percent by 2030.

According to Bain & Company, the price of luxury handbags in the European market has been about 20 to 25 percent lower than in China due to factors such as exchange rates and tax refunds. Nowadays, the recent depreciation of the yen and the price difference advantage brought by the fluctuation of the yen exchange rate have attracted a large number of tourists to buy luxury goods, and the price of luxury goods in Europe has no greater advantage than that of Japan, making Japan temporarily replace Europe in the near future and become the main shopping destination for Chinese luxury consumers at "low prices".

In the first quarter of 2024, Japan has become one of the few regions where luxury brands are growing due to price power, and it has also become a shopping destination for Chinese tourists.

For example, in the first quarter of 2024, Kering's sales in Japan increased by 16%, in addition to a 32% increase in LVMH Japan's revenue. This was mainly due to favourable exchange rates and the large number of Chinese consumers buying luxury goods in the Japanese market. At the Q4 2023 earnings conference, Kering said that Chinese tourists accounted for a double-digit share of sales in the Japanese market, while only about 5% to 6% in Europe.

However, despite the boom in Japan's luxury market, which has boosted the Japanese retail sector, it has not reached the point of "cabbage prices", and the recovery of tourism alone will not completely save the global luxury retail malaise.

At least at the data level, the global luxury goods performance in the first quarter of 2024 is a conservative start. For example, the top two giants in the luxury industry, LVMH and Kering, will have overall sales in Q1 2024 falling by 2% and 10% respectively at real exchange rates, which to a certain extent reflects the fundamentals of the luxury industry, which is still in a cold cycle.

In addition, in the context of the depreciation of the yen, the craze for yen exchange is continuing to heat up, especially the phenomenon of Hong Kong citizens taking 1 million to exchange yen at exchange shops. There are also a few Chinese who have recently bought houses in Japan, stimulating the local real estate industry in Japan.

Soochow Securities' research report pointed out that real estate prices in Japan's three major metropolitan areas have entered an upward channel. The average house price in the Tokyo metropolitan area has risen by 75.9% over the past 10 years, and the annualized growth rate in Saitama and Chiba prefectures has also been 4.1% and 4.0%, both outpacing Japan's CPI growth.

Food and electricity bills have also risen

A staff member who previously worked at the Japan External Trade Organization told Titanium Media APP that the depreciation of the yen, the rise in food and prices usually has a greater impact on the catering industry. Some small and medium-sized enterprises that cannot pass on the rising costs are even more troubled by the rising cost of imported raw materials.

Koko, who studied and worked and lived in Japan, told Titanium Media APP, "Recently, the Japanese government gave each person a subsidy of 70,000 yen, saying that it was to make up for the increase in food and electricity bills. However, he said that although the price of food and electricity has increased, it has not fluctuated much.

In fact, the yen is experiencing a third round of significant depreciation since the Fed raised interest rates in 2022, the previous two rounds were from January 2022 to early November 2022 and January to November 2023. At the beginning of March 2024, the yen hovered around 115 yen to the dollar. By April 29, 2024, during the local Golden Week holiday in Japan, the USD/JPY exchange rate once broke through the key point of 160.

But the depreciation of the yen is not the only factor affecting prices in Japan. Some experts pointed out that the magnitude of price increases may also be constrained by other factors. Other factors, such as supply and demand, economic policy and the international trade environment, can all have an impact on prices.

Koko told the Titanium Media APP that in fact, after the epidemic, the price of air tickets between China and Japan has been in an unstable state. Today, the depreciation of the yen has led to a decrease in the willingness of Japanese people to leave the country, an increase in foreign tourists, a significant increase in the price of air tickets and hotels on Japanese Airlines, and the number of outbound tourists during Japan's Golden Week is lower than the pre-pandemic level in 2019. Hotel room rates in Japan are reported to be at their highest level since August 1997.

Some analysts pointed out that the depreciation of the yen can bring profit growth to listed Japanese companies, especially export-oriented companies such as Toyota and Uniqlo, which can increase the value of foreign assets held by companies. According to the report of Tianfeng Securities, judging from the net profit ranking of listed Japanese companies in 2023, the performance of Japan's leading companies is basically related to overseas revenue. In particular, the Japanese automotive industry, represented by Toyota, is expected to increase its net profit by 2.9 trillion yen in fiscal 2023, accounting for 60% of the net profit growth of Japanese stocks.

Fast Retailing, Uniqlo's parent company, sold 883.9 billion yen outside of Japan between September 2023 and February 2024, up 17% over the same period. During the epidemic, Uniqlo, which benefited from the depreciation of the yen, was able to account for half of its revenue from overseas business, and hit a new high profit in the 2021 and 2022 fiscal years in a row.

However, a long-term depreciation of the yen could exacerbate domestic economic pressures, as shrinking household consumption will ultimately affect the economy. Fast Retailing's chairman and president Yanai said in April 2024 that a weak yen "is not only bad for our company, but also bad for Japan."

According to Japan's Kyodo News Agency, the Japanese authorities may have intervened in the foreign exchange market three times in recent days. Recently, the market has also speculated that the Japanese government may intervene in the market and buy yen, but the authorities have not responded. What awaits the Japanese government and companies is balancing the benefits of exchange rate fluctuations and boosting business and consumer confidence. (This article was first published on Titanium Media APP, author | Liu Dafang, editor - Fang Yu)