Japanese shoppers are entering their spending era. Not all luxury brands stand to benefit.

• Luxury sales in Japan surged due to a weakened yen and increased tourist spending.
• The luxury industry faced a decline in China, making Japan's market growth crucial.
• Brands like Hermès are thriving there by aligning with Japanese values of subtlety and quality.

If you were looking to shop luxury in Japan this summer, you had to get in line.

According to Amrita Banta, managing director of luxury insights firm Agility Research & Strategy, luxury stores started admitting customers by appointment only to cope with the meleé of tourists flocking to Japan to take advantage of the weakened yen and cheaper prices on high-end products.

The sales surge in Japan has been a much-needed boost for the luxury industry, which has been hard hit by a drop in demand in China.

In the second quarter of 2024, LVMH's sales in Japan were up 57%, far outpacing its other markets. Gucci owner Kering also saw a 27% uptick in sales in Japan in Q2, while its sales plunged in other markets.

But in Q3, both LVMH and Kering reported a slowdown in luxury spending in Japan.

A mix of the strengthened yen due to Japanese government intervention and economic uncertainty abroad appears to have slowed Japan's shopping boom.

Still, while the tourist spending may have faded somewhat, experts say Japanese consumers are emerging from a frugal era and spending on luxury themselves.

"There's a lot of optimism about Japan in the market," Jelena Sokolova, a luxury analyst at Morningstar, told BI.

A combination of wage increases and the strengthening of the yen is driving consumer spending confidence in Japan, Daniel Langer, CEO of brand development and strategy firm Équité and a Pepperdine University luxury professor, told BI over email.

But the Japanese aren't just splashing their cash anywhere — a bitter pill for some luxury brands to swallow.

Low-key luxury aligns with Japanese values

Hermès is one example of a brand that continues to report strong momentum in Japan.

This is partly because its image is in sync with core Japanese values, Martin Roll, global business strategist and senior advisor at consulting giant McKinsey, told BI.

Consistency, craftsmanship, and "quality over loud branding" — attributes the Birkin bag maker is known for — align with "Japanese consumers' desire for subtle luxury that conveys a sense of heritage and exclusivity without overt showiness," he said.

"Hermès and similar brands appeal here because they prioritize quality, subtlety, and minimalism over ostentation, which is key to succeeding in the Japanese luxury space," Roll said.

The nuances of a Japanese audience

While trend-forward brands have historically done well in regions like India and China with younger populations, "Japan is more of a stable, mature market," Banta said, especially given the country's aging population.

Banta said brands like Prada, Louis Vuitton, and Hermès, which have long been seen as epitomizing luxury and have select products with cult followings, will maintain momentum with locals.

Still, the young, affluent Japanese consumers — while more likely to self-indulge — retain many of the same values as their elders, Roll said.

"This group is more willing to invest in high-quality goods that blend tradition with modern self-indulgence, appreciating brands that offer a sophisticated but not overtly showy luxury experience," Roll added.

Luxury brands that didn't participate in "greedflation" and hiked prices after the pandemic have also fostered trust with Japanese consumers, Langer said.

Although Japan has always been an important market for luxury brands, it was eclipsed by China as the world's largest in the early 2010s.

But now that China is seemingly no longer the luxury cash cow it once was, brands looking to pivot their attention back to Japan will have to double down on respecting and understanding the locals.

"Cultural capital is the name of the game in today's world," Langer said.

"Brands need to be able to inspire Japanese audiences, and this means giving them something they desire," he added. "Brand storytelling, timelessness, and meticulous quality are critical in this market."