Despite luxury goods manufacturers shifting away from Japan towards the Asian mainland, research company McKinsey expects Japan to remain one of the world’s only ‘fast moving’ luxury goods markets, according to its latest research.

At first glance, the situation in Japan would seem hardly improved from a year ago, finds a new report from McKinsey. The market for imported brands—a rough proxy for luxury goods—shrank to $9.94 billion in 2009, marking a 16 percent drop from 2008 and leaving the market at just half the size of its 1996 peak.

First quarter 2010 results for many luxury goods manufacturers also point to a distinct shift in market growth away from Japan and toward the Asian mainland. French luxury giant Hermes, for instance, saw Japan sales drop nearly 5 percent for the quarter, against 44 percent growth for Asia excluding Japan.

The same holds true for LVMH, which reported a first quarter sales decline of 7 percent in Japan, but 25 percent growth in China. Swiss luxury player Richemont, reported a Japan sales decline of 17 percent for the 12 months ending March 31 2010, in contrast with growth of 17 percent across the rest of Asia.

This shift in luxury market growth away from Japan reflects unfavorable macro trends, such as the country’s declining, aging population and persistent deflationary pressures. The shift is also indicative of fundamental changes in consumer attitudes and behaviors toward luxury goods. As such, McKinsey does not expect Japan’s luxury goods market to experience significant growth, in real terms, anytime soon.

Despite the bleak growth outlook, Japan’s luxury executives are cautiously optimistic, with 80 percent of the executives McKinsey spoke with expecting performance to improve from 2009 and expressing being somewhat optimistic about the future of Japan’s luxury market over the mid-term. The reason for their optimism: Japan is, and will remain, a global top-three market for luxury goods into the foreseeable future, especially if Japanese consumer purchases abroad are included.

In McKinsey’s global survey, the Japanese propensity to purchase luxury goods remained quite high, at 32 percent of all respondents, behind only China and Korea, and well ahead of the US and Europe. Likewise, the willingness to pay full price was more than double that of the US and Europe and second only to China.

Given some of the unique characteristics of Japanese households—such as a higher propensity to spend on luxury versus more basic items and an enthusiasm for quality, novelty, and exclusivity—even middle class consumers tend to enjoy a higher discretionary purchasing power than their counterparts in other advanced countries; as such, McKinsey expects Japan to remain one of the world’s only “fast moving” luxury goods markets.

McKinsey’s recent research found that

Watches/Jewelry Purchasing Frequency Stable
Purchase frequency in the watches/jewelry category appears to have stabilized, which indicates that just as many Japanese consumers have increased their luxury spending in this categories as have decreased. Consumers purchasing less often in the watches/jewelry category often told McKinsey that they “have fewer needs/occasions to use/own luxury products” and “would rather spend the money on other things.”

In all categories, Japanese consumers acknowledge trading down to less expensive brands, with 14-22 percent of shoppers across categories reporting they have switched to buying less expensive brands. A further segmentation of the survey data supports this point, as McKinsey found that consumers purchasing “premium” luxury items were more likely to be buying less and spending less than those purchasing “accessible” luxury. Japan’s luxury consumers, it seems, are spending money more selectively and deliberately than they used to.

78% of Japanese Consumers Appreciate Value of a Luxury Jewelry/Watch Item

In the watches/jewelry category, over 20 percent of shoppers reported purchasing more luxury goods than a year earlier. What drove this behavior? Overwhelmingly it was because consumers “came to better appreciate the value of owning or wearing a luxury item” (some 78 percent for watches/jewelry). Other reasons included a recognition that “people around me are increasingly buying luxury products” and, perhaps surprisingly, “it is now more convenient to buy luxury products”.

Exclusivity Matters

Over 30 percent of Japanese consumers said they are most willing to pay full price when a luxury good is an exclusive or in limited supply, compared to 12 percent like-minded consumers in the US and just 8 percent in Europe. This is consistent with a general Japanese love for newness and exclusivity that marketers across virtually all retail categories leverage to generate consumer pull, explains McKinsey.

Overall Attitudes Toward luxury have Improved Since 2009

McKinsey’s 2009 survey consisted of shoppers who had purchased a luxury item between April 2008 and March 2009, in the deepest depths of the economic downturn. The 2010 survey covered the equivalent group one year on. The data supports a statistically meaningful improvement across a number of attitudinal statements from the prior year. For example, consumers who believe that “owning luxury goods is not as special as it used to be” declined from 49 percent to 39 percent; those who “feel that showing off luxury goods is in bad taste” declined from 31 percent to 24 percent. And most notably, despite the rising popularity of low-cost “fast fashion” brands in Japan, the percentage who “don’t feel the need to buy luxury brands because more affordable non-luxury brands offer good enough style” declined from 21 percent to 12 percent.

Online Luxury Retailers Small, but Beginning to Have an Impact

The expanding power of the online channel to drive growth has not been lost on luxury players, as Richemont’s recent 93 percent stake in multi-brand online retailer Net-a-Porter demonstrates. Without question, online players have become a force in luxury in many markets around the globe, and Japan is no exception. Rakuten and Amazon Japan continue to leverage their “one-stop shopping” value and are holding position as Japan’s top two destinations for fashion shopping, but dedicated multi-branded online luxury retailers are on the rise.

Gilt, Brands4Friends and Glamour-sales, all with similar models, albeit different assortments, are clearly gaining a foothold. The invitation only Glamour-sales.com, for example, features two- or three-day sales events where a specific luxury product or brand (typically apparel, leather, or jewelry) is showcased, complete with multimedia presentations and other tools. Some 15,000-20,000 visitors participate in each event, many from outside of the Tokyo metropolitan area.

Japanese Consumers Travel Abroad for Luxury Products

According to McKinsey’s research, 40 percent of Japanese consumers purchased a luxury item when traveling outside Japan. Hawaii and Korea were the most popular purchase destinations, followed by Europe and Hong Kong/Macau. Nearly half of respondents in all categories identified the “cheaper price” as the reason they purchased the product outside of Japan, with about a quarter of responses adding that “shopping [for luxury goods] was part of the reason for my trip.”
 
Winning the Chinese consumer

In May, Japan began admitting individual Chinese tourists for the first. According to an official at the Japan Tourism Agency, each Chinese tourist spends between $1,300 and $2,200 during a visit to Japan. The country hopes the total number of Chinese visitors will increase by 250,000 in 2010 to 1.25 million, generating an estimated $442 million, the official said. Chinese are expected to become Japan’s largest tourist nationality in 2013, and could exceed 3.9 million. Luxury goods companies are well-positioned to benefit, provided they are proactive in attracting this unique subset of consumers by, for instance, accepting certain credit cards or having Chinese-speaking staff.

Information from McKinsey special report on Japan’s Luxury Consumers

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 The word "diamond" comes from the Greek "adamas" – unbreakable or unconquerable. Diamonds are the hardest natural substance on earth, but they are not indestructible. When a diamond is placed in a microwave and the temperature is raised to 1405 degrees F (763 C), the diamond will vaporize, leaving nothing but carbon dioxide residue.

Diamonds are reputed to be 58 times harder than the second-hardest mineral on earth – corundum – which forms rubies and sapphires. Despite many attempts to use different tools to cut diamonds, eventually people figured out that only a diamond could cut another diamond. Nevertheless, despite their hardness, diamonds are brittle and will shatter if struck with a hammer.
Diamonds are formed over a very long time. Diamond formation takes place some 150 kilometers deep in the earth's crust over the course of a billion years. Volcanic eruptions force them to the planet's surface in a type of rock called kimberlite.

Other diamonds are found in or by rivers (alluvial deposits) or even in the sea floor, as in off the coast of Namibia. The largest known diamond in the world is the Cullinan, which was found in South Africa and originally weighed 3000 carats.

The original rough Cullinan was three times larger than the world's next-largest diamond, the Excelsior, which was also unearthed in South Africa.  Later, the Cullinan was cut into the 530.2-carat Great Star of Africa, the 317.4-carat Star of Africa, and several other diamonds, which are now part of the British crown jewels. The largest documented polished diamond is the Unnamed Brown, now known as the Golden Jubilee, which in its rough form weighed 700 carats and totaled 545 carats after being cut – a process that took three years. 

The Centenary Diamond, another British crown jewel, also took three years to be cut. At a weight of 273.85 carats, it is reputed to be the largest flawless diamond.

Not all diamonds are white. Impurities or exposure to certain elements during formation can give diamonds a blue, gray, orange, red, pink, yellow, green, or black color, with vivid blue, pink, and green being the rarest. While diamonds themselves are plentiful, only some 20% are rated gem-quality (appropriate for jewelry). The rest are used primarily in industry.

Progress has been made in developing synthetic diamonds. Under the recipe devised by scientist James Ballantyne Hannay, lithium is mixed with paraffin and bone oil, and then heated in iron tubes. Modern methods involve crystallizing carbon under immense pressure. Because synthetic diamonds are cheaper than natural diamonds, but not even industry experts can tell them apart, they are becoming a big business.

Diamonds are weighed differently from gold. The gold karat measurement indicates purity, whereas a diamond carat refers to weight, with one carat equal to 200 milligrams. The term carat derives from the Arabic qirat (carob). In ancient times, gem traders would weigh stones against carob seeds because of the seed's almost-perfect uniform size and weight.  The same carat measurement applies to both natural and synthetic diamonds.

The custom of wearing a diamond engagement ring on one's fourth finger comes from the ancient Egyptians, who believed that the "vein of love" ran directly between the fourth finger and the heart. And on the subject of diamond engagement rings, the tradition dates back to the Archduke Maximilian, who presented his fiancée, Mary of Burgundy, with a diamond betrothal ring.  

The famous slogan "A Diamond is Forever" is often associated with diamonds. The ad campaign launched in 1947 to push diamonds to a wider consumer market. The strategy worked, and "A Diamond is Forever" was voted the best ad slogan of the 20th century.

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There are a number of star diamonds in the world – The Earth Star, the Golden Star, Star of the East, and the Polar Star, to name a few famous stones – but a diamond star is much more unusual.

Recently, astronomers discovered a white dwarf – a compressed former star – that is in effect the biggest diamond in the galaxy, comprising some 10 billion trillion carats. BPM 37093, known by the catchier name "Diamond Star Lucy," after the Beatles song, is 2/3 the size of the Earth, but weighs more than the sun.

Diamond stars are formed when a constellation uses up its nuclear fuel and dies off, leaving a planet-sized crystallized carbon nugget – an orbiting diamond. According to a Harvard University astrophysicist, grading the diamond star would require a jeweler's loupe the size of the sun.  

Diamond Star Lucy measures some 4000 km across and is 50 light years from Earth. In its heyday, it was a star as bright as the sun is today.

Astronomers believe that in about 5 billion years, our own sun will burn itself out and become a white dwarf – a gigantic floating diamond, just like Diamond Star Lucy.

I wonder if someday we will be able to reach it, it will effect the diamond industry and diamond prices.

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