Shopping at the End of the Luxury Bubble


W. David Marx | July 08, 2009

An over-emphasis on ‘investment’ messaging can backfire, making rationality too much of the luxury experience.

An over-emphasis on ‘investment’ messaging can backfire, making rationality too much of the luxury experience.

TOKYO — The Japanese luxury market around the turn of the century provides a great case study on the practical investment rationale that sometimes motivates consumers in our ever-evolving industry. Despite a stagnating economy and drop in real wages, the big-box brands grew at monumental rates, as consumers sought daily-use accessories from the most famous heritage brands that would be rational, long-term purchases. Yet, when economic conditions plunged into deeper recession in early 2008, that very “investment” rationale turned many reliable customers away from luxury goods.

Historical trajectory: from fun to “one-point luxury” to respecting value

The “Bubble Economy” of the late 1980s created a class of nouveau riche in Japan and normalised middle-class consumption of European luxury brands. In a personal interview from August 2006, United Arrows creative director Hirofumi Kurino explained, “In the 1980s, the very act of consuming luxury was fun in its own right.”

The Japanese remained relatively rich after the Bubble burst around 1991 and luxury spending continued in most sectors of the industry. But as incomes started to fall later in the decade, Japanese middle-class consumers — the most important source of revenue for the industry — needed to start making tough choices in order to keep purchasing luxury goods. Luxury consumption would now require sacrifice. Middle-class consumers who wanted to go on buying their luxury item of choice, be it handbags, watches, or cars, had to begin scrimping on other areas. This gave rise to the itten gouka shugi — having “one point” of luxury in an otherwise “standard” life — which has guided luxury consumption for the middle-class up to this day.

Despite these constraints, the hunger for luxury goods could not be satiated. The market for import luxury sustained growth throughout the 1990s, culminating in 1996. After that peak, the total market did start to contract, but remarkably, the big-box luxury brands — Chanel, Louis Vuitton, Prada, Gucci, and Dior — all grew at incredible rates. Luxury consumers had consolidated their tastes, and smaller brands felt the crunch.

At the turn of the century, luxury goods were still a significant part of middle-class life, although the consumer psychology had changed. Kurino described the transition back in 2006:

“After 9/11, there became two kinds of luxury consumers in Japan. Those who had a short-term view and wanted to ‘live for today’. And those who wanted the goods to make them feel better or ‘heal’ them. The second group only wanted to buy things with meaning, and therefore, Louis Vuitton was a perfect match.”

The idea of “value” also took on importance with the majority of non-capricious consumers. Money would not be pleasurably poured into luxury brands, but invested into goods that had stable and permanent meaning. This, however, only bolstered the dominant brands, as they could provide the highest perceived value and lowest risk for the price.

Luxury handbag consumers: valuing practicality and quality

Economic conditions forced Japanese consumers to take a much more functional, practical, and thus investment-minded approach in order to keep spending at their preferred level.

Female designer brand consumers, for example, moved away from designer prêt-a-porter and apparel to buy purses, wallets, and other accessories instead. The advantage here was the item could be used every day with every outfit — no matter the occasion, whether it was work, a date, or a formal gathering. Thus the high price-tag was a long-term investment towards a product that could be used frequently and for an indefinite time. This new desire for functional luxury only bolstered the Japanese love of Louis Vuitton — since its monogram bags were seen as the ultimate “neutral” item. Consumers could also rest assured that the brand would not go out of style, seeing as their bags had been a staple of Japanese upper-class tastes since the 1970s. Luxury brands helped consumers make this connection by more aggressively promoting advertorials in mass media magazines like CanCam, the “office lady fashion bible”. which features a “new product watch” spread with help from Louis Vuitton each month.

For a majority of Japanese women, “quality” — the material guarantee that is a core premise to the idea of investment — became the absolute rationale for many purchases. In an interview with the Nikkei Weekly in 2006, then president of Louis Vuitton Japan Fujii Kiyotaka plainly stated that LV’s “repair service for products used for ten years or more” was a key to high brand image in Japan. In the same interview, he said notably little about glamorous image-making.

This also echoes results of an online survey conducted with Japanese advertising firm Diamond Agency back in late 2006. The women polled — all in their twenties and thirties — put “quality” both as the number one factor behind making a luxury purchase and as the primary defining characteristic of “luxury”, ahead of other possible answers like “design”, “high price”, or "heritage”. They may have secretly dreamed the luxury fantasy but they justified the purchases to themselves and researchers as pragmatic ones.

Luxury consumption also received an unexpected boost from the vast number of luxury brand re-sale shops, where customers could buy used luxury goods at lower prices — or sometimes, exclusive goods at premium prices. According to a 1997 Los Angeles Times article on the emergence of a used luxury market in Japan, Tokyo re-sell store Boutique Claire was apparently selling fifty to a hundred pieces of pre-owned high-end goods per day back at its peak. The proliferation of these stores helped reduce the risk for any luxury purchase by providing retail spaces where consumers could sell cast off items they no longer wanted. The higher prices for rare items strengthened the investment rationale as well. These re-sell shops have fallen slightly out of favour in recent days but still litter the Tokyo landscape and provide an easy backup for the consumer who wants to “liquidate” — or periodically update — their luxury assets.

Around 2008, when the recession started to kick in, luxury sales hit a huge bump in Japan. With young women feeling a greater economic crunch and less optimistic about the future, the rational investment reasoning suddenly became an impedance against luxury goods for Japanese consumers. The ubiquity of luxury handbags also seemed to have finally devalued the product category as a favoured avenue for “investment”. Consequently, in a financial context, rejecting luxury goods became the more responsible move.


The Japanese market, often touted as the most sophisticated, advanced and mature in the world, demonstrates that more austere customer segments are likely to use the idea of “investment” as a way to self-justify the purchase of high-end goods. Judging by the success of the big brands during the previous Japanese recession and their catering to quality and practical concerns, the investment rationale was successful not just in maintaining sales but actually in increasing them. While this worked for a limited period, the arrival of prolonged economic contraction, in the Japanese case, flipped the investment rationale against luxury.

All luxury brands focus on quality and timelessness to a certain degree, so in recessionary times, investment can be a useful device for convincing consumers to spend. Judging by the Japanese example, however, an over-emphasis on investment can also backfire by making rationality and practicality too great a part of the luxury experience — thus, overshadowing the industry’s more emotive impulses. Japanese consumers started to ignore the bigger picture of the luxury “dream” and focused too much on the investment guarantee. So when money got even tighter, the move away from luxury was an equally easy rational “investment” decision.