Despite many economic and demographic challenges Japan - the second largest market in Asia (behind China) for personal care products - remains a must.

A strategic market for luxury brands

With some of the highest incomes in the Asia Pacific region, Japanese consumers continue to enjoy respectable purchasing power. According to consultancy Bain & Company, the country logs some US$22.7 billion in annual spending on top-end goods, ranking it as the world’s number two luxury market behind the United States.

"You shouldn’t forget that a big portion of the luxury clientele is here in Japan," Sidney Toledano, chairman and CEO of Christian Dior Couture, told AFP last April at the opening of Ginza Six, a 241-store building fully dedicated to luxury brands. "It remains a strategic market for luxury."

Japan’s luxury market also benefited from the growing number of foreign shoppers visiting the country, in particular from China and Japan is hoping to land 40 million visitors in 2020 [1], the year that Tokyo hosts the Olympics. Last year, some six million Chinese visited, compared with 2.4 million in 2014. For Chinese shoppers, Tokyo remains an attractive alternative to Hong Kong.

Japan logs some US$22.7 billion in annual spending on top-end goods, ranking it as the world’s number two luxury market behind the United States. Photo © Toru Yamanaka / AFP

"Historically, (Japan has) been a very insular luxury market where 90 to 95 percent of the spending was by locals," said Joëlle de Montgolfier, Paris-based director of consumer and luxury product research at Bain & Company. But now some 30 percent of sales are generated by foreign visitors owing to tourism, she added.

Natural cosmetics boom

Another major shift of the Japanese market is the growing interest for natural products. Indeed, Japan is no exception to the growing interest and demand for healthier, safer and more ethically conscious products. In addition, the 2011 earthquake and tsunami that severely hit the Tohoku region, has accelerated the transformation to a more environmentally-conscious lifestyle.

As Japanese brands lagged to enter this segment, the growth in demand for natural cosmetics has mostly benefited international brands. An illustration to this trend was the massive participation of international natural and organic cosmetic brands to the Cosme Tokyo tradeshow. [2]

However, Yuiko Mitani, research analyst for beauty and fashion industries at Euromonitor International, wrote in a recent blog post that “Japanese consumers are not buying into such strict natural/organic claims. Rather, a more general feel around natural/organic brands and products seems to be key attraction.” While Euromonitor anticipates the natural/organic beauty market in Japan to continue steady growth, Yuiko Mitani says the definition of these products is likely to remain vague and “the growth of the officially certified area is forecast to remain limited”. Furthermore, natural/organic beauty brands and products may face intensifying competition from other beauty trends such as derma-cosmetics with “stronger scientific backing”, due to Japanese consumers’ persistent preference for efficacy.

In the future, the Japanese market should still undergo many changes. While tourism-related consumption partially offsets demographic decline, it remains highly dependent on the Yen level. Furthermore, younger people don’t have the money or the same interest in luxury brands anymore, said Naoko Kuga, a consumer lifestyle analyst at Tokyo’s NLI Research Institute.