Tiffany & Co. (TIF) and Harry Winston stores will follow Louis Vuitton in raising some prices to offset the yen’s 11 percent slide since Prime Minister Abe took office Dec. 26 with a promise to tame the currency’s strength and revive Japan’s exporters.
The increases, including the biggest ever at Vuitton Japan, may curb demand in the second-biggest market for personal luxury goods. Brands that don’t have Vuitton’s star wattage face a decision: Boosting prices may dent sales, while leaving them unchanged will cut millions of dollars out of profit.
“People who can afford to pay 500,000 yen ($5,200) for a Bulgari watch won’t care if the price is raised to 520,000 yen,” said Mikihiko Yamato, deputy head of research for JI Asia inTokyo. “But if a lower-end brand bag had a price hike of, say, 5,000 yen, some people might give up on buying it.” The Roman jeweler is one of about 60 brands owned by Paris-based LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s biggest luxury goods maker.
Japan’s economy has been mired in deflation for the last 15 years, prompting luxury goods makers to divert their attention to emerging markets offering rapid growth, such as China. Still, close to 10 percent of all personal luxury goods sold in the world were taken home by Japan’s shoppers in 2012, according to consultancy Bain & Co. Sales rose 8 percent to about 20 billion euros ($26 billion) last year and were little changed in yen terms, according to the consultancy.
“Japan is still a very profitable region,” said Erwan Rambourg, a Hong Kong-based consumer analyst with HSBC Holdings Plc (HSBA). “Staff costs and rents are not increasing much whilst sales productivity in Tokyo is still very high.”