Luxury Brands Face Profit Hit from Weak Yen and Tourist Spending

Tourists are flocking to Japan to buy high-end clothes and handbags at a discount due to the weak yen currency. Luxury goods companies like Louis Vuitton parent LVMH would rather they stayed home and shopped.

The yen’s decline, hitting a 38-year low against the dollar last month, has sparked an unprecedented tourist boom, drawing savvy shoppers from Asia and elsewhere. Global luxury brands are concerned as their goods are cheaper in dollar terms in Japan, denting profits.

Chinese tourists are particularly holding off on buying designer goods at home and splurging in Japan. The yen’s volatility prevents companies from easily hiking prices, leaving them with lower margins in Japan while the yen remains weak.

Zhang Lei, a 29-year-old DJ from Hunan, visited Japan for the first time and was already planning a return trip. “It’s cheaper,” said Zhang, carrying Louis Vuitton and Onitsuka Tiger shopping bags in Tokyo’s Ginza district. He planned to buy a Rolex next.

French luxury giant LVMH, which owns Dior and Fendi, is surprised by the shift. “We really have a big shift of business from Asia into Japan,” said CFO Jean-Jacques Guiony. The yen’s volatility poses challenges, as recent currency surges show.

Dior, Chanel, Mount Fuji

Louis Vuitton’s Alma BB handbag costs 14,800 yuan in China ($2,050) but sells for 279,400 yen in Japan ($1,875). At the yen’s weakest, it was available for as low as $1,725. The yen would need to strengthen to around 136 to the dollar for price parity with China.

Chinese tourists are also boosting Japanese sales of luxury spirits, according to Remy Cointreau CFO Luca Marotta, who noted lower margins despite strong sales growth.

Swiss luxury group Richemont, which owns Cartier, saw Japan sales increase almost 60% in the first quarter, driven by Chinese, Southeast Asian, and American tourists.

“Shopping, shopping, shopping,” said Fumiko Annisa from Indonesia, who planned to buy Dior and Chanel. She also planned to visit Osaka and Gotemba near Mount Fuji, known for its outlet mall.

Japan saw a record 3.1 million foreign visitors in June, aiming to beat the annual record of almost 32 million set in 2019. Tourist spending is expected to reach 8 trillion yen ($54.74 billion) this year, boosting an economy challenged by an aging population.

New Yorker Yadwinder Singh hadn’t planned on shopping until he saw the prices in stores like Zara. “Clothes, jewelry, shoes – the whole outfit,” said the 26-year-old.