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By
Reuters
Published
Jun 7, 2010
Reading time
4 minutes
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As Ginza changes, so does luxury market in Japan

By
Reuters
Published
Jun 7, 2010

TOKYO (Reuters) - For a glimpse at the diverging consumer forces vexing luxury goods firms in Japan, take a stroll through the ritzy Ginza district where upscale and discount retailers are battling for shoppers' attention like never before.



Ginza is Japan's answer to Fifth Avenue of New York and home to the flagship stores of most of the major global luxury brands doing business in the country, including Tiffany & Co (TIF.N), Bulgari (BULG.MI) and Cartier.

A series of store openings by casual clothing chains is changing the face of the district, a reflection of the country's sluggish economy and shrinking market for luxury goods.

The move downmarket has some in the Ginza establishment worried. A lot of money is at stake, with more than $5 billion in retail business generated within the district's eight "chome," or blocks, each year.

"We can't stop Ginza from transforming, but it's sad to see," said Noriyuki Morita, president of Mikimoto & Co, in an interview for the Reuters Global Luxury Summit at the jeweler's 4-chome store, built on some of the most expensive real estate in Japan.

"Personally, I would like the real and traditional Ginza between 1 and 4 chome to be left untouched."

Named after a silver-coin mint established there in 1612, Ginza has been rebuilt several times during its history following a series of fires and a massive earthquake, and most of what remains was constructed in the aftermath of World War Two.

The current transformation is rooted in the deflationary pressures depressing the economy, which has made consumers more cost-conscious and less likely to splurge on an expensive handbag or clothing from a high-end Western brand.

This has created an opening for fast-fashion shops like Fast Retailing Co's Uniqlo (9983.T), Inditex's (ITX.MC) Zara, Forever 21 and Abercrombie & Fitch Co (ANF.N), all of which have established outlets on Chuo Avenue, Ginza's main thoroughfare.

And in a move symbolic of the times, Gap Inc (GPS.N) is set to open a large store near the Sukiyabashi intersection next year in a building originally scheduled to house a Louis Vuitton (LVMH.PA) outlet before the French luxury brand nixed those plans.

"Ginza has long been a place where people come to buy expensive things," Yoshio Kunihara, Secretary General of the Ginza Street Association, a group that promotes business in the district and a code known as the "Ginza rules."

"It is hard to tell if this move toward lower-priced things is a long-term trend or not."

CHANGE IN THE AIR

When Abercrombie & Fitch opened its doors in December it ruffled feathers with neighboring tenants who complained about the strong smell of perfume coming from the store. The retailer was chided and agreed to suppress the smell, Kunihara said.

Abercrombie & Fitch did not return a call seeking comment.

Local media took the incident as a sign of the changes sweeping through Ginza. Another was the decision to close the Seibu department store in neighboring Yurakucho, which made the front pages of national newspapers when it surfaced earlier this year.

But a visit to Ginza on the weekend shows why it is still the best spot for retailers to move expensive merchandise. Chuo Avenue is closed to motor traffic and packed with shoppers, many of them from China and other parts of Asia.

Bulgari says sales at its Ginza shop, a 10-storey tower, rose 4-5 percent in the first quarter, against a 3.5 percent fall overall in Japan.

"Ginza is a long strip. Actually, in one part of it, De Beers, Chanel opened a store, Tiffany reopened a store. So this part of Ginza has been going up," said Bulgari Chief Executive Francesco Trapani.

"But it is true that the luxury area used to be larger. Our shop in Ginza makes the biggest sales in the world and they (are) still growing."

The downtrend has taken its toll on property prices, which hit bubble status in some areas of Ginza before the financial crisis, including a record-setting purchase of Tiffany's Ginza store by Goldman Sachs (GS.N) in 2007.

According to CB Richard Ellis, rents for the ground floor in the prime locations on Chuo, Harumi and Ginza Marronnier avenues were 100,000 yen ($1,084) to 230,000 yen per tsubo, a Japanese measurement equivalent to 3.3 square meters, in the autumn of 2009, down around 20,000 yen from a year earlier.

Analysts say Ginza will continue to be the first place a luxury brand targets when looking to enter Japan.

It is also seen as one of the few battlegrounds still worth fighting for among the country's struggling department stores, which have been refurbishing and adding on to their Ginza outlets while closing shops elsewhere.

"Ginza remains the leading retail market in Japan, and many of its tenants are at the forefront of the retail industry. I'd anticipate Ginza will be the fastest market to recover," said Yoshihiro Toyama, senior director of retail services at CB Richard Ellis in Tokyo.

(Additional reporting by Antonella Ciancio in Paris and Mariko Katsumura in Tokyo; Editing by Hugh Lawson)

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