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From Newsweek

Japan's Luxury Market Won't Recover Soon

 By Daniel McGinn
Japan has half the population of the U.S., and less land than California, yet there are more than twice as many Burberry, Hermès, and Prada stores in the Land of the Rising Sun than in all of America. For decades they've been full of brand-conscious Japanese shoppers who typically dig deep for luxury labels, fueling a $20 billion-a-year market. But even before the global recession, there were signs of a slowdown. When McKinsey & Co. principal Brian Salsberg wanders through Tokyo's shopping district, he notices that "for every one luxury [brand] bag, there are 10 Uniqlo, Forever 21, or H&M bags," referring to trendy lower-priced labels. "It's easier and cheaper today to be fashionable in Tokyo [at] a 10th the cost," he says. In a new report, Salsberg cites several reasons for Japanese consumers' shifting taste. It partly stems from growing confidence: instead of relying on labels to ensure stylishness, Japanese women are mixing and matching among cheaper items. High-end products also face growing competition from luxury experiences, like travel, spas, and restaurant meals. McKinsey's researchers even see spending on stylish tech products, like Apple's iPod and iPhone, siphoning yen away from traditional luxury segments like jewelry, handbags, and apparel. The McKinseyites say upscale marketers shouldn't give up on Japan, but they should adjust their expectations: an economic recovery will help sales rebound, but the fact is that some former luxury buyers may have traded down permanently.