5. The new challenges brought about by the global financial crisis
The global financial crisis of 2007-2010 has had an adverse impact on the Japanese economy and the purchasing power of the Japanese people. Appreciation of the yen (more than 15 per cent against the U.S. dollar and roughly 12 per cent against the euro) during the last three years has also fuelled the fire as Japan has been dependent on income from exports. Foreign companies including Louis Vuitton responded quickly by marginally reducing prices to retain market share during the crisis period. Louis Vuitton did not lose by way of doing this, and still got the benefits of an appreciation of the yen, being a foreign firm based in France.
There is still room for Louis Vuitton to grow in Japan. The Japanese market is not considered saturated yet. The strength of Louis Vuitton has been its high recognition among the middle- and high-income-group Japanese customers. Therefore, the strategy of opening more shops in middle-size cities makes sense. The brand will have to introduce new products and review the range of products to overcome the challenges brought about by the global recession.
Louis Vuitton’s Internet business and a foray into children’s wear have been among the growth vectors for the brand. Newer product categories such as jewellery, watches and eyewear are growing rapidly and overwhelming expectations. Ready-to-wear represents another category to grow. An expansion of Louis Vuitton’s Internet business strategy for ready-to-wear could be the next possible approach. As Louis Vuitton establishes its prices in the future in a fragile economic context, it will have to focus on exchange rate fluctuations, manufacturing costs and quality considerations.
A broader challenge still remains in Japan’s population, which has been in a long downward spiral, with an average age among the oldest in the world. In addition, buyers’ tastes have become more sophisticated.