January 7, 2008 / 12:33 AM / in 10 years

Japan's new rich party like it's 1989

TOKYO (Reuters) - They customize the headrests of their Rolls-Royces with “Harry Potter writing,” sip martinis poured over diamonds and buy $130,000 watches on a whim.

<p>A showroom employee walks past a silver Phantom sedan of Rolls-Royce at the company's showroom in Tokyo December 27, 2007. Despite a sluggish economy, tepid retail sales and a weak yen, demand for super-luxury goods and services is up, thanks to a small, growing class of new rich -- the winners of Japan's economic reforms. REUTERS/Issei Kato</p>

Meet Japan’s big spenders.

On a Wednesday night, carefully coiffed women in fur coats slide into a rooftop bar in Ginza, Tokyo’s most exclusive shopping district. Ten floors below, the streets resound with the angry growl of a Ferrari stuck in a traffic jam.

In this setting reminiscent of the booming 1980s, it seems hard to believe that Japan is suffering from weak consumer spending.

Despite a sluggish economy, tepid retail sales and a weak yen, demand for super-luxury goods and services is up, thanks to a small, growing class of new rich -- the winners of Japan’s economic reforms.

In a society that used to value equality and modesty, these entrepreneurs and executives in sectors such as information technology and finance like to flaunt their wealth.

“People have a view of the Japanese as quite conformist,” said Matthew Bennett, general manager of Rolls-Royce Motor Cars in Japan. “But the number of people asking us to do something we’ve never seen before is the highest in the world.”

Japanese clients frequently arrive with bits of cloth or magazine photos, asking for a custom-made Rolls-Royce, he said. One ordered a two-tone car in light grey and tomato red, a previously unseen color combination that added more than $20,000 to the retail price of about $390,000. Another had his Rolls-Royce fitted with a refrigerator and television, bringing the price up to about $550,000. Yet another asked for his initials to be put on the headrests in Gothic script -- or, as he put it, “Harry Potter writing” -- an extra $5,000.

Rolls-Royce’s bespoke services for Russian and Eastern European clients centre around armored cars. Chinese color requests all tend to be for auspicious red and gold. But in Japan, Bennett said, the wealthy stand out with personal and often quirky ideas.

“It’s a very rich market for us,” he concluded.

It is also a rich market for fast cars. Maserati sales were up 21 percent in January to November 2007 compared with the previous year. Ferrari sales grew 11 percent in that period, Porsche 15 percent. Meanwhile, cars for the once so mighty middle class are selling badly. Toyota sales fell 17 percent in the same period, Volkswagen sales 6 percent and Mercedes sales 7 percent.

FASHION RIFT

In the fashion world, extremely expensive brands such as Bottega Veneta, whose cheapest handbag sells for $1,500 on Tokyo’s glitzy Omotesando shopping mile, are doing better than Gucci or Louis Vuitton, the traditional favorites of the Japanese luxury shopper, whose handbag prices start at $600 to

$900.

“There’s a sort of polarization,” notes Claudia D‘Arpizio, a partner at consultancy Bain & Co, in a phone conversation from Italy, where she is based. She points out that Bottega Veneta has been shifting its collection in Japan towards more expensive items due to high-end demand. Louis Vuitton, on the other hand, launched lower-priced models in Japan last year to fish around for new customers.

The spending habits reflect a deepening economic divide.

Japan, long known for its safe and stable corporate culture, introduced performance-based wages and stock options and made it easier to hire and fire temporary workers to boost competitiveness after the 1990s economic slump. This has produced a new business elite as well as a growing number of poor and unskilled temporary workers.

<p>A showroom employee walks past a silver Phantom sedan of Rolls-Royce at the company's showroom in Tokyo December 27, 2007. Despite a sluggish economy, tepid retail sales and a weak yen, demand for super-luxury goods and services is up, thanks to a small, growing class of new rich -- the winners of Japan's economic reforms. REUTERS/Issei Kato</p>

For luxury goods makers, the new rich are an appetizing prospect. The number of people in Japan holding more than $1 million in financial assets grew 5.1 percent in 2006 to some 1.5 million, about three times as many as in China, Taiwan and Hong Kong put together, according to the Capgemini/Merrill Lynch World Wealth Report.

In 2007, Japan saw an avalanche of products for the very wealthy: a volcanic body scrub and massage at the new Armani tower in Ginza for up to $600; a $130,000-a-night Christmas suite with a bejeweled tree in the Mandarin Oriental hotel; a $47 set of tissues in a Swarovski crystal-studded box. The Ritz-Carlton in Tokyo launched a $15,000 martini with a diamond.

“That’s ridiculous,” said a 45-year-old business owner and one of Japan’s newly wealthy.

“Those people hanging around Ginza, they are just showing off,” he said, relaxing in his sleek Tokyo office in jeans and a white shirt. “If someone has it, other people want it. That’s Japanese. The group mentality.”

The business owner was willing to talk about his spending habits only on condition of anonymity, for fear of drawing unwanted attention, and declined to say how much he was worth.

He is onto his fourth Jaguar and just bought a $130,000 Francois-Paul Journe to add to his growing watch collection. He once bid in an auction for woodblock prints by Hiroshige, a 19th century Japanese printmaker, during a flight from Frankfurt to Cairo. The line kept breaking up, but he still came away with 15 prints.

PRESTIGE

Finding out what exactly such top spenders want and marketing it effectively can be tricky.

Versace has tried to position itself globally as a super-exclusive brand by selling custom services such as interiors for private jets. But in Japan it lacks prestige, possibly because it does not have a flagship store in the Ginza district. The Italian fashion house’s financial troubles have prevented it from investing in marketing and retail in a city that is suddenly seeing an influx of money from European brands.

Over the past year or so, Armani, Gucci, and Bulgari have all opened retail towers in Ginza, which feels like a live, super-scale commercial for luxury goods. Chanel, Louis Vuitton, Hermes, and many others are already there, with adverts and brand names splashed across 10 storeys. Facades sparkle with projections of snowflakes or bamboo, vying for the attention of Japanese shoppers. The weak yen also means it is a good time for upmarket brands -- flush with cash from a global luxury boom -- to secure a place there.

Bulgari, the Italian jeweler, invested heavily in Japan last year, opening a flagship store in Omotesando as well as Ginza.

Francesco Trapani, Bulgari’s chief executive, said in a telephone interview from Italy that Japanese demand for jewelry in the higher price segments -- which he defined as 25,000 euros to 70,000 euros, or $37,000 to $100,000 -- has been particularly strong.

“In Japan, there’s a great opportunity for more expensive, more sophisticated products, be it watches, jewelry, or accessories,” Trapani said.

The new Bulgari restaurant on top of the flagship store in Ginza is packed on a weekday. “Luxury clients want to be entertained,” Trapani added. “A retail space shouldn’t just be a sales point, it has to be fun and exciting and underline the prestige of the brand they’re about to buy.”

The Japanese businessman with a weakness for watches and woodblock prints is already tiring of the shopping bonanza.

He finds there are fewer and fewer things he wants. He likes to visit museums rather than own artwork, except for a few lithographs by Salvador Dali and Pablo Picasso.

“The process of getting it, or just before getting it, is interesting. Keeping it is not so interesting,” he concludes.

Lately, he has developed a liking for tea ceremony. Three of his wealthy friends now regularly practice the ancient, complex ritual. ”Before, Japanese used to enjoy this kind of luxury, he says of the ceremony. “It’s a kind of invisible beauty.”

Reporting by Sophie Hardach; Editing by Eddie Evans

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