Weak Yen Attracts Rich Chinese Travelers to Tokyo

• Sales of luxury brands in Japan have increased due to Chinese tourists buying more, taking advantage of the weak yen, as shown in recent earnings reports.
• Despite weaker sales in China, LVMH, Kering, and Burberry all reported an increase in overall results.
• Prior to the pandemic, about half of Chinese luxury spending occurred abroad, but this has now decreased to approximately 20% to 25%, according to Oliver Wyman.

In Japan, luxury brands are experiencing an increase in sales due to Chinese tourists exploiting the weak yen, as stated in the earnings reports released this month.

Despite weaker sales in China, all noted an uptick in sales, including Burberry.

In the first half of the year, Japan sales for Yves Saint Laurent, a Kering-owned brand, increased by 42% due to the influx of tourists from China and Southeast Asia, who were drawn to the pricing advantage resulting from the favorable exchange rate.

This week, the luxury group reported "outstanding growth in Japan, mainly driven by Chinese tourists' purchases."

This month, the Chinese yuan has reached its strongest level against the Japanese yen in at least 24 years, with a 6.9% gain against the yen so far this year, according to Wind Information data from 2000.

The Bank of Japan's interest rate differential with the Federal Reserve has contributed to the yen falling to its lowest point in 38 years against the U.S. dollar.

The number of international tourists visiting Japan increased significantly in the first half of the year, with South Korea being the largest contributor, as per the Japan National Tourism Organization.

In the first half of the year, the number of visitors from mainland China increased by 415% to 3.1 million, according to the data.

Chinese travelers are spending more money in Japan compared to the previous three months, according to a travel service that reported over 60% growth in bookings and sales. Trip did not specify which months, stating that they will release their earnings report in September.

In Japan, luxury shopping tips have been shared on Chinese social media platforms such as Weibo and Xiao Hong Shu.

A netizen recommended saving money by shopping in Japan, specifically at a mall in Sapporo that has a "top" standard for shopping and a "pretty" Gucci store.

Another CNBC post reported that the creator claimed they "shopped until their legs turned jelly."

In May 2021, the interest of affluent Chinese households in visiting Japan increased by 5 percentage points compared to a survey conducted in September 2020, according to a study by Oliver Wyman. This study focused on families in mainland China with a monthly income of at least 30,000 yuan ($4,140, or approximately $50,000 per year).

In mainland China, the prices of luxury products are 10% to 30% higher than in Japan.

In comparison to Hong Kong, the discount on a Louis Vuitton Speedy Bandouliere 20 in mainland China was steeper, with a 3% discount in Hong Kong and a 19% cheaper price in Japan.

According to the report, Malaysia provided a 10% discount while France offered a 27% discount.

According to an unnamed luxury brand retailer director, Japan has the most comprehensive product range, including style and color options, among luxury brands in Asia, except for Hong Kong.

Slower growth in China

Despite a decline in overall Chinese luxury spending and uncertainty about future income, Chinese shoppers' interest in Japan remains strong. Additionally, locals are increasingly opting for cheaper vacations within mainland China.

Prior to the pandemic, about half of Chinese luxury spending occurred abroad, but this has now decreased to approximately 20% to 25%, according to Oliver Wyman.

As of May, the report showed that Hong Kong was the most popular destination for overseas luxury shopping, followed by Macao and Singapore, with Japan being the fourth-most popular site.

"Burberry stated in its earnings release that the Chinese customer group declined globally but performed better than Mainland China as spending was diverted offshore. Additionally, Japan experienced growth due to strong tourism spending from Chinese and near-shore customers in Asia, while locals remained soft."

Despite a 6% increase in sales in Japan, Burberry's mainland China sales dropped by 21% in the latest quarter compared to the previous year. This global sales decline led the luxury brand to issue a profit warning, suspend its dividend, and replace its CEO.

Despite a 2% decline in Greater China sales, which includes mainland China, Hong Kong, Macao, and Taiwan, in the three months ending March 30, Japan sales rose by 2%. The company has not yet scheduled its next earnings release.

— CNBC's Sonia Heng contributed reporting from Singapore.