The Japanese market for exclusive luxury is growing – so called ‘mass-luxury’ products with large advertising campaigns are being outsold by smaller, limited edition products, particularly in the jewellery market.

Guillaume Brochard knew he was right to bet on the Japanese market when the diamond-encrusted pandas sold out in a day. The five sparkling figurines – 6cm high and sporting 15 carats of diamonds and a Euro19,000 price tag – were made exclusively for sale in Japan by Qeelin, the Franco-Chinese jeweller founded five years ago by Mr Brochard and his Hong Kong-based designer, Dennis Chan.

Its baubles – mostly pendants shaped like bears, bells and lotus roots – have been a hit in Japan, where they are available at a single boutique in Tokyo’s Roppongi district. One woman bought 27 smaller and (slightly) lower-priced panda pendants “to give out to friends”, Mr Brochard says.

Unique and exclusive items of jewellery all all the rage in JapanQeelin does not advertise and came to Japan with next to no name recognition and none of the history or sales infrastructure enjoyed by big rivals such as Cartier and Bulgari. But that is less of a handicap than it would have been a few years ago, Mr Brochard says, particularly for producers targeting the top end of the market.

“There is an elite of Japanese that is distancing itself from the traditional ‘mass luxury’,” he says. “They are now more eager to embrace true luxury, which means exclusivity.”

Rich Japanese, in other words, are seeking out products that will be recognised and appreciated by their rich and cultivated friends, even if no one else knows who made them. That is a big shift in what has been a notoriously label-conscious market, and marks Japan out from its up-and-coming neighbour, China. “The Chinese haven’t reached this level yet,” Mr Brochard says. “They still like brands you can recognise from 100 metres.”

Democratisation of luxury

Back in the 1980s, Japan led the world in the so-called democratisation of luxury, as middle-class consumers splurged on designer handbags and jewellery. But “lux-aholic behaviour” has waned, say researchers at the Japan Market Resource Network, a consultancy. Although many people drew down their savings to feed brand addictions through the 1990s economic slump, others decided that the mass-produced joys of Uniqlo and Muji suited them just fine. “Today it is socially acceptable to buy off-price or from discount stores,” JMRN says.

Moving away from the concept of ‘democratised luxury’, Japanese Elite consumers are seeking out exclusivityAs a result, sales of high-end brands have stagnated – pricey pandas notwithstanding. Antoine Belge, analyst at HSBC, says Japan is the world’s most mature market for luxury goods, and predicts that most brands will register ” low single-digit” sales growth in the country “for the foreseeable future”.

Yet the stakes remain high in a country that generates some 14 per cent of sales for European luxury companies (and more for the bigger names). Weak overall growth also hides gaps between winners and losers. The migration of demand to the high and low ends of the market has benefited “accessible luxury” brands as well as ultra-exclusive labels such as Bottega Vaneta.

At the same time, “brands like Polo and Prada, which both have high levels of brand awareness and market penetration, are losing momentum,” says JMRN, as buyers feel “they are not worth their premium prices”.

Limited-edition goods

Big luxury groups are responding to market shifts by offering limited-edition goods even as they cash in at the lower end. Some established brands are also going incognito to increase exclusivity: Kanebo, the Japanese cosmetics maker, has generated its strongest domestic sales growth with its RMK and Suqqu lines, neither of which trade under the Kanebo brand.

Many foreign brands are taking the opposite tack, boosting visibility with flashy new flagship stores, some of which offer more than clothes and jewels. At Armani’s 12-story, 6,000sq metre flagship store in Ginza, customers can spend Y65,000 ($627) for a three-hour spa treatment or dine on Japanese beef with celery root flan at the Armani Ristorante. Armani sank $20m into the new space last year, its biggest-ever investment in a single store.

Such investments are designed to knit brands more tightly into their customers’ social lives. They also generate new revenue streams without diluting the value of luxury groups’ core offerings – a big risk with more conventional brand expansions.

Looking ahead, luxury companies will have to deal with Japan’s shifting demographics – the number of working women aged 30-44 has increased by 15 per cent since 1997 and created a new class of high-earning female consumers. The country’s low birth rate, meanwhile, means the number of young first-time buyers will shrink.

In another switch, many “Japanese” luxury buyers may not be Japanese at all, as tourists from China and even Russia increasingly pick up the slack from domestic consumers. “Wealthy Chinese travel to Japan to get things they can’t get in China,” says Richard Collase, head of Chanel in Japan. Chinese signs abound in department stores and some 10,000 retailers now accept debit card issued by Chinese banks.

Luxury shops have encouraged the trend by stocking items not available outside Japan – in part to avoid piracy but also because Japan serves as a test market for the region. “Japan is a showroom for the rest of Asia,” says Mr Collase.