"Luxury goods are the commonplace for the extraordinary and the extraordinary for the ordinary," as Bernard Arnault once defined luxury goods. But now, with the severe fluctuations in the yen exchange rate, consumers with ample cash have flocked to Japan to hunt for LV brand products. Luxury goods, once seen as a status symbol, are being stockpiled on a large scale, leading to a devaluation of their "extraordinary" worth.

The goods, made exceptionally cost-effective due to the exchange rate advantage and especially the classic LV Monogram series, which enjoys at least a 20% discount, stand out among luxury products due to their price and brand advantages, forming a new genre: "cost-effective luxury brands." Today, such products have triggered a collective buying craze among Chinese people, almost becoming a "local specialty of Japan."

"Wherever you go, you can hear Mandarin."

Some have finished their nine-day tour in Tokyo and expressed surprise at this phenomenon. If we divide the crowds traveling to Tokyo, some may gather around Asakusa Temple and Mount Fuji, while nearly the rest are searching for their desired items in the shopping malls of Shinjuku and Ginza. Since March this year, buying luxury goods in Japan using the exchange rate advantage has become common practice among urban middle-class.

According to data, Chinese tourists had an average expenditure of about 300,000 yen (approximately 13,900 RMB) in the first quarter of this year, ranking first among international tourists. Notably, during the May Day holiday period, this consumption trend became even stronger, with news of "Chinese tourists sweeping goods in Japan" frequently appearing in the press.

In market comparisons, it can be seen that the parent company of LV, LVMH Group, pointed out in its first quarter report for 2024 that revenue in the Asian market (excluding Japan) fell by 6%, and revenue in the fashion and leather goods sector declined by 2%, the lowest level in nearly two years. In contrast, LVMH Group achieved a 32% double-digit growth in the Japanese market.

Regarding the sales growth in Japan, the CFO of LVMH Group stated that it was mainly due to the shopping enthusiasm of Chinese consumers in the local area. At the same time, he expressed confusion about the Chinese market, considering the shopping behavior of Chinese consumers unpredictable. He wondered if the consumption locations of Chinese consumers might become more diverse in the future. Nevertheless, it is proven that the shopping choices of Chinese consumers are straightforward: wherever the price is more favorable, that's where they will go.

In the current market, many luxury brands have experienced a slump in sales, with declines ranging from single to double digits. However, observing this trend should not lead to the hasty conclusion that "nationals no longer favor luxury goods," as the purchasing patterns of consumers are changing.

At a recent earnings conference, Jean-Jacques Guiony revealed a notable piece of data: In the first quarter of last year, 90% of Chinese luxury consumption occurred domestically, but in the first quarter of this year, that proportion fell to just under 80%. This shift indicates that Chinese consumers are increasingly inclined to purchase luxury goods while traveling abroad.

The consumption pattern of luxury goods in China is undergoing subtle changes. While consumers still love monogram bags and big logos, they are increasingly choosing not to shop in domestic stores. This trend first affected high-end shopping centers specializing in luxury goods. For example, the 2024 first-quarter operational data released by Swire Properties shows a general decline in the retail business of luxury shopping centers located in mainland China, with retail sales dropping by 9.2% and 14.7% at Guangzhou Taikoo Hui and Chengdu Taikoo Li, respectively.

Despite LV still leading the brand sales in the mall, its leading position is significantly discounted in the face of a general decline in overall sales. In fact, during the past three years when it was not possible to shop overseas smoothly, people had once redirected their luxury spending budget back to the domestic market, pushing the performance of Swire's commercial properties to historic highs. Guangzhou Taikoo Hui maintained a rental rate of nearly 100% and became a hot spot for many luxury brands to compete for tenancy. During the pandemic, Guangzhou Taikoo Hui's sales even increased, growing by 87.4% compared to 2019.

However, as travel restrictions are gradually lifted, the once stable consumption market pattern is gradually changing. People are starting to choose to buy luxury goods in overseas areas where prices are lower. For example, the medium-sized Carryall handbag by LV is priced at 21,500 yuan in China, while it's relatively cheaper in Japan, dropping to around 75% of the domestic price at the lowest yen exchange rate.

Therefore, we are witnessing a shift in consumer behavior, where people who used to line up outside Guangzhou Taikoo Hui to buy luxury goods are now more willing to shift their focus to the more affordable foreign markets. As times change, market rules ultimately shape consumer choices.

When the yen exchange rate touches historical lows, branded bags are priced about 25% cheaper in the Japanese market compared to the domestic market. For example, the price of the medium-sized Carryall handbag in Japan is significantly lower than the domestic retail price. Judging from the original price of 17,700 yuan when the handbag was first launched in early July 2022, the price has been adjusted upward three times within a short period of over a year, with the accumulated increase exceeding 20%. In relation to the frequent price increases adopted by the LV brand in the Chinese market, although we cannot assert whether this constitutes a "compliance test," there is no doubt that the consumer's acceptance of prices is limited.

While prices in the mainland are rising year by year, the magnitude of price increases in the Japanese market does not keep up with the depreciation of the yen. Under such circumstances, some consumers find that buying the same luxury goods in Japan can save an amount equivalent to the cost of two international flight tickets, making it obvious which choice is superior. When a more cost-effective option is available, no consumer wants to be the "sucker" paying high prices. As a result, many consumers begin to chase exchange rate fluctuations and head to Japan to 'bottom fish' for luxury brands.

In the past few months, the yen's exchange fluctuations have been akin to a patient entering the ICU. In such a market environment, consumers need to carefully consider when to buy, how to buy, and where to buy, which become the three key questions revolving around bottom fishing for luxury goods. Take the 2% credit card cashback activities offered by some domestic platforms during the "May Day" holiday period as an example - such discounts are not available at every LV store in Japan. Taking Takashimaya as an example, although the department store allows consumers to enjoy this discount, a certain handling fee must be paid when processing tax refunds.

Xiao Tong originally planned to purchase LV products in Japan during the "May Day" holiday, but her pre-arranged purchase strategies fell through due to the actual supply situation. She pointed out that different stores have different inventory and shopping competition levels, which is one of the reasons for advance strategic planning. However, despite netizens complaining on social media about queue-jumping in Tokyo or braving the elements to line up at Tokyo Ginza's LV store, long queues were also seen at the LV store in Shijo Kawaramachi, Kyoto, during "May Day" because this store had ample supply.

As for when to buy, this has become another consideration worth weighing. During a period when the yen exchange rate continues to search for its bottom, the adage "later purchase enjoys discounts" becomes more practically significant. A netizen shared their experience: due to real-time exchange rate fluctuations, although they and a friend made payments only two hours apart, it resulted in a price difference of 588 yuan. Another netizen also stated that by checking the exchange rate three days after their purchase, they found that they had paid 446 yuan more.

As the phenomenon of bottom-feeding Japanese luxury goods attracts more attention, Andre observed that customs inspections upon returning to the country have become stricter, with tighter supervision on the carrying of luxury goods.

Travelers step into security gates one after another, their busy silhouettes hinting at the hustle of travel. Even with just a small carry-on case, they must pass through the gates for inspection, and customs personnel occasionally select some travelers for random checks. In the corners of the internet, some consumers who were selected and had to pay additional taxes share their encounters on social media.

Most consumers, even when facing the situation of paying taxes, still maintain an optimistic attitude, indicating that their enthusiasm for shopping next time remains high. It is often said, "The world is fair," but in reality, it seems to favor those daring "gamblers" who take risks, while the "honest folk" who strictly follow the rules seem to always suffer some unfair treatment. Therefore, when facing the phenomenon of luxury goods and their inflation, we can't help but ask ourselves, do these products still hold value?

The book "The Economics of Luxury Goods" reveals an attention-grabbing fact: since 2008, China has risen to become the second-largest consumer of luxury goods in the world. Data indicates that before 2020, the luxury goods market in China grew by more than 20% each year, becoming one of the fastest-growing markets globally. In terms of pricing, luxury goods in the China region are generally 15% higher than the European market; for example, a study by Bain & Company found that Prada bags are priced one-third higher in China than in Sweden.

Aside from the price discussion, interestingly, up until 20109, about 70% of Chinese luxury goods consumption occurred abroad, including overseas travel shopping and consumption through overseas purchasing agents. History is often strikingly similar; those once seeking student shoppers in Milan are perhaps the same ones now sweeping purchases in Japanese luxury stores.

The president and CEO of LVMH Group, Bernard Arnault, once defined luxury goods as "the everyday for the extraordinary, the extraordinary for the ordinary." The two core attributes of the luxury goods market, "rarity" and "difficulty to obtain," constitute an important part of its value. However, as the yen exchange rate plummeted, shoppers with cash in hand flocked to Japan, selecting their beloved Louis Vuitton (LV) products, and it seems this "extraordinary" began to undergo a test of inflation.

Despite LVMH Group's executive Jean-Jacques Guiony's claim that the group tried to counteract the impact of the yen's depreciation by raising local sales prices in Japan, the price difference between the Chinese and Japanese markets remained significant. After accounting for the exchange rate differences and tax refunds, these classic series LV products are not only attractive in terms of cost-performance ratio but also enhance the brand's popularity. Thus, a new luxury genre has emerged—the cost-effective luxury brand, which is regarded by the Chinese as a "Japanese local specialty" and purchased in bulk.

However, the fact that it has become a "Japanese local specialty" runs counter to the original intention of the LVMH Group—which has been committed to positioning brands like LV as appealing and unattainable top-tier luxury brands. Over the past decades, major brands such as LV, Hermès, and Chanel have cultivated the image of luxury in people's minds today through unique luxury fashion marketing strategies. Their prices are usually set high enough that when consumers see a Hermès bag worth 180,000, they think not of the cost or the utility but of the wealth and status it symbolizes.

The author of "The Economics of Luxury Goods" proposed an idea that for true luxury consumers, they enjoy paying a high price for luxury items in their hands, a price that far exceeds the functionality and aesthetic value provided by the product. This trend also explains why domestic consumers, undeterred by the threat of tariffs, still choose to buy luxury goods abroad, because what they seek is not just a handbag or a watch. Against the backdrop of rapid economic growth, the need to display a "life of luxury" is urgent.

Therefore, we can see people using generic templates to take travel photos, buy popular luxury items—all because, whether vacationing abroad or owning expensive goods, they are easily recognizable social status symbols. Stripped of their consumer and recreational attributes, this consumption behavior is more of a declaration of identity and status.

Just as Louis Vuitton continues to release new leather goods, the best-selling items are always those covered with the classic logo canvas, for a simple reason—they are easily recognized. However, this recognizability also brings problems, such as the proliferation of counterfeits, or becoming a "street bag" that everyone can own. To counteract this "inflation," luxury brands' most effective strategy has been to raise prices and select customers. Since 2013, brands such as Louis Vuitton, Hermès, Gucci, and Prada have all increased the prices of entry-level handbags. Despite this, the recent sharp depreciation of the yen seems to have lowered their threshold again.

While achieving sales growth, how to maintain the scarcity of products and brand recognition may be a long-term and continuous issue for every luxury brand to focus on.