ehemmerle@ehemmerle.com
ehemmerle@ehemmerle.com
2025/05/05
Link：Inside Japan’s Changing Market: What the Headlines Miss
Is Japan really all that stagnant?
By Emmanuel Hemmerlé, 22 May 2025
During my recent visit to Japan, I explored Tokyo’s retail scene, met senior business leaders, and hosted a Leadership Roundtable with GMs like Yann Yoshikazu Gahier, Martin Gordian, Philippe Larrieu, Sylvain Simard, Nicolas Sitbon, and others. These conversations and observations suggest that the prevailing narrative of 30 years of stagnation overlooks much beneath the surface. Here are some key reflections:
2024 was a breakout year for Japan’s premium consumer market, fueled by a tourism boom and a weak yen. With around 37 million tourists, many foreign premium brands saw 20% to 60% of sales from international visitors, a welcome relief amid China’s slowdown. But 2025 looks more complex: a stronger yen and tough comparisons may limit growth.
Brands overly dependent on inbound tourism and transactional purchase will certainly struggle. Those investing in domestic consumers will gain share. While tourism spending may temporarily dip with currency fluctuations, the long-term outlook remains strong. The government is targeting 60 million visitors by 2030. Meanwhile, a rising influx of Southeast Asian tourists is diversifying the mix beyond China and Korea - a boost for long-term sustainability.
Still, there’s a downside: mass tourism is gradually pricing middle-class Japanese out of luxury goods, hotels, and beloved destinations such as onsens and ski resorts. At the same time, some neighborhoods in Tokyo and Kyoto are becoming increasingly unaffordable, as property purchases by visitors from across Asia drive up real estate prices, rents, and overall living costs for local residents.
Japan remains one of the most important consumer markets globally, ranking 3rd or 4th in consumption across key industries: travel and tourism (~$200 billion all-in), wines & spirits ($50 billion), consumer healthcare ($40 billion), electronics ($40 billion), beauty ($35 billion), luxury goods ($35 billion), and gaming (~$30 billion).
The country’s high per-capita consumption continues to drive growth in these sectors. For companies in these industries, Japan offers scale, sophistication, and long-term brand value. It’s a market where deep local relevance and consistent execution are more important than speed—and where success rewards patience, quality, and cultural fluency.
Japanese consumers are evolving, forcing brands to adapt or lose relevance. The beauty industry, for example, is undergoing a major shake-up. Local indie beauty brands are gaining share by being faster, more innovative, and more aligned with current consumer values. Large domestic and international groups are under pressure to keep up. This trend started years ago in Japan and Korea and is now mirrored in China. Legacy brands must innovate swiftly to stay relevant.
Meanwhile, high-end beauty brands are losing ground to plastic surgery and longevity treatments, a shift seen across Northeast Asia. Consumers are blending beauty with health in new and unexpected ways. Japanese consumers no longer just seek products; they want comprehensive wellness solutions that combine beauty, health, and overall well-being.
Consumers are also embracing the "Experience Economy”, favoring immersive, experiential shopping over simple transactions. Retailers must craft immersive experiences to stay competitive. Even in Japan, where service and experience have long been strengths, expectations continue to rise.
Rising inequality, a relatively new phenomenon in Japan, is starting to impact brand positioning. Demographic aging and deflationary pressures have led to a shrinking middle class and stagnating real per capita income, making it harder for brands to grow without sharper segmentation and more targeted strategies. One GM in the luxury industry emphasized that as a result, "competition among brands is intensifying further".
Japan’s retail contrasts sharply with neighbors: eCommerce penetration remains low (~15%) versus 45% in Korea and 35% in China. Cosmetics online sales hit only 20% in Japan versus 55% in China and Korea. Consumers prefer tactile, in-store experiences with superior service. That said, eCommerce is growing and is expected to continue expanding over the next several years—though not outpacing neighboring countries. Even with a lower penetration, Japan’s eCommerce is the world’s 5th largest.
In Japan, product quality is paramount. A great product can succeed even with minimal marketing. Consumers prioritize quality over national loyalty, especially in the premium segment. To succeed, brands must deliver consistent, high-quality offerings.
Japanese consumers have a strong aversion to discounts and outlet stores, which may drive short-term sales but harm brand equity long-term. Preserving a premium image is essential.
Social and generational shifts are reshaping Japan’s talent landscape. Young professionals are less driven by hierarchy or status. They prioritize work-life balance and often resist traditional leadership roles. This puts pressure on middle management and challenges traditional motivation models. These patterns mirror those in China, Korea, and the West, with global social media aligning values.
Today’s Japanese executives are generally less inclined to pursue international assignments than their peers in other Asian countries, and less so than previous generations. As a result, foreign companies must find alternative ways to foster cross-cultural fluency within their organizations.
Managing an aging workforce is critical. Over 25% of workers are aged 65 or older, with few retiring at the legal age of 65, particularly as the government encourages companies to extend retirement to 70. While retaining senior employees brings valuable knowledge and experience, it can also slow recruitment of younger generations, increase costs, and impact brand image, particularly in retail.
Many foreign firms have localized senior leadership, with mixed results. Localization improves cultural fit and retention but risks disconnect from headquarters and brand dilution. Balancing local leadership with global alignment remains key.
Foreign executives still have an important role to play in Japan, particularly as many have settled locally and speak the language fluently. At the same time, organizations face a persistent shortage of globally experienced Japanese leaders who can effectively bridge local and international business cultures. Those who do possess such skills often enjoy exceptional career opportunities, which may serve as an incentive for others to develop similar capabilities.
Retaining women post-maternity requires flexible policies and supportive cultures, as many leave after one or two children.
Success in Japan demands more than surface adaptation; change must come from the top. One GM personally recruited dozens of new managers to drive a turnaround.
As Japan’s market shifts beneath our feet, leadership agility and cultural fluency are more essential than ever. At EH, we partner with forward-thinking companies to identify transformational leaders who can seize emerging opportunities and navigate evolving challenges in Japan and across Asia.
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