A month ago, when we reported [6]that Abe's reflation effort was "succeeding" if maybe a little too much by sending gasoline prices through the roof, the Nikkei's conclusion was that "Households are beginning to feel pinched by the weaker Japanese currency." Today they are pinched that much more as we find that the effectiveness of the plunging Yen has just forced luxury titan LVMH to hike prices in Japan by the most ever. From Bloomberg [7]: "LVMH Moet Hennessy Louis Vuitton SA raised some prices by an average 12 percent at its flagship brand in Japan, the unit’s biggest price hike, to offset the impact of the yen’s slide on sales. The Louis Vuitton brand raised prices Feb. 15, spokeswoman Kaori Fuse said. Retailers such as LVMH, the world’s biggest luxury goods maker, are confronting a plunge in the yen that undercuts the value of sales in Japan, the second-biggest market for personal luxury goods." And where ultraluxury goes, everyone else is sure to follow.
It remains to be seen just how much more of this relentless inflation the local population can stomach, considering the bulk of local assets is not in the stock market, but in such safe investments as bonds and deposits as shown in "Why 'This Time Won't Be Different' For Japan In Two Charts [8]." It also remains to be seen just how much domestic sales will plunge at LVMH and elsewhere, when indexed for the new prices as the failure of Abenomics to translate inflation into higher wages. One thing is sure: with at least a several quarter delay before any of the incipient inflation can translate into personal consumption, one wonders: will the Abe government last long enough to offset increasing household anger resulting from soaring prices before sellers' remorse settles in, and Abe's repeat appearance at the helm of the Japanese government is once again cut prematurely short.
More [7]:
“There’s a risk of a currency battle” after the yen plummeted at the end of last year, LVMH Chief Executive Officer Bernard Arnault said Jan. 31.
“We are an importer, so the weakening yen and rising raw material prices are part of the reason for the price increase,” Louis Vuitton Japan’s Fuse said in a phone interview. The increase is the largest since the Japan unit was established in 1978, said Fuse, who declined to comment on individual product prices.
The yen has dropped about 13 percent against the dollar in the past three months, the worst performance among 16 major currencies tracked by Bloomberg.
The last time Louis Vuitton raised prices in Japan was in August 2011, when the business added 3.8 percent to the price of watches and fine jewelery. Fuse said the company regularly reviews pricing and that in November 2008 it lowered the price of leather goods and accessories by about 7 percent in Japan.
And the obligatory spin punchline:
Analysts said the higher price increases probably wouldn’t drive away customers. “Brand goods have low price sensitivity,” said Dairo Murata, a retail analyst at JPMorgan Securities Japan Co. “People who buy those brands won’t be so frugal as to care about another 10,000 yen.”
When was the last time analysts were ever wrong. But at least they didn't add that higher prices will add to even more demand.
LVMH appears to be alone for now:
The Japan units of Tiffany & Co. and Hermes International SCA aren’t considering raising prices at the moment, according to company officials who asked not to be identified, citing company policy. A spokeswoman for Prada SpA declined to comment on the possibility of higher prices.
We look forward to updating this space when rhetoric gives way to simple bottom line math, and everyone else does what LVMH just did.
As for the average Japanese household, that which is not shopping with "low price sensitivity" at LVMH, Prada or Hermes, one fails to see just how soaring prices will encourage them to stimulate the local economy.