Deluxe: How Luxury Lost Its Luster by Dana Thomas Page A

products that could be sold to Japanese customers. Through the small window in Vuitton’s office, Hata watched the frenzied Japanese customers in the avenue Marceau store, buying like they were at a fire sale. Intrigued by the phenomenon, Hata turned to Vuitton and proposed to do a research project assessing the Japanese luxury goods market. Vuitton agreed.
    When Hata returned to Tokyo, he found Vuitton monogram bags in shop windows all over town for sale at astounding prices. At the time, there was only one Vuitton wholesale importer in Japan, and one official retailer: the Ann International store in the Akasaka Tokyu Hotel shopping arcade. When Hata visited the store, he recalled, “there was no stock at all and nobody knew when the next shipment would arrive.” Hata wrote up his report for Henry-Louis Vuitton, concluding it was time for the company to embrace the Japanese market and expand properly there. Vuitton concurred and hired Hata to oversee it. Until then, luxury companies had opened stores in a few international capitals, often as franchises, and sold a limited amount of product in department stores; it was a niche retail business. Hata had much bigger ambitions: to conquer a foreign territory by selling not only to Japan’s upper crust but also—and primarily—to its large and increasingly wealthy middle class. Vuitton’s expansion in Japan was luxury’s first bold step toward globalization, and it took an outsider—a businessman—to make it happen.
    Hata came up with and implemented a two-pronged business model. First, Louis Vuitton Paris would distribute directly to Japanese retailers rather than through wholesalers—a business move unheard of in the luxury industry at the time. Second, Louis Vuitton would establish a management service contract stipulating that its Japan office would conduct all operations to maintain the brand’s image, protect the trademark, and handle quality control, advertising, and publicity. In return, Vuitton would charge franchise and management service fees to the department stores. Louis Vuitton headquarters in France would dictate everything to the Japan operation, from uniforms to wrapping paper, to create a synergy with the home base. Vuitton’s products would be excluded from department store members-only discounts and gift catalogs, all in an effort to buff up the company’s brand image. “We wanted to accurately communicate not only the name of Louis Vuitton,” Hata explained, “but the brand’s values, which are its history and tradition.”
    In March 1978 , Vuitton made its official Tokyo debut in five different department stores, followed in September by one in Osaka. Each shop was only seven hundred to one thousand square feet but stocked every size of steamer trunks—“the symbol of Louis Vuitton’s craftsmanship,” Hata told me.
    Next, Hata tackled the pricing problem. When Vuitton opened its first Japanese store in 1978 , prices were about two and a half times higher than in Paris, due to a difference in currency rates and to government restrictions. To even the playing field a bit and stop parallel trade, Hata implemented a floating-rate system so that prices in Japan would be no more than 1.4 times those in Paris, and would fluctuate with the exchange rate. Prices in Japan immediately dropped by half or more, and Japanese shoppers suddenly saw Louis Vuitton as a good value, especially compared to its competitors. That first year, the six stores sold $ 5.8 million worth of Vuitton products. “This surprised the whole industry,” Hata remembered. Within two years, sales had doubled to $ 11 million. Vuitton appointed Hata the Japanese branch manager, and converted the branch into a corporation, called Louis Vuitton Japan. In 1981 , Hata opened Vuitton’s first freestanding store, in the posh Ginza district.
    Furthermore, the Japanese demonstrated an unparalleled predilection for quality. “Their attention to detail and demand for quality is