If you can't sell designer bags, rent them

by Minoru Matsutani

Japanese consumers are renowned for their appetite for luxury brands, hence Georgio Armani and other high-end labels opened their largest outlets in the world in the glitzy Ginza district in Tokyo.

With the deepening recession, however, consumers are no longer willing to drop a month’s salary on Louis Vuitton or Gucci bags, even if they still desire to sport them.

For some, the solution appears to be to rent coveted luxury brand items for several thousand yen a week.

“With the economy going down, Japanese women had to end their obsession to own new top-brand products, but they will never drop their vanity and desire for good things,” said Mitsue Iwata, president of Newell Co., which runs the online brand rental shop Cariru.

Amid the recession, major companies, especially export-related firms, are losing money and cutting jobs.

Luxury brand items are taking a bigger hit in Japan than in other parts of the world because the industry here has long been supported by middle-class working women, as opposed to the super rich.

But as sales slide, people with entrepreneurial spirit like Iwata see a business opportunity: brand rental — a new concept in Japan.

Newell initially sold new brand products via the Internet. The company switched to renting them out last June after learning that business was brisk in the United States.

The firm’s business soon picked up, buoyed by the film “Sex and the City” that was released in Japan in August, in which four New York women flash their glitzy fashions.

“The frequency of online searches for ‘brand rental’ increased dramatically thanks to the movie,” Iwata said.

That is, of course, a minor cause of the firm’s success. Without the recession, business would not be as brisk, she said.

But even if the economy recovers, she believes her business has room to grow, because renting top-brand bags and accessories instead of buying them “is the new fashion trend.”

Once people realize renting is much more affordable, they will probably continue the practice even if in the future they acquire the funds to buy, she said, noting new products depreciate in value to a third or a quarter after being on the market for a month.

Some customers reserved bags last month to take to entrance ceremonies for their children’s schools, or interviews for their children’s entrance exams, she said.

Newell’s weekly rental charge for bags and accessories is just a fraction of the products’ purchase prices. For example, Hermes Birkin bags, which cost about ¥1 million, rent for ¥39,800 a week. This has helped the company’s membership expand to about 500, up from around 100 last August.

Yasuhiro Ishii, an employee of art exhibition planner World Culture Art Co., persuaded his firm to let him open the brand rental Web site ORB in September 2007.

ORB, operated by Ishii, has also seen an increase in membership, and Ishii said he needs to hire someone soon to help him cope with the increased workload.

The number of memberships rose to 1,500 in December, after staying at around 1,000 until August, Ishii said.

The reason ORB’s sales grew, he pointed out, is the tanking economy and publicity. Magazines, newspapers and TV programs began featuring his company as an example of a business resistant to the recession, he said.

Lately, customers tend to use bags for work and other regular occasions, rather than at special events, he said.

Famous brands, including Chanel and Gucci, however, hope the rental option does not become too popular and further dampen their sales.

Although the Japan branches of such top brands have been tight-lipped on their sales in recent months, Atsushi Fujihara of Lux Research Japan, a market research firm specializing in luxury goods, confirmed sales have been sluggish, even after price cuts.

And as a sign of the times, Louis Vuitton Japan Co. scrapped plans to build one of its largest outlets in the world in Ginza, apparently due to the recession.

Japan’s luxury brand market has been growing for years but is expected to fall this year for the first time in a long time, Fujihara said.

The benefits of a strong yen are expected to fail to attract consumers this year, who will tighten their spending on concerns over job security, he said.

“Sales of handbags, accessories and suits will probably be hit hard as working women, a segment making the largest contribution to the industry’s growth, are expected to be hesitant to spend,” he said.

Still, Fujihara is not entirely pessimistic. The negative impact of the recession on expensive brand products will be smaller in Japan than in the U.S. or Europe because Japan went through a long-term recession after the bubble economy burst in the early 1990s and still saw the luxury market expand, he explained.

Also, some of the brands are planning campaigns to strengthen sales in Japan, and “there is a possibility that such measures will stimulate consumption,” he added.