Aging Population or Changing Consumer: Whom to Blame!

Japan's economy has lost ground to Germany as the third largest in the world. According to official figures revealed on Thursday, the Asian nation experienced an unexpected recession in the fourth quarter of 2023, marking the second consecutive quarter of GDP contraction.

While the story of declining population, stagnant productivity, and the waves of globalisation all appealing, there is another factor—evolving consumer expectations and the building of confidence—that is less often studied but has the potential for radical shifts.

A deeper look suggests a structural shift in consumer preferences, going beyond the demographic headwinds.

Rising domestic tourism expenditure (2.2% increase in 2022), increased restaurant usage (4.5% increase in 2021), and a spike in fitness studio memberships are indicators that young Japanese are prioritising experience consumption above material possesions.

Furthermore, the growing trend of ethical fashion and the 18% increase in sales of organic food in 2022 demonstrate how sustainability concerns are impacting consumer choices. These patterns offer an opportunity for economic rejuvenation and mark a major divergence from conventional consumption patterns.

Shifting values: This trend reflects a wider change in values. As Millennials and Gen Z come of age, they prioritize self-expression, personal growth, and social connection. Owning the latest gadget or designer bag holds less appeal compared to creating memories through travel, pursuing hobbies, or attending cultural events.

Global comparisons: This phenomenon is not unique to Japan. A 2022 McKinsey report, "Generation Z: Future of Consumption," revealed similar trends across developed markets, with young consumers globally favoring experiences over traditional forms of consumption.

Low customer confidence is still a significant barrier, though. It's stuck at 37.5%, far lower than most econmies. Years of deflation and economic instability have led to a reluctance to spend, which has created a contradiction whereby changing desires and tightly locked wallets coexist. Proactive actions beyond short-term stimulus packages are required to close this gap.

Possible drivers of the shift:

• Economic factors: While stagnant wages play a role, factors like rising housing costs and smaller living spaces make owning less necessary and desirable. Additionally, the ease of access to goods through online platforms reduces the perceived value of material possessions.
• Social media impact: Platforms like Instagram and YouTube curate lifestyles built around experiences, influencing aspirations and shaping social comparison.Influencers promoting travel, dining, and hobbies further fuel this trend.
• Desire for meaning and connection: Young Japanese increasingly seek activities that enrich their lives and foster deeper connections with themselves and others. Experiential consumption offers a sense of fulfillments and community that material possessions often lack.

Few Examples Igniting hope such as Rakuten's personalisation efforts through AI and data analytics offer customised customer experiences, while UNIQLO's incorporation of recycled materials and ethical production resonates with eco-conscious consumers. These are just glimpses of a potential future where innovation, sustainability, and experience drive growth.

The way that purchasing patterns have changed in Japan, especially the way that young consumers are becoming more experientialists, provides insight into how the economy may develop in the future. Companies and legislators who anticipate this change and adjust accordingly stand to gain greatly. While demographic issues are unavoidable, Japan might find new paths to success by concentrating on the changing aspirations and actions of the younger population.

The way ahead requires a multifaceted strategy that prioritises structural adjustments that promote long-term investment and build trust:

• Wage Growth: Because to stagnant salaries, there is less money available for discretionary purchasing due to reduced disposable income. To fully realize this potential, wage growth-incentive policies that specifically target younger generations are essential.
• Innovation-Driven Transformation: Japan, known for its manufacturing prowess, has to change. This critical transition toward developing innovative new products and services that appeal to both domestic and international markets is best illustrated by programs like SoftBank's Vision Fund, which has made significant investments in robotics, artificial intelligence, and green technology.
• Cultivating the Experience Economy: One way to capitalise on the increasing demand for meaningful consumption is to support the experiential shift by investing in local companies, cultural events, and tourism infrastructure.
• Embracing Sustainability: Promoting environmentally friendly goods, passing laws that assist, and working toward carbon neutrality targets are all parts of a multifaceted strategy that can be used to champion the green movement. Using this approach, Japan is positioned as a leader in sustainable development and draws in environmentally sensitive consumers.

Although Japan faces problems from global competition and demographic realities, conventional metrics can not fully describe Japan's future. Acknowledging the revolutionary capacity of changing consumer tastes and giving priority to measures that boost confidence can facilitate the transition to a dynamic, experience-based economy.