(Bloomberg Businessweek) -- The president of Kyushu’s biggest railway had a problem: too few people were riding his trains. The population was getting older, and since retirees don’t commute to work, the trick was getting people to want something they didn’t necessarily need. One answer: ultra-luxury trains.
It was such a hit that two of Japan’s top rail companies copied it. In May East Japan Railway Co. debuted its version, a 10-carriage sleeper that whisks its 34 passengers around in absolute splendor. A modern re-imagining of the old Orient Express, it has walls and ceilings that look like a glass honeycomb, a lounge pianist and menus by Michelin-starred chefs. Despite ticket prices as high as $8,400 for a three-night trip, it’s fully booked through March.
After seven recessions in two decades, it’s easy to forget Japan still has a lot of money. The country has more millionaires than anywhere outside the U.S. and, according to Bain & Company, its luxury market was the only one in the world that grew last year. European-made status symbols like Hermes handbags and Rolex watches are still splurges of choice, but now legions of Japanese retirees are spending on first-class travel.
“Japan is a terrific luxury market,” said Greg Schulze, an executive at online travel agent Expedia Inc. “And the travel market is just catching up.”
The country is in vogue among overseas travelers, record numbers of whom are visiting. But people like Fujio Umemoto, an older Japanese man who owns a yacht with friends, are the main clients for high-end tourism.
After decades of saving and a retirement package, the well-tanned 67-year-old says he now has ample time and money to spend. He won’t say how much he received, but last year the average person retiring from a lifetime of work at the same firm got a one-time parting bonus worth $210,000, according to a Japan Business Federation survey.
“My mortgage is paid, I’ve finished raising my kids, now I’m just focusing on having fun,” Umemoto said. “I don’t need any more stuff. I want to spend my money on memories and experiences.”
Japan’s economy doesn’t produce many of the super-rich — only six Japanese make Bloomberg’s list of the world’s 500 wealthiest people, compared with 164 Americans — but it is cranking out millions of millionaires. In fact, Japan has more people with liquid assets worth $1 million — 2.7 million of them — than Germany and China combined, according to the World Wealth Report from consulting firm Capgemini.
In a country with a shrinking population, the elderly and the wealthy are two overlapping demographics that are growing. A stock market rally helped swell the ranks of Japanese millionaires by 11 percent in 2015, the most recent year for which Capgemini has data.
“The way Japanese society is set up, it creates people who are a little bit rich,” said Hiroyuki Miyamoto, a consultant at Nomura Research Institute Ltd. in Tokyo.
To be sure, the divide between rich and poor is widening and many Japanese are doing less-well. Wages and benefits have dropped an average of about 10 percent since a 1997 peak, according to the National Tax Agency. It’s a tangible manifestation of the country’s deflationary malaise and also the reason so much of the consumer market has shifted towards discounters like furniture retailer Nitori Holdings Co. and Fast Retailing Co.’s Uniqlo.
In the luxury business, though, that part of the macro picture may not matter. Expedia says Japanese bookings for premium-class airline tickets grew more than twice as fast as economy class tickets last year. JTB Corp., the country’s biggest travel agent, says the number of clients at its high-end vacation planner, Royal Road Ginza, has jumped 10-fold since the first year in 2003.
Perhaps nowhere is increased spending by older people more evident than in the cruise ship industry, where the number of Japanese passengers rose 12 percent last year to a record 248,000, according to the transport ministry. Shipping company Nippon Yusen K.K. says it’s most luxurious trip — a three-and-a-half month voyage around the world — almost sold out within the first day. The most expensive ticket costs about $230,000.
Demand is drawing overseas competitors. U.S.-based Princess Cruises will start offering voyages year-round from Japanese ports next April. Another operator, Genting Hong Kong dispatched one of its biggest ocean liners to Japan this month. Italy’s MSC Cruises will offer its first Japan cruise next year and is considering as many as four in 2019.
Hoshino Resort Co., which has built six major luxury properties since 2005, last year opened a traditional Japanese-style hot spring hotel in the middle of Tokyo’s financial district. An oasis that’s literally in the shadow of the surrounding office towers, it’s a place with no readily accessible thermal springs, so to make the spa work they had to drill almost a mile into the earth.
The 18-story hotel, which is clad in a metal lattice designed to look like the patterns on a kimono, offers 84 tatami-mat rooms with western-style mattresses, instead of futons.
Most people don’t think of bus travel as a luxury option, but Japanese businesses are inventing upscale versions of that, too. A few years ago, department store operator Isetan Mitsukoshi Holdings Ltd. started offering luxury sightseeing tours from the comfort of a specially designed coach made to approximate the feel of first-class air travel. The buses seat just 10 passengers spread out over a space that would normally fit 40 or more.
JTB started its own copy-cat tours in April. A ticket for the most expensive trip, a 12-day ride through the forests and mountains of eastern Japan, runs $13,000.
JR Kyushu Railway Co., the company that pioneered Japan’s ultra-luxury rail boom, had experimented for years with all sorts of trains — adding flourishes like bars, sofas and rosewood viewing cabins — to capture the imagination of vacationers, former president and current chairman Koji Karaike explained in an interview last year. In 2013, they hit on a magic formula with their super-high-end sleeper, the Seven Stars.
“We’re very proud of all our tourist trains,” he said. “We made something that no other Japan railway company had.”
Soon they may all have them.
--With assistance from James Mayger
To contact the authors of this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net, Keiko Ujikane in Tokyo at kujikane@bloomberg.net.
To contact the editor responsible for this story: Brian Bremner at bbremner@bloomberg.net, Jason Clenfield
©2017 Bloomberg L.P.
