Tight-fisted shoppers, unsteady economic growth and a shrinking population: Japan doesn’t exactly fit the image of a spending powerhouse these days. But you would never know it in Ginza — Tokyo’s answer to the Champs-Elysees or Fifth Avenue — where a new 13-storey upscale mall is proving that Japan is still a whale in the luxury business.

The country logs some $22.7 billion in annual spending on top-end goods made by brands including Chanel, Dior, and Prada, ranking it as the world’s number two luxury market behind the United States. “Luxury products may be more expensive, but they are very well-made,” said 79-year-old Toshiko Obu, carrying her longtime Fendi bag outside the Ginza Six building, which has been drawing big crowds since last week’s opening.

Japan is renowned among the world’s priciest retailers for its discriminating clientele—Chanel tries to keep local customers physically separated from tourists packing more cash than class. “You shouldn’t forget that a big portion of the luxury clientele is here in Japan,” Sidney Toledano, chairman and CEO of Christian Dior Couture, told AFP at the opening of the 241-store building. “It remains a strategic market for luxury and, I’d say, true luxury.”

‘Biting their fingernails’

Dior is counting on Japan’s luxury market to rise this year, while rival Chanel is also expecting an upbeat 2017 after global sales of personal luxury goods barely grew last year. “We did not lose our character,” said Richard Collasse, head of Chanel in Japan. “There are brands that are suffering—the ones that at some stage stopped investing in Japan because China was the new El Dorado. And today they are biting their fingernails.”

Few brands predicted that deep-pocketed Chinese shoppers visiting Japan would support its luxury market—tourists account for about one-third of top-end spending.

Japan is hoping to land 40 million visitors in 2020, the year that Tokyo hosts the Olympics. Last year, some six million Chinese visited, compared with 2.4 million in 2014. “Historically, (Japan has) been a very insular luxury market where 90 to 95 percent of the spending was by locals,” said Joëlle de Montgolfier, Paris-based director of consumer and luxury product research at consultancy Bain & Company. But now some 30 percent of sales are generated by foreign visitors owing to tourism, she added.

A stronger yen dented visitors’ purchasing power last year, with luxury sales down one percent, after a nine percent rise in 2015. Dior’s Toledano said it is an opportunity to refocus on Japanese clientele. “We don’t ignore tourists, of course, but we’re not a duty-free shop,” he added.

‘Touching everything’

Some other Chanel shops in Tokyo have a separate cosmetics and perfume section reserved for top Japanese customers, in a bid to keep them away from the nouveau riche crowd. It also tips off local clientele about the expected arrival time of tourist buses so they can avoid them.”The loyal Japanese clients tend to run away from customers who were not very well raised and are wearing whatever or lying all over the sofa, touching everything,” said Chanel’s Collasse.

Dior’s haute couture show at the new mall’s opening featured Japanese-inspired dresses, underscoring a focus on the local market. But warning signs lurk behind smiling clerks and glitzy interiors at the new property on one of the world’s priciest shopping streets. Japan has struggled to reverse a decades-long economic slump while a falling population continues to shrink its labour force—and the pool of future luxury consumers.

Younger people, many on tenuous work contracts, don’t have the money or the same interest in luxury brands anymore, especially since top-end goods can now be rented online instead, said Naoko Kuga, a consumer lifestyle analyst at Tokyo’s NLI Research Institute. “When you look at consumer purchasing behaviour, younger people put less value on luxury brand products” than previous generations, she said.