Oct. 7 (Bloomberg) -- Gianni Versace SpA will close its Japanese stores and review its entire business strategy, as demand for luxury goods declines in the world’s second-largest economy.

“The Versace boutiques in Japan no longer represented the brand image and it was felt to be more advantageous for the company to close them and start with a clean slate,” Milan- based Versace said yesterday in a statement. The fashion company has three stores in Japan, according to the Web site.

Versace, which entered Japan in 1981, is the latest brand to scale back operations in the country, as falling wages and job losses chill consumer confidence. LVMH Moet Hennessy Louis Vuitton SA said in December that it scrapped plans to open a store in Ginza, one of Tokyo’s busiest shopping districts.

“Tokyo is losing its prestige,” said Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo. Luxury goods makers see less need to sell their products in Tokyo with the increasing importance of Singapore and Hong Kong as financial centers, he said.

Japan’s market for imported luxury clothes, bags and other goods fell 10 percent to 1.06 trillion yen ($11.9 billion) last year from 2007, Yano Research Institute Ltd. said in a report in June. The Tokyo-based researcher forecast the market will shrink to 992.7 billion yen this year, compared with its peak of 1.9 trillion yen in 1996, it said.

Versace Japan had sales of 1.6 billion yen in 2008 compared with 4.1 billion yen four years ago, according to Teikoku Data Bank.

Ferraris, di Risio

Newly appointed Chief Executive Officer Gian Giacomo Ferraris, former CEO of fashion house Jil Sander AG, took over at Versace in July after the departure of Giancarlo di Risio. Di Risio, who ran the brand for five years, left amid speculation of clashes over strategy with Donatella Versace, the company’s chief designer.

Under Di Risio, Versace sold unprofitable units and took control of distribution in Japan and Taiwan to compete more effectively with Gucci Group and Giorgio Armani SpA. The company said last November it expected Asia to surpass the U.S. as its biggest market after Europe this year.

The board approved a three-year business plan in May for 2009-2012 developed with Bain & Co. in response to the global economic crisis. It also reported a profit for the first quarter.

The company wouldn’t comment on a report by Nikkei English News that Versace will liquidate the Japanese unit by the end of the year.

LVMH said in December that plans for the new Tokyo store were derailed after it failed to reach an agreement with a local developer.

To contact the reporter on this story: Chris Staiti at cstaiti@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net.

Last Updated: October 7, 2009 04:21 EDT