Japanese fashionistas queued around the block to spot celebrities and buy handbags at the opening of Giorgio Armani's new tower in Tokyo, showing that when it comes to a love for luxury labels, few can match Japan.

Like other Italian designers, Armani is pouring money into the country -- the high-rise flagship store in the elegant Ginza district is one of his most expensive projects ever -- and he believes there is potential for growth in the sector despite an overall sluggish economy.

Japan is a market that's rather stagnant now, Armani told Reuters. But he saw opportunities for expansion in specific areas such as high-margin handbags and shoes and upmarket furniture.

Japan's contribution to our revenues is still too limited in percentage terms, and we see this presence as a good way of re-starting my name, my brand here with a new formula.

The new formula is a mix of accessories, displayed prominently across several floors of the new tower, an Italian restaurant on the top floor and the first Armani beauty parlor.

Most luxury goods labels see limited editions as the key to the Japanese consumer's heart, since people are willing to spend recklessly on collectibles and exclusive products, and Armani has designed a special range of clothes and bags for Ginza.

Brands such as Versace, Gucci and Prada have invested in lavish new retail spaces in Tokyo, despite a weak yen and although overall consumer spending has remained sluggish since Japan emerged from a decade-long economic slump in the 1990s.

Analysts have shown concern over the prospects for luxury goods firms in an ageing and shrinking market, but some believe the solution lies in a more sophisticated product range, including goods related to home and leisure, and accessories.

In a report on luxury giant LVMH's earnings in October, Goldman Sachs noted a continuing rebound in Japan in the fashion and luxury goods division, although driven by lower-priced designer accessories such as a Neverfull bag.

Bags are popular with shoppers, who splash out on one bag that then adds instant glamour to various simple outfits. They are particularly profitable for companies since they take up less retail space than clothes and don't have to be stocked in awkward sizes that are discounted at the end of a season.

ARMANI HOTELS

Asked about the next big thing after the accessories boom, Armani said: One important step is my activity in the hotel business, which is closely linked to Armani Casa.

The Armani group is working with developers on hotels and residences in Dubai, Milan and Tokyo, and the Armani Casa furniture business is expanding around the world.

We didn't want to just make furniture, but create an interior atmosphere with lamps, accessories for the home, Armani said. Armani estimated that those kinds of home accessories could see a boom similar to the current craze for shoes and handbags.

The 73-year-old pulled out all the stops for his Tokyo marketing events over the past two days, flying in celebrities such as actress Cate Blanchett. Singer Fergie entertained guests at a launch party that also featured fashion shows with several Japanese models, who are still a rarity on European catwalks.

Armani's film industry connections have benefited him since he dressed Richard Gere in the movie American Gigolo, gaining instant fame as a designer of casually sexy suits, and could help him attract younger Japanese customers.

Some shoppers crowding around the Armani tower said they liked his clothes because of the glamour factor, and also because his restrained aesthetics and palette of black and beige matched the Japanese taste.

When I watch Hollywood movies, whenever someone is wearing something I think is great, it's always Armani, said Toshihiro Takahashi, a 38-year-old entrepreneur who was dressed from head to toe in black Armani.

So my self-esteem rises when I wear his clothes.

(Editing by Rodney Joyce)

Japan Gucci