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Current and future developments in Consumer markets: The Retail Response Roy Larke, PhD. Editor JapanConsuming.com Professor, University of Marketing & Distribution Sciences, Kobe, Japan

The Build-up to Current Issues The History Three decades of minor change The Death of Japanese Retailing What happened to the 1990s? Key Challenges to Japanese retailing The Changing Consumer Changing retail competition The market in 2010 Today’s agenda

Another retail revolution? 1972: Daiei becomes Japan’s largest retailer Department stores lose importance Landmarks in retailing The only way modern Daiei can win!

1982: Retail store numbers decline … Landmarks in retailing Source: Census of Commerce. Note: 1999 figures adjusted for survey differences.

1985: Wholesaling begins to stagnate Landmarks in retailing Source: Census of Commerce. Note: 1999 figures adjusted for survey differences.

1989: Pop! The Bubble Bursts Consumers get suspicious of high price, low value retailing Retailers do nothing -- or very little Nothing new happens Retailers spend the early 1990s repeating old mistakes Landmarks in retailing

1990s: the lost decade Nothing Nineties Figures not adjusted for inflation

What really happened in the 1990s? Labour market changes rapidly End of “life-time” employment Job switching become accepted Head hunting becomes accepted Job security drops suddenly and significantly Nothing Nineties

Consumer worry: High Prices Japan is still the most expensive country in the world Food prices 1.5–3 times West New demand for discounting No longer believe “high price = high quality” Retail merchandising and store presentation begins to be seen as indication of price/quality relationship Nothing Nineties

Income & Expenditure Flat in 1990s Nothing Nineties

1990–98: Monthly Savings increase 21%

Money in the bank: Savings for Working Households Mode: ¥2.65 mn Median: ¥9.00 mn Mean: ¥13.56 mn Nothing Nineties

Plenty to spend Savings rates for all households ¥13.03 million average Savings for households with head over 60 yrs ¥26.36 million average Nothing Nineties

Retail response: more of the same Manufacturer dominated supply chains Retailers unable to set retail prices Profit from space rental and easy buying terms Belief in size over efficiency Rapid expansion of floor space Poorly considered group diversification Lack imagination and strategic direction High debt, unsophisticated retailing Nothing Nineties

Higher than some countries… Daiei’s debt larger than GDP of Ecuador (66th) Many recovering, but slowly Other worries Aeon Department stores

Get bigger now, improve later Sales space & sales density Daiei Aeon (Jusco) “ Bigger is always better”

Steady growth but still down Ito-Yokado Mitsukoshi “ Bigger is always better”

NCR: No consumer response Retailers fail to adapt to consumer trends Don’t understand and reluctant to implement their own marketing initiatives High cost, low margin operations leave little room for experimentation No incentive to improve shareholder value Too much reliance on the ‘old ways’ Quote: “It wouldn’t work in Japan [so we won’t try it]” The retail problem

Consumers are also bored… Consumer confidence hasn’t hurt some retailers at all! Japanese firms (2000-01): Fast Retailing (Uniqlo) Sales up 106.1% Five Foxes (Comme Ca) Sales up 17.1% Overseas firms: Louis Vuitton, adidas, Chanel, Hermes etc.. Gap, Starbucks, Carrefour(?) The retail problem

What do consumers want? Imagination and something different Lower prices Well supported and brands backed by solid marketing Genuine, friendly, outgoing service Value for money (even if the price is high) … and more imagination New consumer demand

Keys to Japan’s new retailing Brand marketing Retail internationalization Consumer first service Retail management of supply chain Lessons for retailers

Japan discovers brand marketing Branding is different in Japan Emphasis on naming over branding Brands have short life span Company name supercedes brand name Retail branding still at ‘generic’ level only New brand marketing leaders appear Uniqlo, Comme Ca, Mujirushi etc. Others will catch on, but many don’t understand Lessons: Branding

The day my life changed… Dec., 2000: Carrefour opens first non-Japanese superstore Opened 3 stores (total 45,000sqm) in 1 month Very strong industry and press opposition Equally strong consumer interest and surprise Followed by consumer disappointment Merchandise seen as too local Prices unbelievably [literally] low, not ‘French’ Lessons: Internationalization

Internationalization of Japanese retailing Pre-1970: Early exploration: mainly introduced by Japanese firms 1970-1990 Rapid expansion of high price brands: mainly European 1990–present Independent operations, break away from poorer Japanese “partners” adidas, YSL, Fendi, Armani etc.. Entry of globally capable firms Entry of increasing number of US retailers Lessons: Internationalization

Retail Entry: 1967-2000 Number of new firms Lessons: Internationalization

Overseas retailers in Japan, 2000 Lessons: Internationalization

Americans arrive late: Overseas retail entry by period Lessons: Internationalization

A long way to go… Internationalization is a good thing Great opportunities for overseas retailers Land prices low, demand high Great pool of workers looking for new, exciting jobs Big consumer demand for imagination and originality Ikea by 2005, Wal-Mart by 2005, Tesco sooner (?) The time has come to be in Japan and stay long-term Lessons: Internationalization

Too much too soon? Carrefour got it right!

Carrefour got it right, but… Carrefour rejects RPM, aggressive stance with suppliers Still a major problem, very anti-competitive supply chain Bad publicity for Carrefour, good for industry Japanese retailers will, slowly & quietly adopt same practices Attractive stores, new (to Japan) ideas Not all ideas worked, but some were unique Pricing by weight, bag packing, low price guarantee Strategy: Act global, think local was inappropriate? Not what the consumer expected, and rejected by industry What Carrefour taught Japan

Friendly face of customer service Traditional Japanese service is Polite Efficient “Japanese consumers expect it” “There is only one way to serve” Lessons: Customer service

Friendly face of consumer service Traditional service is also boring Young consumer more confident and friendly Breakdown of robotic respect for customer Increase in friendly, natural service Begin to listen and talk to consumers Major influence of overseas chains Subway, Gap, Disney, Starbucks Copied by Japanese chains Sofmap, Uniqlo, Seibu Department Store, Mujirushi, Comme Ca Lessons: Customer service

Japanese retailers want to control supply chains too Retailers recognise need to control supply and their own pricing Even department stores now take title to merchandise, reducing consignment sales Slotting fees and more aggressive buying techniques still rare, but increasing Less reliance on manufacturer marketing support Increase in retail branding, and brand marketing Lessons: Customer service

Conclusions: the challenges Consumers Changing attitudes and expectations Retailing Improvement and consolidation The future

Japanese market, 2010 Consumers Japan still too expensive Increasingly value conscious and service sensitive Major differences between young consumers’ attitudes up to mid-20s and those older Increasing international awareness Increasing awareness of ‘good’ Japanese products and companies Future: Consumers

Still too expensive by far: World’s most expensive cities Economist, July 2001 Future: Consumers

Japanese retailing, 2010: 1 Differences between the old and the new Many older retailers will not survive Concentration may fall as large firms decline, but will rise later Some older retailers will succeed in re-inventing themselves, but they will be in the minority Mitsukoshi is the key example, Isetan may be better example Future: Retailers

Japanese retailing, 2010: 2 Re-evaluation of retail strategy Some companies continue to pursue floor space and market share, but at great risk Newly successful companies will increasingly consider retail efficiency within operations Better retailers will: discover sophisticated merchandising, branding, and store design become consumer orientated not supplier orientated Future: Retailers

Japanese retailing, 2010: 3 Continued internationalization Steady increase in overseas retailers coming to Japan Still great opportunity, many who should be here are not The best Japanese retailers moving overseas Uniqlo Tabio (Dan Socks) GMS & CVS chains into Asia Future: Retailers

Thank you For more information: http://www.japanconsuming.com/ [email_address]

IGD Global Retail Index GRI Weighting: Turnover (20%), No Countries (10%), % Overseas turnover (10%), Presence in key regions (15%), Home market dominance (10%), Clarity of Global Strategy (15%), Global culture (10%), Level of int’l learning (10%) 54 59 10 Tesco 60 60 5 Metro 72 72 1 Wal-Mart 78 80 3 Ahold 83 83 2 Carrefour GRI 2000 GRI 2001 Global Sales Rank

Classement des groupes selon le tr é sor de guerre Million Euro Cost of 6% of Seiyu = 52 million euro (approx). = 0.3% of Wal-Mart’s bugdet Source: Prof Marc Dupuis, ESCP-EAP -2,487 -2,710 Carrefour 87 714 Rinascente 1,401 2,167 Auchan 4,433 4,584 Tesco 4,113 6,133 J. Sainsbury 10,589 14,606 Wal-Mart 1998 1999

Challenges facing Wal-Mart Break down traditional distribution structure Particularly wholesaling constraints Working with or against trading houses Introduce world class logistics and IT Capitalize on global buying scale Target for high market share (2-3%?) 2010

Japanese opposition to Wal-Mart Primarily in supply chain Also in retailing: Aeon’s comment on acquiring Inageya (Asahi Shinbun): “ There is nothing in this stake that can directly benefit our business, but if we didn’t take the shares, a foreign company or trading house would have.” Biggest problem: Will Wal-Mart make life difficult or easier for other overseas grocery retailers in Japan (Carrefour, Metro, Tesco)

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