Walmart in Japan

Walmart in Japan

Albert WinadiEric Setiawan

Junita AstariyaniMeliana Lumban RajaSonny Ongkowardojo

28 September 2012UPH

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

About Walmart

• American multinational retailer corporation

• Large discount department stores and warehouse stores

• World's third largest public corporation (Fortune Global 500, 2012)

• Largest retailer in the United States, and in the world

• 8,500 stores in 15 countries, under 55 different names (UK - Asda, Japan - Seiyu, India - Best Price)

• WOS in Argentina, Brazil, Canada

• Mixed results in investments outside North America:– UK, South America, China are successful

– Germany, South Korea were unsuccessful

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About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Walmart strategy3

• Offer broad assortment with even lower pricesOffer more product variety, achieve lower price by reducing expense, increase productivity and leverage technology to improve supply chain efficiency.

• Meet local needs while leverage global resourcesAlways align service to fastest-growing consumer demand in market, focusing on EDLP, targeting middle-income customers looking for quality-value combination.

• Winning in Global eCommerceBold competitive advantage by real-time communication between stores, distribution centres and the home office. Currently offers social, mobile and global platforms, such as iPad app, facebook gift finder.

Motto:

“Every Day Low Price”

(EDLP)

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Walmart approach in Japan4

Walmart entered Japan in 2002.

• Usual foreign strategy: Joint-venture (used to help with economic and political challenges). The company enters foreign markets by purchasing large stakes in similar retailers and takes gradual control of ownership by increasing investment through time. Historically these acquisitions are gradual, and have been met with both success and failure.

• Multinational operationsThe retailing giant has operations in 28 countries under 60 different banners. Examples of failed and abandoned markets include South Korea, Germany and Indonesia. Expansions that have proven largely profitable are Mexico and Canada. A struggling market similar to that of Japan is the United Kingdom. Judging from these varying country performances, one can see that its formula for success has not yet been perfected.

• Entry to JapanThe third major strategic step in Walmart’s early 2000s global expansion was entering the Japanese market. In 2002 Walmart set foot in Japan with the purchase of a 6 percent stake in the 371-store Seiyu chain, a struggling Japanese retailer.

• Despite continued losses, Walmart gradually raised its stake, making Seiyu a wholly owned subsidiary in June 2008.

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Japan

National Language Japanese

Population (2012 est.) 126,659,683(5th largest)

GDP (PPP 2011 est.) USD 4.440 trillion

Currency

GNI per capita

Land Area

Education Level

JPY (Japanese Yen)

USD 42,150

364,485 sq km

15 Years average education

99% literacy rate

90% of students graduated from high school, and half graduated from University or Junior College

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About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Japan retail prospect

Japan’s retail market is the world’s second largest, worth some US$1,124 billion (135 trillion yen) in 2007. Benefiting from a base of sophisticated consumers with high levels of disposable income, per capita retail expenditures have reached US$8,800.

Japan is a mature market, yet it hums with the dynamic development of new businesses, urban renewal, and local city development, presenting a broad range of opportunities for market entry.

Japan’s Retail Sector Attracts throughout AsiaJapan’s retail market attracts consumers from across Asia. The number of tourists traveling to Japan from other parts of Asia continues to grow, with roughly 35% citing ‘shopping’ as one of their reasons for visiting. Moreover, women’s fashion magazines from Japan are especially popular in China, Taiwan, Hong Kong and South Korea, highlighting the power of Japanese retail to resonate throughout Asia. For foreign companies, Japan’s market holds significant opportunities for advancing into other Asian markets.

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About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Market Shares of Major Forms of Retail in Japan

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As can be seen from the pie chart, Walmart entry to Japan as General Supermarket / Department Stores retail model means that it’s entering a relatively small market, at least when compared to other forms of retail in Japan.

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Shopping centres in Japan8

Quality vs Price

Japanese tends to prefer quality over low prices, which constrasts with Walmart core value: EDLP (Every Day Low Price).

When a nation has a very strong purchasing power, such as Japan, why settle for cheap stuffs when you can buy high quality expensive products and still have money to spare?

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Japan: Minimize Me!Japan is a small country with limited spaces, which has several implications for Walmart as below:

• Small housings and apartment sizes, with high rent prices means that Japanese would need to minimize their purchases. Lack of storage room to store purchases. A typical apartment in Japan would be 1LDK (1 room apartment with Living, Dining, and Kitchen area). Room size in Japan is measured by Jo (1 Jo = 1 tatami/Japanese mat = .88m x 1.76m). 1 LDK apartment would be about 18 Jo, which measures to only 27,55 sqm.

• Several small purchases.Minimize purchases, they would make their purchases several times a week, in small quantities. This means that stores would have to be readily available within reasonable distance, and bulk purchasing is discouraged. Compared to Walmart usual practice of centralized, big stores, with bulk purchasing to save costs, a neighborhood convenience store would be more suitable for the Japanese people.

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Japan: Minimize Me!

• High operating costs, especially because of the prices of rent and buildings in general. Average commercial land prices in Japan is 156,857 Yen (USD 2,017)/sqm, with average commercial land price in Tokyo reaching 1,551,400 Yen (USD 19,956)/sqm, followed by Osaka with average commercial land price of 493,700 Yen (USD 6,360)/sqm.

• Inability to apply original supply chain modelLots of stores, lots of supplies to be delivered, but no warehouse space, or overtly expensive warehouse space, since space is a premium in Japan. Walmart’s supply chain management that is one of the strengths of Walmart in US, and based on US model, can't be applied here. That's why Toyota invented JIT: to avoid the constraint of using warehouses, and hence, adding more costs to the product line.

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Japan: Minimize Me!Waste Disposal in Japan:• Trash categorization

In Tokyo, trash (gomi) has to be divided into three categories (combustible trash, non-combustible trash, recyclable trash) for proper disposal.

• Costly trash disposal procedureDisposal of bulky waste, such as a table, a shelf, or an old TV, requires a special procedure. You need to call the local ward office and arrange for a time for them to pick up the bulky waste. Before they come, however, you need to buy a sticker to stick on your large trash. To throw away an old TV, for example, costs about 300 yen.

• Impact on WalmartThis legendary Japanese environmental consciousness about waste disposal, added to their minimalist lifestyle, would discourage any bulk purchases from Walmart, effectively nullifying Walmart’s economic-scale-driven model.

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Heavily guardedbarrier of entry for

new retailers

Walmart vs Japanese Manufacturers and Suppliers

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Manufacturers Wholesalers Retailers Customers

Line of governance

“Retailers effectively represented the interest of the manufacturer, rather than that of consumers” (Tsukiizumi, 2004)

• Protection from aboveRetailers are often protected from financial risks by wholesalers and manufacturers through a number of distinctive market practices (such as rebates). • Price and distribution control

Manufacturers and wholesalers controlled prices by enforcing districting and exclusive dealerships.• Closed-network impact to government

For foreign retailers, Japan’s complex retail and distribution system has long been inaccessible, so much so that the U.S. government considered it a nontariff barrier and a structural impediment for U.S.-Japan trade

Walmart vs Japanese Manufacturers and Suppliers

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Impact for Walmart

SCM strategyWalmart supply chain management system aims for strategic sourcing to find products at best price from suppliers. Walmart establishes strategic partnerships with most of their vendors, offering potential long-term and high volume purchases in exchange for the lowest possible prices.

Small profit marginWalmart’s business model is based on a low price strategy and low transportation costs allow it to sell its products at the lowest possible prices. EDLP allows Walmart to break even or make small profit per sales, while customers also win by saving money buying at low prices.

Culture challengeJapan is used to the top-bottom approach, while Walmart insists on bottom-up approach. Walmart has to challenge the unusually powerful Japanese suppliers and manufacturers to conform with its Walmart model.

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Japan-US Geert-Hofstede comparison

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PDI IDV MAS UAI LTO

5446

95 9280

40

91

62

46

29JapanUnited States

Power Dominance Index

• Relatively equal

• Japan is more hierarchical than US.

Individualism Index

• Contrasting• Collectivism of

supply chain and relation to customer is difficult for US.

Masculinity Index

• Contrasting• Japan strives

for quality and perfection. While Walmart enters market with value-goods approach

Uncertainty Avoidance Index

• Contrasting• Japan may

have numerous restriction and laws which may be viewed as unnecessary by US.

Long Term Outcome Index

• Contrasting• Japan may

plan ahead and more punctual and strict, contrast to US.

4 contrasting elements may cause business relationship to be more difficult between Walmart and Japan market

Further cross-cultural analysis

Trompenaars Individualist Walmart (US) vs. Communitarianist Japan.Verbal Communication Japan vs US

(indirect vs direct) / (succinct vs elaborate) / (contextual vs personal) / (affective vs instrumental)Communication Flows Japan vs US

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

“Why Wal-mart can’t find happiness in Japan”• First changes brought by Walmart is by successfully persuading Seiyu to dismiss

25% of their HQ staff, including 1500 employees and managers.• Japan never have anything like this mass layoffs, because this kind of action would

create too much embarrassment for a typical Japanese company.• Walmart, a US corporation, is seen as the outsider who meddle too much in Japan’s

community (Communitarianism)• Walmart viewed it as a company’s priority to cut cost, in order to implement EDLP

(individualism)• This created a climate of resistance for policies that Walmart is trying to implement• Introducing cheap products from China doesn’t help, especially with bad relations

between Japan and China.

http://money.cnn.com/magazines/fortune/fortune_archive/2007/08/06/100141311/index2.htm

Further cross-cultural analysis

Trompenaars and Geert-HofstedeConformist Society (High Uncertainty Avoidance, High Communitarianism)

• High communitarianism: high peer pressure, need peer approval to make decisions

• High uncertainty avoidance: tried and true is better, something new is to be avoided

• Variety offered by Walmart is not attractive to Japanese, who tends to choose a small selection of tried and tested product.

• Not to mention, they are wary of the “new” products offered by Walmart

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

About Walmart

Japan

Retail

Challenges

Analysis

Recommendations

Our recommendationsAlternatives for Walmart and Seiyu

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Alternative 1: Riding the disaster. Japan was hit by recession during the 2008 period. This increases demand for EDLP due to decreasing consumer buying power. This shows in increasing sales in Walmart Japan (Seiyu) from November 2008 (World Economic Crisis time).Enter 2011. Japan was hit by tsunami and this event occurs again. Seiyu sales rose again during this period. Walmart could perform market survey to determine again Japan’s interest in value goods. If results are positive, Walmart could try once more to grab the value goods market.

Alternative 2: Think global, act local.A nation with low to medium purchasing power would be great for EDLP as well. Walmart has to adapt to premium-lover Japan, and it's not easy. Different nation, different culture, different strategy: universalist approach may look simpler and less costly in the long run, but there are cases where there are countries with unique culture. Especially with a with a very proud, traditionalist, conformist society like Japan where others have followed.

What do you think?