We get letters from supporters everyday from all over the world. The following one, from a Japanese consumer details his experiences with Wal-Mart’s infamous customer service.
At Wal-Mart’s latest analyst meeting, Wal-Mart’s executives told analysts that Seiyu (Wal-Mart’s Japanese brand) is a price leader in the Japanese market and that Seiyu is set to actually turn a profit over the next year—and no, that’s not a typo. Despite noting in early 2008 that “heavy discounting of goods over the past year ate into [Seiyu’s] profit margins without the expected boost in sales,” Seiyu and Wal-Mart leadership think ‘more of the same’ will be sufficient to succeed in the Japanese market.
Unfortunately, as the following story from a Japanese customer alludes, Wal-Mart’s low prices will hardly be enough.
Dear WalmartWatch,
I am a Japanese visitor to your website and I live in Japan, where Wal-Mart finally acquired the ailing Japanese retailer, Seiyu Group, last summer. It was my first visit ever today. I wanted to share the story of my horrible experience at the Seiyu store because I believe it is truly the “Wal-Mart style”.
When I visited a Seiyu store in the evening, I had my car damaged by some reckless construction work inside the parking garage. There were many potholes in the garage and Seiyu installed no lighting or warning signs at all. The front wheel of my car and the lower part of the front bumper was damaged when it hit pothole… It is already a horror story, isn’t it? However, the Seiyu Group store’s management and the Seiyu Group’s HQ never found it horrible.... The senior managers, some of whom made several phone calls to my home with a low voice with “threatening tone”, simply refused apologies or compensations.
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Posted by Research Team | Permalink
After years of struggling in one of the world’s most competitive retail markets, Wal-Mart announced today that it is downsizing operations in Japan. Wal-Mart bought a majority stake in Seiyu several years ago, and just last year the retailer bought all of Seiyu’s remaining shares. Wal-Mart has pumped over $1 billion into the Seiyu chain, but discerning Japanese shoppers (who view “low prices” as a sign of low quality, and can afford to shop elsewhere) have never taken to the store. Will Japan join the ranks of countries where Wal-Mart has failed?
Wal-Mart Japan unit to close 20 stores, cut staff [Reuters]
Wal-Mart Stores Inc’s Japan unit Seiyu Ltd said it will close about 20 unprofitable stores and cut 6 percent of its workforce as it struggles to gain traction in the world’s second-largest economy.
But Seiyu, which became a fully-owned subsidiary of the world’s largest retailer earlier this year, said it would also look to open stores in new regions and consider acquisitions to help it expand.
Seiyu Senior Vice President Ryo Kanayama said targets may include supermarket chains with a nationwide network.
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Posted by Alex Goldschmidt | Permalink
Today, the Financial Times reported that Wal-Mart is expanding its overseas expansion. Well color me surprised! Currently, international sales constitute 26% of the company’s net sales and this is while Wal-Mart is lowering its capital expenditures. In layman’s terms, this means that they’re slowing growth- or rather, they are being forced to by the market. So in order to sustain the company, Wal-Mart is looking to conquer new markets abroad. Thankfully, Asia and Eastern Europe are still up for grabs!
Wal-Mart readies for overseas expansion
Wal-Mart, the world’s largest retailer, is embarking on a further round of international expansion on the back of a systematic overhaul of the way it runs its business, which is expected to deliver more than $100bn in sales this year.
The retailer is actively exploring a first move into Russia and neighbouring countries, while preparing to open its first wholesale warehouse stores in India next year in a joint venture with Bharti Enterprises.
Wal-Mart already has operations in 13 countries, which accounted for 26 per cent of its net sales last year.
Wal-Mart’s international square footage growth rate is now above that in the US, where it has now slowed the expansion of its profitable Supercenter format in the face of market saturation.
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Posted by Vasudha Desikan | Permalink
This is the third in a series of posts on Wal-Mart’s 2008 shareholder resolutions. The full list of resolutions - and Wal-Mart’s statements regarding them - can be found in the company’s 2008 proxy here (PDF).
Resolution #7 on this year’s proxy proposes the establishment of a human rights committee at Wal-Mart. Below, the details of the proposition, why Wal-Mart’s shareholders would benefit and how the company has reacted to the proposal.
Wal-Mart’s Public Image Problem
Reports of human rights violations have dogged Wal-Mart for years - particularly in the company’s supplier factories, most of which are overseas. These violations have thoroughly damaged Wal-Mart’s reputation, with everyone from U.S Senators to Wal-Mart employees to factory workers themselves speaking out about the inhumane conditions in Wal-Mart’s supplier factories. Bama Athreya, director of the International Labor Rights Forum, testified before Congress on the issue of toy safety, explaining that “Wal-Mart bears a lion share of responsibility for pushing the toy industry to a place where worker health and safety are basically nonexistent.”
Wal-Mart also holds the ignominious title of being the only company investigated by Human Rights Watch for its domestic labor practices. The group’s 2007 report labeled Wal-Mart’s union-busting policies a violation of basic human rights, saying:
It pursues its anti-union agenda relentlessly, often from the day a new worker is hired, devoting considerable time and resources at all levels of the company to the anti-union drumbeat.
The constant stream of allegations have damaged Wal-Mart’s reputation and in turn, its profits. In 2007, a Bank of America analyst’ report found that Wal-Mart’s profits had suffered as a result of organized labor’s opposition to the company and its unethical labor practices. The report noted that the union’s campaign “has cost WMT [Wal-Mart] real estate sites in key locations, adversely impacted comp store sales to some degree, and has distracted m management from focusing on its retail strategy. Additionally, Lee Scott now spends a large amount of time improving WMT’s image domestically and abroad, and WMT has been forced to focus advertising dollars on defending their brand.”
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Posted by Research Team | Permalink
Wal-Mart has held a majority stake in Japanese retailer Seiyu for several years, and all the while Seiyu has lost money. There are a lot of reasons why this is the case, including, but not limited to, Wal-Mart being insensitive to cultural differences, Japanese consumers equating “low prices” with “poor quality,” tough competition from other retailers and difficulty with Seiyu’s store formats.
Wal-Mart apparently isn’t bothered by any of these difficulties, and has decided to buy up the 4% of Seiyu shares it didn’t already own. By sinking even more money into Seiyu Wal-Mart hopes to avoid the fate that befell stores in Germany and Korea. As international expansion plays a larger role in Wal-Mart’s expansion, Wal-Mart needs to keep building in countries where it can. What do you think: Is Seiyu a wise investment for the company?
Wal-Mart To Make Seiyu 100% Unit [Dow Jones Newswire via Wall Street Journal]
Wal-Mart Stores Inc. will make Seiyu Ltd. a wholly-owned unit, as the U.S. retail giant seeks the flexibility it says it needs to turn around the long-unprofitable Japanese supermarket operator
Seiyu, Japan’s fifth-biggest supermarket retailer by sales, said Tuesday the move was approved at its shareholders meeting earlier in the day, enabling Wal-Mart to buy the remaining stake it doesn’t already own in Seiyu for Y140 per share. The approval cleared the way for Wal-Mart to boost its stake in Seiyu to 100% from about 96%, effective April 25.
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Posted by Alex Goldschmidt | Permalink
GAWKER/EDELMAN SMACKDOWN
First of all, we’d like to thank the fairy godmother who inspired Gawker’s bloggers to give birth to this headline.
Edelman Is A Soulless, Wal-Mart Shilling Firm That Shouldn’t Lecture About Ethics [Gawker]
You and your agency aren’t really the paragons of honesty and decency in communications that you present yourselves to be. You guys have run a political-style, multimillion-dollar campaign for years on behalf of Wal-Mart, one of the most objectionable companies in the world.
Paid liars. [The Writing on the Wal]
Reporters may understand that they’re going to be lied to on a regular basis, but do the people that shop there? If they do, why does Wal-Mart waste millions of dollars each year on Edelman? After all, they could always lie to the public just as easily and just as often for free.
Blog Wars: Gawker vs. Edelman [Adages]
It all started after Mr. Edelman personally responded to a post Mr. Nolan wrote that featured a marketing executive’s detailed account about a media training session he or she had with an Edelman employee wherein the Edelman employee flat out told the exec that: “Sometimes, you just have to stand up there and lie.”
Mr. Edelman demanded that the post be taken down immediately. Ummm ... fat chance of that happening.
The fact that Edelmen just launched a “transparency in communications” initiative: sadly ironic or poetic justice?
After the jump, Wal-Mart fights to stay afloat in Japan, and the company gets a very special valentine from citizens in California.
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Posted by Alex Goldschmidt | Permalink
Wal-Mart reported big losses in its Japan unit Seiyu for the sixth straight year. As we discussed yesterday in regard to Wal-Mart’s attempts to expand in the U.K., the retailer is notoriously bad at adapting to changing market conditions. Building in the U.K. as well as Japan has meant stricter development regulations and a harder time building the company’s notorious supercenters.
Douglas McIntyre on 24/7 Wall St. points out that the company can’t afford another failure:
After pulling out of Germany and Korea it would be hard for Wal-Mart to raise the white flag in Japan. The market is simply too big for the US company to walk away. That would leave it out of three of the largest developed counties in the world.
Wal-Mart’s Japan Unit Forecasts Deeper Loss [Wall Street Journal]
Wal-Mart Stores Inc.’s Japan unit said it expects its net loss for 2007 to be twice its earlier forecast, raising fresh doubts about the U.S. retailing giant’s plans to turn around its business in the world’s second-largest economy.
In revising its net-loss forecast for the year ended Dec. 31 to 20.9 billion yen ($195.5 million) from an earlier 10.4 billion yen, Wal-Mart’s subsidiary, Seiyu Ltd., cited weak sales of clothing and seasonal household products, as well as a special asset write-down related to its stores. Seiyu also cut its forecasts for operating profit, to 400 million yen from 4.6 billion yen, and for sales, to 952.3 billion yen from 963 billion yen. Full year results are to be released Thursday.
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Posted by Alex Goldschmidt | Permalink
Feb01
Feeling the Heat
The Financial Times revealed that Wal-Mart is planning “the creation of an -e-commerce platform that could sell groceries, general merchandise and digital products while linking its stores with call -centres.” This international e-commerce initiative is “aimed at securing billions of dollars of additional sales in countries including China, Japan and Brazil.”
While China and Brazil are currently strong markets for Wal-Mart, it’s unclear how Wal-Mart plans to capture the emerging online trend. For example, in China the online auction site Taobao recently announced that its total sales volume exceeded the volumes of both Wal-Mart’s and Carrefour’s China ventures combined. It’s difficult to imagine what Wal-Mart could offer to differentiate itself in a strong, established market - especially when Wal-Mart is increasingly being differentiated only by consumer mistrust and controversy.
Perhaps Wal-Mart should instead be concentrating its energies on offering quality products and customer service in order to reestablish consumer trust and confidence. After all, home delivery of toxic goods isn’t much better than buying toxic goods in person.
Wal-Mart in global online push [Financial Times]
Wal-Mart is to seeking to emulate Amazon’s global success, launching an international e-commerce initiative aimed at securing billions of dollars of additional sales in countries including China, Japan and Brazil.
The retailer is increasingly looking to overseas sales to offset slowing growth in the US, and says it will invest “millions of dollars” in what it labels “a multi-billion dollar opportunity over the next three to five years”.
A new global unit at Wal-Mart’s international division will oversee the creation of an -e-commerce platform that could sell groceries, general merchandise and digital products while linking its stores with call -centres.
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Posted by Michael Mignano | Permalink
Sumitomo to sell entire stake in Japanese retailer Seiyu to Wal-Mart [MarketWatch]
Japanese trading house Sumitomo Corp. said Tuesday that it will sell its entire stake in struggling supermarket operator Seiyu Ltd. to Wal-Mart Stores Inc.
The Tokyo-based company said it has tendered a 6.37% stake in Seiyu to the U.S. retail giant, which has been conducting a bid to buy Seiyu shares. The tender offer ran from Oct. 23 until earlier Tuesday.
The decision by Sumitomo, which has long held a stake in Seiyu, has reinforced the possibility that the tender offer will be successful.
Wal-Mart, which owns 50.9% of Seiyu, will pay Y140 for each share of Seiyu it doesn’t own, underscoring Wal-Mart’s commitment to the Japanese market, the world’s second largest.
Posted by Alex Goldschmidt | Permalink
Wal-Mart defends decision to buy rest of Seiyu [Reuters]
Wal-Mart Stores Inc on Wednesday defended its decision to acquire the remaining shares of its Japanese supermarket subsidiary, Seiyu Ltd, saying Japan is of major strategic importance to the world’s largest retailer.
“We are convinced that full ownership by Wal-Mart is the best way to enable Seiyu and Wal-Mart to deliver long-term benefits to all stakeholders,” Wan Ling Martello, chief financial officer of Wal-Mart’s international business, said at the retailer’s analyst meeting, which was broadcast on the Internet.
Earlier this week, Wal-Mart said it would spend up to $878 million to buy out minority shareholders in Seiyu to try to turn around the money-losing chain.
But U.S. investors were not necessarily pleased by the move, questioning why Wal-Mart would put more money into Seiyu. Since 2002, Wal-Mart has invested more than $1 billion in Seiyu but has yet to see anything more than temporary upswings in sales amid tough competition.
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Posted by Alex Goldschmidt | Permalink
Wal-Mart Digs Deeper in Japan [Wall Street Journal]
In yet another effort to shore up its slumping operations in Japan, U.S. discount giant Wal-Mart Stores Inc. offered to pay 100 billion yen ($873 million) to acquire the 49.1% of its Japanese subsidiary it doesn’t already own.
Wal-Mart said it would pay 140 yen for each Seiyu Ltd. share. That’s a 61% premium to Friday’s closing price of 87 yen. Trading in Seiyu shares were halted before the start of trading yesterday.
Wal-Mart said owning all of Seiyu would give it more flexibility to invest in a range of activities, including merchandising, distribution and logistics.
The deal comes five years after Wal-Mart began building its stake in Seiyu, a struggling Japanese retailer that seemed to fit in with the Bentonville, Arkansas, company’s strategy. Since then, Wal-Mart has spent millions of dollars to amass a 50.9% stake as well as refurbish Seiyu’s older stores.
So far, that effort hasn’t been rewarded. Seiyu said yesterday it posted a loss of 11.4 billion yen for the nine-month period ended Sept. 30. While that marked an improvement over the 59.6-billion-yen loss posted a year earlier, Seiyu also said its same-store sales fell 1%.
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Posted by Web Team | Permalink
Wal-Mart’s Japanese stores have been struggling for years. Seiyu, which Wal-Mart owns 53% of, has been facing many of the same problems Wal-Mart’s store in Germany and South Korea faced before the retailer decided to abandon its stores in those countries. Unlike Germany and South Korea, however, Wal-Mart has many more bricks-and-mortar stores in Japan, and as this “forced retirement” demonstrates, it won’t be easy for Wal-Mart to pull out of Japan even if it chooses to.
More information about this is available in our report on Wal-Mart’s international expansion, “Wal-Mart in Crisis: How the World’s Largest Retailer Lost Its Way” (PDF).
Wal-Mart’s Japan unit cuts jobs, sees bigger loss [Reuters via Boston Globe]
Wal-Mart Stores Inc’s Japanese unit, Seiyu Ltd, boosted its annual loss forecast by 76 percent due to a charge to cut about 7 percent of its work force as it battles sluggish sales.
The world’s largest retailer has invested more than $1 billion in the 393-store Japanese supermarket chain since 2002, but has yet to see anything more than temporary upswings in sales amid tough competition with rivals such as Aeon Co.
Seiyu is headed for its sixth straight annual loss in 2007, giving rise to speculation that Wal-Mart may consider withdrawing from Japan, the world’s second-largest retail market, as it did from South Korea and Germany last year.
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Posted by Alex Goldschmidt | Permalink
In an article out today Fortune highlighted many of the problems Wal-Mart is having in Japan, a topic we investigated in our report Wal-Mart in Crisis. Wal-Mart is having major issues with its Seiyu subsidiary largely because Wal-Mart is treating Japan like everywhere else and failing to adapt to the highly-developed, culturally-sensitive and retail-rich environment that Japan has been for decades. As a result of Wal-Mart’s lack of cultural and business sensitivity, Seiyu has once again reported worse than expected losses.
Wal-Mart has tried to do in Japan what it tried to do in Germany and South Korea, a strategy that lead to the company’s failure in those two markets:
1. Use an anti-employee management style that is typical of Bentonville, but culturally incongruent with local business practices.
In Germany, Wal-Mart used several techniques that not only violated German law but also ran foul with German culture and created discontent among employees (the company ran an employee “tip” line that was used as an employee snitch line, and forbade dating among colleagues.) Wal-Mart set itself on a similar path in Japan right from the onset, sowing the seeds of domestic employee discontent.
From the Fortune Magazine Article:
First, even before it took full control, Wal-Mart persuaded Seiyu’s management in 2004 to dismiss 25 percent of headquarters staff, including 1,500 employees and managers. That kind of mass firing happens rarely in Japan, which places a premium on social harmony. And when the firing is done at the behest of foreigners, it takes on added negative connotations.
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Posted by Research Team | Permalink
May24
Tesco Jumps Into Japan
A month ago, United Kingdom retail giant Tesco opened its first store in Japan, turning up the heat in one of the most competitive retail markets in the world. Wal-Mart-owned Seiyu stores have been struggling to succeed in Japan, and Tesco’s expansion undoubtedly won’t help. The British company also recently announced plans to build stores in the United States. Should Tesco prove successful in Japan, Wal-Mart might face serious problems not only in Japan but domestically, as well.
Tesco Takes a Fresh Look at Japan [BusinessWeek]
Tesco has plenty of ambition. The supermarket operator is gearing up to open dozens of Fresh & Easy Neighborhood Markets in the U.S., usually described as a graveyard for British retailers. By February, the company plans to ink leases on 100 of the outlets in Arizona, California, and Nevada and is earmarking $500 million a year for its U.S. push
Yet Tesco’s expansion plan in Japan is what shows just how bold the British retailer—the world’s third largest after Wal-Mart and Carrefour of France—has become.
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Posted by Alex Goldschmidt | Permalink
From Financial Times:
What marks out Renault from DaimlerChrysler, Chanel from Carrefour, AIG from Merrill Lynch and IBM Japan from Vodafone?
The comparisons may not be strictly fair. But while the French carmaker, Parisian fashion house, US insurer and US IT services company are commonly judged to have done pretty well in Japan, the German-US car manufacturer, French supermarket chain, US securities firm and UK telecoms company have had notable – in some cases terminal – setbacks.
Japan is a tough market to prize open. Cumulative levels of foreign direct investment are around 3 per cent of gross domestic product, against 22 per cent in the US and 37 per cent in the UK.
But even when companies break in, either through start-up investments or difficult-to-engineer acquisitions of businesses, many find the going much tougher than they had imagined. Experts cite, among other factors, the high cost of regulation, the difficulty of second-guessing the stringent, ever-changing demands of Japanese consumers, and the problem of being an outsider in a society where to be an insider can be everything.
These high hurdles apply not only to foreign businesses. A quick scan of the Nikkei 225 – most of whose companies were established decades, if not centuries, ago – demonstrates that the business environment favours incumbents. A similar exercise for the New York Stock Exchange shows a much higher churn rate, with successful newcomers in, say, IT and biotechnology, regularly eclipsing famous old names.
Jean-Francois Minier, managing director of Dresdner Kleinwort in Tokyo, says there is no simple solution to breaking into the market. “I don’t think we have enough examples yet to be able to say: ‘That’s the recipe for success’,” he says. “There are examples of successes and failures in, say, greenfield investments and turnround stories. But there’s really no pattern.”
Newcomers can strike lucky. In perhaps the most oft-cited example of a foreign-led turnaround, in 1999 Carlos Ghosn moved from Renault to bring focus to the then crisis-ridden Nissan. Partly by severing exclusive relationships with suppliers, notably steelmakers, and forcing them to bid on price, he was able to cut costs sharply. Nissan went from the verge of bankruptcy to becoming one of the world’s most profitable carmakers in a few years.
Even so, there are questions about whether Mr Ghosn was fortunate in timing his arrival to coincide with the launch of a crop of Nissan models. A sense of crisis also allowed him to take drastic action that might otherwise have been impossible. And today there are suggestions that Nissan may have damaged long-term relationships with suppliers in the interests of short-term savings. A few years ago, for example, when Japan was hit by steel shortages, Nissan was the first carmaker to suffer.
Whatever the caveats, Renault’s experience contrasts sharply with a host of foreign entrants that have been less successful. One company that had big ambitions was Merrill Lynch, which, in 1998, attempted to graft its retail brokerage model on to the failed Yamaichi Securities, Japan’s fourth-biggest securities house.
But products that work elsewhere do not necessarily find a ready market in Japan. As the FT reported at the time, one customer, spotting the bull logo outside a Merrill office, strode in with the intention of ordering a Korean barbecue. Unfamiliarity with what Merrill was offering cost it dear. A few years later, it closed the bulk of its retail outlets.
Vodafone also famously failed to import its model. After an excellent start, the UK company, which had paid £7.9bn for a controlling stake of then Japan Telecom, started to lose market share. Commentators said it tried to foist standardised global handsets on to a demanding and fickle public. Its global strategy also meant it was slow to roll out third-generation services, putting it at a disadvantage to rivals. The series of missteps ended with sale of the entire unit to Softbank, a Japanese broadband company, last year.
Ian de Stains, executive director of the British Chamber of Commerce in Japan, says: “The way Vodafone managed at first was a classic example of how to get it right. But they took their eye off the ball.” If he has picked up any rules of success in Japan, it is that painstaking research and preparation pays, and that going it alone tends to work better than joint ventures with – often incompatible – Japanese partners.
Mr Minier of Dresdner Kleinwort says: “There are definitely things not to do: to try to globalise too fast or try to cut-and-paste a model that has been successful abroad.” But that does not necessarily mean, he adds, that it pays simply to mimic Japanese products and style.
Carrefour, the French supermarket, was criticized for doing just that. When it opened, many customers expected a French-style supermarket, with chic European products. Instead, they were given something that looked too familiar. In 2005, just four years after arriving, Carrefour bailed out, selling its eight hypermarket stores to Aeon.
Getting the balance of innovation and adaptation right is something that Wal-Mart, the world’s biggest retailer, is now struggling with. When it took control of Seiyu last year after steadily building its presence in the country, some commentators assumed it would at last be able to leverage its international supply chain and bring its world-famous low-price model to Japan.
Instead, largely because of the demanding nature of Japanese consumers, Wal-Mart has found itself sourcing most of its products locally. That has put it in the unusual position of having less buying power than its Japanese competitors, such as Aeon. Motoya Okada, Aeon’s chief executive, likes to say his company can be “the Wal-Mart of Japan”.
So where does that leave the real Wal-Mart? In January, Seiyu announced it had badly missed its operating profit target of Y6.6bn, achieving just Y3.2bn, although it said it had reversed a trend of secular decline.
Ed Kolodzieski, Seiyu’s chief executive and a former chief operating officer of Wal-Mart’s international operations, says: “It is true we have competitors who are larger than us with different economies of scale. Scale does make a difference and we have to look at global procurement opportunities and leveraging our technology. But there’s significant potential for improvement within the scale we have today.”
The company insists it can make it even without an acquisition that would bring the buying power to match larger rivals. It is turning things around, it says, gradually getting the mix of price, quality and service right to lay the foundations for long-term progress. It is applying technology to improve stock management and adapting products sold in other markets to suit Japan’s – unexpectedly – rigorous demands for quality and style. “We have customers who are willing to spend a lot more money with us if we do a better job than we are doing today,” says Mr Kolodzieski.
To his credit, the recently installed chief executive acknowledges he still has much to learn about how to crack Japan. “If I had a nickname, it would be the ‘Guy who Asks a Lot of Questions’,” he says. Many company executives who have tried to penetrate the world’s second-biggest market would sympathise.
Case study: Mariko Sanchanta
On a balmy autumn evening in Tokyo, a young Japanese investment banker entertained guests at his stylish flat. He pointed to his small end table. “1,500 yen at Ikea,” he said proudly. Then he pointed at the vase sitting on the table. “20,000 yen at the Conran shop,” he said sheepishly, writes Mariko Sanchanta.
Two Ikea stores opened in Japan last year on the outskirts of Tokyo, marking its second foray into the notoriously difficult market. The Swedish furniture retailer first dipped its toe into Japan 30 years ago, only to retreat 12 years later after not getting its formula quite right.
But this time, after years of planning, Ikea appears to have won shoppers over with its rock-bottom prices and clean Scandinavian designs. Not only are investment bankers making the hour-long trip from Tokyo to pick up a few cheap, colourful accessories for their designer flats, but housewives, their children and hip-looking teenagers have all been seen curiously picking up lamps and bowls, uttering a single refrain that echoes around the store: “Yasui!”, or roughly translated, “Cheap!”.
“It is not a cheap exercise to build stores in Japan, but we are very satisfied with our performance and we have no regrets,” says Lars Petersson, chief executive of Ikea Japan. “Not many stores in the world cost more than Japan.”
Ikea is aiming to succeed in Japan where many other foreign retailers and merchants have failed. Carrefour, Boots, Sephora and Pret a Manger have all quietly retreated from the challenging Japanese retail market – the second-biggest in the world – over the years. Wal-Mart, which has made a formidable investment in Seiyu, a Japanese retailer, has been bleeding red ink since it first entered Japan in 2002, though it aims to make a profit this year.
Conventional wisdom used to have it that Japanese consumers had an allergy to products sold at rock-bottom prices. But Japanese consumers, battered by more than a decade of recession and deflationary pressures, no longer believe so strongly they must pay exhorbitant prices to obtain high-quality goods. “The Japanese consumer is very intelligent and well-educated,” says Mr Petersson. “We do not manipulate our prices in Japan.”
And unlike most foreign retailers, which choose to lease stores, Ikea has bought huge tracts of land in Japan, at a time when prices are steadily creeping upward.
“We own the property, as we have a long-term view,” says Mr Petersson. “We are hesitant to build something on leased land.” Next year, three more Ikea stores will open in Japan: one in Kobe, one in Osaka and one in Saitama, which is just north of Tokyo. “We aim to build in cities with a population of a million or above. We are also looking at Nagoya, Fukuoka, Sendai and Sapporo,” says Mr Petersson. To make its supply chain more efficient, Ikea plans to build a massive warehouse on the outskirts of Nagoya in the summer of 2008.
Despite Ikea’s ambitious expansion plans, Japanese consumers are clearly still trying to grasp the concept of flat-packs and do-it-yourself assembly. Retailers in Japan are famous for their impeccable service, sometimes to the point of obsequiousness. Ikea, by contrast, is famous for its self-service.
A huge sign just inside the entrance of Ikea’s shop in Funabashi, just outside Tokyo, reads: “How to Shop at Ikea”, and explains the store lay-out, as well as where to pick up furniture. For roughly half of its larger furniture – such as big shelves, media storage and wardrobes – customers request assembly crews, which can cost around Y20,000 per product. Sometimes, it admits, assembly can cost more than the furniture. Ikea outsources the assembly task to a Japanese company.
So far, 8.3m customers have strolled through the doors of Ikea’s two shops in Japan. Obviously the potential for the Swedish retailer to reach millions more via the internet is huge. Though Ikea has no imminent plans to launch an internet site in Japan, it is certainly a goal. “We are working very hard to investigate how [internet sales] could be done – we need a logistics plan that has to work,” says Mr Petersson. “It has to be a smooth, well-oiled operation. It is very high on our agenda. We want to be prepared for the volume.”
For now though, it seems the Japanese are more partial to Ikea’s Swedish meatball lunches than they are to bookshelves. “Our two restaurants in Japan are our most popular in the world,” says Mr Petersson. “London is number three.”
Posted by Vasudha Desikan | Permalink
May03
Seiyu’s Financial Losses
From Wall Street Journal:
Seiyu Ltd. said Friday its net loss ballooned last year as it wrote down the value of fixed assets, but the Japanese retailer posted its first rise in same-store sales in 15 years, pointing to some progress in its revitalization efforts.
The Tokyo-based subsidiary of Wal-Mart Stores Inc. (WMT) posted a group net loss of Y55.79 billion for the year ended Dec. 31, slipping deeper into the red from a loss of Y17.77 billion in the year earlier, as it booked an extraordinary loss of Y49.2 billion for impairment losses on fixed assets.
On a group operating basis, Seiyu was in the black, registering a profit of Y3.22 billion, an improvement from a year-earlier profit of Y1.23 billion.
Its group sales decreased 3.6% to Y960.86 billion from Y997.10 billion, crimped by the sale of subsidiaries and closures of stores that come under the knife of Seiyu’s reform drive. On a same-store basis, however, its sales ticked up 0.6% on year.
For the current year through Dec. 31, Seiyu said it expects to become profitable again, forecasting a group net profit of Y800 million, a group operating profit of Y10.60 billion and group sales of Y992.10 billion.
The results are based on Japanese accounting standards.
Posted by Vasudha Desikan | Permalink
From Washington Post:
U.S. Ambassador Thomas Schieffer ate free samples of American beef Thursday at the first major Japanese supermarket to sell the meat after the lifting of a nearly three-year ban over worries about possible health hazards.
“Good,” he said, after popping a slice of grilled steak into his mouth at a Seiyu, a supermarket chain owned by Wal-Mart Stores Inc.
“I’ve been waiting all week to come out here,” he said, before purchasing steaks for his wife and himself.
Schieffer was visiting the Tokyo store with Seiyu Chief Executive Ed Kolodzieski, who also ate some of the beef for sale in the meat section, decorated with tiny American flags.
The return of American beef at Seiyu came ahead the resumption of sales Saturday at 20 Seiyu stores in the region near Tokyo.
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Posted by Vasudha Desikan | Permalink
From the Financial Times:
Getting the balance of innovation and adaptation right is something that Wal-Mart, the world’s biggest retailer, is now struggling with. When it took control of Seiyu last year after steadily building its presence in the country, some commentators assumed it would at last be able to leverage its international supply chain and bring its world-famous low-price model to Japan.
Instead, largely because of the demanding nature of Japanese consumers, Wal-Mart has found itself sourcing most of its products locally. That has put it in the unusual position of having less buying power than its Japanese competitors, such as Aeon. Motoya Okada, Aeon’s chief executive, likes to say his company can be “the Wal-Mart of Japan”.
So where does that leave the real Wal-Mart? In January, Seiyu announced it had badly missed its operating profit target of Y6.6bn, achieving just Y3.2bn, although it said it had reversed a trend of secular decline.
Ed Kolodzieski, Seiyu’s chief executive and a former chief operating officer of Wal-Mart’s international operations, says: “It is true we have competitors who are larger than us with different economies of scale. Scale does make a difference and we have to look at global procurement opportunities and leveraging our technology. But there’s significant potential for improvement within the scale we have today.”
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Posted by Russ Fagaly | Permalink
From BBC:
Seiyu, the US giant’s Japanese unit, made a 54bn yen ($465m; £246m) net loss in the first six months of 2006.
Hit by a one-time write-off and ongoing cost-cutting work, this compares with a 10.6bn yen loss a year earlier.
Wal-Mart announced earlier this year that it was pulling out of both Germany and South Korea due to poor results.
Posted by Vasudha Desikan | Permalink
From Retailing Today:
Wal-Mart Stores is open to acquisition opportunities in Japan, but the world’s largest retailer is more focused on expanding business at its 53%-owned Seiyu chain, a spokeswoman said today.
Shares of Seiyu jumped today after Wal-Mart vice chairman Michael Duke told the Nikkei business daily in an interview that the company might look for more acquisition opportunities in Japan.
The paper reported on Saturday that Duke welcomed planned changes in corporate laws in May that will enable foreign companies to buy Japanese firms through share swaps.
Posted by Vasudha Desikan | Permalink
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