Walmart in Japan


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Walmart is well known as the retail giant with global outreach, but sometimes failures do happen. This presentation attempts to analyze Walmart's failure in Japan and possible opportunities.

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Walmart in Japan

  1. Walmart in Japan Albert Winadi 28 September 2012 Eric Setiawan UPH Junita Astariyani Meliana Lumban Raja Sonny Ongkowardojo
  2. 2 About Walmart • American multinational retailer corporation • Large discount department stores and warehouse stores • Worlds 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 unsuccessfulAbout Walmart Japan Retail Challenges Analysis Recommendations
  3. 3 Walmart strategy Motto: “Every Day Low Price” (EDLP) • Offer broad assortment with even lower prices Offer 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 resources Always align service to fastest-growing consumer demand in market, focusing on EDLP, targeting middle-income customers looking for quality-value combination. • Winning in Global eCommerce Bold 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.About Walmart Japan Retail Challenges Analysis Recommendations
  4. 4 Walmart approach in Japan 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 operations The 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 Japan The 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
  5. 5Japan National Language Japanese Population (2012 est.) 126,659,683 (5th largest) GDP (PPP 2011 est.) USD 4.440 trillion Currency JPY (Japanese Yen) GNI per capita USD 42,150 Land Area 364,485 sq km Education Level 15 Years average education . 99% literacy rate 90% of students graduated from high school, and half graduated from University or Junior CollegeAbout Walmart Japan Retail Challenges Analysis Recommendations
  6. 6Japan 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 Asia Japan’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.About Walmart Japan Retail Challenges Analysis Recommendations
  7. 7Market Shares of Major Forms of Retailin Japan 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
  8. 8Shopping centres in JapanAbout Walmart Japan Retail Challenges Analysis Recommendations
  9. 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
  10. 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
  11. 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 model Lots 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, cant be applied here. Thats 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
  12. 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 procedure Disposal 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 Walmart This 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
  13. Walmart vs JapaneseManufacturers and Suppliers Manufacturers Wholesalers Retailers Customers Line of governance “Retailers effectively represented the interest of the manufacturer, rather than that of consumers” (Tsukiizumi, 2004) • Protection from above Heavily Retailers are often protected from financial risks by wholesalers and manufacturers through a number of distinctive market practices (such as rebates). guarded • Price and distribution control barrier of Manufacturers and wholesalers controlled prices by enforcing districting and entry for exclusive dealerships. • Closed-network impact to government new For foreign retailers, Japan’s complex retail and distribution system has long retailers been inaccessible, so much so that the U.S. government considered it a nontariff barrier and a structural impediment for U.S.-Japan tradeAbout Walmart Japan Retail Challenges Analysis Recommendations
  14. Walmart vs JapaneseManufacturers and Suppliers Impact for WalmartSCM strategy Small profit margin Culture challengeWalmart supply chain Walmart’s business model is Japan is used to the top-bottommanagement system aims for based on a low price strategy and approach, while Walmart insistsstrategic sourcing to find low transportation costs allow it on bottom-up approach. Walmartproducts at best price from to sell its products at the lowest has to challenge the unusuallysuppliers. Walmart establishes possible prices. EDLP allows powerful Japanese suppliers andstrategic partnerships with most Walmart to break even or make manufacturers to conform with itsof their vendors, offering small profit per sales, while Walmart model.potential long-term and high customers also win by savingvolume purchases in exchange for money buying at low prices.the lowest possible prices.About Walmart Japan Retail Challenges Analysis Recommendations
  15. 15Japan-US Geert-Hofstede comparison 91 95 92 80 62 54 46 46 40 Japan 29 United States PDI IDV MAS UAI LTO 4 contrasting elements may cause business relationship to be more difficult between Walmart and Japan market Power Dominance Individualism Masculinity Uncertainty Long Term Index Index Index Avoidance Index Outcome Index • Relatively equal • Contrasting • Contrasting • Contrasting • Contrasting • Japan is more • Collectivism of • Japan strives for • Japan may have • Japan may plan hierarchical than supply chain and quality and numerous ahead and more US. relation to perfection. restriction and punctual and customer is While Walmart laws which may strict, contrast to difficult for US. enters market be viewed as US. with value- unnecessary by goods approach US.About Walmart Japan Retail Challenges Analysis Recommendations
  16. 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 “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. Walmart Japan Retail Challenges Analysis Recommendations
  17. Further cross-cultural analysis Trompenaars and Geert-Hofstede Conformist 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 WalmartAbout Walmart Japan Retail Challenges Analysis Recommendations
  18. 18Our recommendationsAlternatives for Walmart and Seiyu 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 its 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?About Walmart Japan Retail Challenges Analysis Recommendations