Retailing in Japan

Delivery method: instant download
Report format: PDF (download a sample)
Market statistics: Excel workbook (download a sample)

Overview

Discover the latest market trends and uncover sources of future market growth for the Retailing industry in Japan with research from Euromonitor's team of in-country analysts.

Find hidden opportunities in the most current research data available, understand competitive threats with our detailed market analysis, and plan your corporate strategy with our expert qualitative analysis and growth projections.

If you're in the Retailing industry in Japan, our research will save you time and money while empowering you to make informed, profitable decisions.

When you purchase this report, you also get the data and the content from these category reports in Japan for free:

• Clothing and footwear specialist retailers
• Convenience stores
• Direct selling
• Discounters
• DIY, home improvement and garden centres
• Electronics and appliance specialist retailers
• Forecourt retailers
• Furniture and furnishings stores
• Grocery retailers
• Health and beauty specialist retailers
• Homeshopping
• Hypermarkets
• Internet retailing
• Leisure and personal goods specialist retailers
• Mixed retailers
• Non-grocery retailers
• Non-store retailing
• Supermarkets
• Vending

The Retailing in Japan market research report includes:

• Analysis of key supply-side and demand trends
• Detailed segmentation of international and local products
• Historic number of stores, selling space and values, company and brand market shares
• Five year forecasts of market trends and market growth
• Robust and transparent market research methodology, conducted in-country

Our market research reports answer questions such as:

• How big is the grocery/non-grocery/non-store channel in Japan?
• Who are the leading retailers in Japan?
• How is retailing performing in Japan?
• What is the retailing environment like in Japan?
• Which channels are winning or losing in the fight for consumers’ money?

Why buy this report?

• Gain competitive intelligence about market leaders
• Track key industry trends, opportunities and threats
• Inform your marketing, brand, strategy and market development, sales and supply functions

This industry report originates from Passport, our Retailing market research database.

Sample Analysis

KEY TRENDS AND DEVELOPMENTS

The 2011 Tohoku earthquake

On 11 March 2011, the Tohoku region of Japan experienced a massive earthquake which then set off a tsunami. Both these acts of God wrought widespread destruction. The three affected prefectures are Miyagi (population: 2.3 million people), Iwate (1.3 million) and Fukushima (2 million). Together, these three prefectures represent over 4% of Japan's total population. The twin disasters brought about damages that triggered off a nuclear crisis in the country as a result of parts of the Fukushima power plant being destroyed. In the weeks after what is now known as the ‘Higashi Nihon Daishinsai’ (Eastern Japan Great Earthquake Disaster), workers raced to contain and prevent a nuclear fallout.

Over the course of close to 1.5 months, the world kept a close eye on how the nuclear crisis panned out. Anxiety rose over radiation leaks from the damaged plant to the surrounds and the subsequent contamination of food supplies. Countries ranging from China, Taiwan and Singapore to Russia, US and Egypt moved to ban imports of fresh food from Japan in response to fears of tainted food supplies. These bans ranged from a blanket ban to more restrictive bans on only food supplies coming from the affected prefectures. Towards the end of April 2011, the situation at the Fukushima power plant appears to have stabilised. Japan’s focus is shifting to rebuilding efforts.

Current impact

In terms of impact on the country, the destructive nature of the earthquake and tsunami left damages in their wake that will take time, effort and money to rebuild. Japan’s economy, already faltering prior to the 11 March disaster, has been dealt a severe blow. The Organisation for Economic Cooperation and Development (OECD) estimates that Japan’s GDP will grow 0.8% in 2011, down from its original expectations of 1.7%. Logistics and supply chain operations in the Sendai area have been affected, especially in March and April 2011.

Overall, the mood in the country remains sombre. This is partly because of the aftershocks that continue to rock the country, including Tokyo. Also, given that the damaged Fukushima plant supplies up to one-third of the nation’s power needs, in a bid to conserve energy, the country is less lit up than before the twin disasters. While the initial knee-jerk reaction to higher than usual radiation levels in the air were to stay home and therefore avoid going out and eating out, this has since tapered down. Regardless, fears and concerns over radiation that continues to leak into the environment from the damaged Fukushima plant still remain. All these taken together have served to dampen consumer sentiment with people spending less overall. National statistics further placed the number of foreign arrivals to Japan to be down by 50% in March 2011. The fall in tourism spending is a further dampener on the Japanese economy.

Outlook

Japanese authorities and experts are working towards a full and complete shutdown of the Fukushima plant by the end of 2011. Economic experts generally concur that the setback in Japan would not have an impact on the global economy. Barring any further unforeseen circumstances, Japan’s focus will shift fully to rebuilding the country. Timing-wise, experts’ estimates have ranged from 5 years to 10 years. Survivors of the earthquake and tsunami will not only have to cope with the loss of loved ones but also material belongings and will have to find their footing in life again. World Bank estimates further place the financial costs of the twin disasters as potentially running up to US$235 billion. Press reports at the end of April 2011 have Bank of Japan’s Governor warning of a ‘very severe’ economic outlook for the country.

That said, at the time of writing, Japan has already embarked on an exercise to reassure her citizens as well as to restore global consumers’ confidence in the food supplies originating from Japan and also in visiting Japan. Travel suppliers ranging from airlines to travel agencies have all worked to help Japan to this end by rallying together and offering attractive discounts on travel packages to Tokyo and other parts of Japan. These efforts are expected to ramp up over the remainder of 2011 and into 2012.

Future impact

As research for retailing was completed prior to 11 March 2011, Euromonitor International’s forecasts of -3.3% in constant value CAGR terms has not taken into consideration the impact of the Tohoku earthquake and resulting tsunami. With the situation continuing to develop, it remains to be seen whether our projections will be materialised fully as they stand. Therefore, this forecast will warrant revisiting when Euromonitor International publishes our next update in November 2011.

In the immediate aftermath of the twin disasters, the Japanese economy was pushed back into recession and with rolling blackouts encountered in the north have seen consumer confidence taking a battering and many deciding to stay indoors more often than would normally be the case. Although reports of panic buying boosted grocery through March, the onset of April saw sales slide with major groups such as Lawson reporting same store sales down on a month earlier. This general downturn has been reported across many areas of the Japanese retail sector although internet orders at least anecdotally have appeared to have benefited from the uncertain and somewhat hazardous situation since the disaster. Although the damage to retail infrastructure was less impactful due the rural nature of the Tohoku region, Japan as a whole is suffering from supply issues for all manner of products as a result with everything from tobacco, electronic components to fresh fruit and vegetables all suffering from the disruption. Gaining reliable supply, most notably from abroad will be the key medium term challenge for Japanese retailers though 2011.

Economic conditions

Since the end of 2008 the biggest story in retail and Japan in general has been the performance of the domestic economy, which went into freefall through 2009 in the wake of the Lehman shock. Although the tentative recovery of the world economy and the re-emergence of production growth in China did see 2010 as a more stable year economically for Japan, it continued to suffer from the strength of the yen against major world currencies as well as a return to deflation in some key areas, including retail. The sight of China overtaking Japan as the world’s second largest economy in 2010, although having been on the horizon for a number of years, was yet more evidence that an economically weakened and sociodemographically aged population was perhaps entering the twilight of its life as an economic superpower.

Although the economic statistics speak for themselves, the latest recession to hit Japan possibly affected Japanese consumers more directly and more quickly than those in the recent past. Japanese companies spent most of the 1990s and 2000s restructuring, which resulted in many Japanese workers being placed on temporary contracts or working through agencies. The onset of the most recent recession saw many of these workers laid off, especially in the auto industry, with widespread unemployment and general job insecurity affecting consumer confidence. Even for workers on permanent contacts, the recession saw twice yearly bonuses radically cut. Many workers reported that wages were either frozen or reduced, as companies made cutbacks in order to maintain profitability.

Current Impact

One of the most notable impacts of the recession was growing consumer demand for lower pricing. This was notable across retailing, but perhaps most keenly felt in grocery retailers. The recession also resulted in the rapid development of budget non-grocery retailers with buoyant second-hand sales as well as a mend-and-repair culture, with brands such as Book Off becoming destination stores for those looking to grab a cheap book, DVD or video game. Where as little as 20 years ago the second-hand market was almost non-existent in Japan, 2010 saw it as a major player in Japanese retail with dedicated recycling stores for household as well as designer fashion brands now commonplace on the high street. The reversal of the way Japanese consumers look at second-hand goods is nothing short of astounding as the stigma once attached to “hand me downs” has been replaced with something approaching reverence for those able to hunt down a bargain.

In grocery retailing there is a similar story, although the use of promotional flyers to advertise the latest in-store bargains is not new, the growth of the internet and specifically mobile internet communications has allowed consumers to compare prices. Price-comparison websites such as kakaku.com, which were once reserved for bigger-ticket items, have now evolved into grocery shopping companion sites where even the price of sundries can be compared between stores. A trend that was common among younger consumers in 2008 and 2009 broadened in appeal through 2010 with older female shoppers also picking up on this trend, making frugal the word for many both up and down the income ladder.

Japanese consumers therefore become more open to different formats as they sought to gain the best deal. This resulted in the rapid expansion of private label in grocery and even electrical appliance retail. Private label was underdeveloped in Japan at the start of the review period, with consumers largely preferring or trusting brands. Meanwhile, manufacturers were seldom keen to cooperate with retailers in the production of private label. However, the recession seen at the end of the review period reduced resistance to private label among both customers and producers and also saw the emergence of private label and in convenience stores with leaders 7-Eleven, Lawson and Family Mart all broadening their range of budget items in a bid to tempt higher-spending grocery shoppers into stores.

At least through the summer and the end-of-year holiday seasons there was some evidence to suggest that middle-class consumers were being tempted back into higher spending patterns with department stores reporting some month-on-month sales upturn through the year, although this growth was not consistent it was warmly welcomed by an industry that had suffered badly during the recession. Many department stores had taken the chance to restructure during the recession, Isetan for example, looking to expand its appeal with the appearance of the popular low-priced clothing chain Uniqlo in many of its stores in 2010. The clothing chain owner Fast Retail was also doing great business with its ¥1,000 jeans offer and the rapid expansion of its even cheaper gu brand name.

Outlook

Japan's economic future will continue to be impacted by the health or otherwise of the global economy, as the days of the bubble economy are now well and truly over. As the threat of double-dip recession appears to recede in the West, Japan is likely to benefit from increased demand for Japanese machinery and finished goods from Chinese factories looking to retool and restock following the recession. The high value of the yen, which appears set to continue for the medium term with the Bank of Japan seemingly unable to bring its value down without risking the stability of the broader economy, is likely to prove a brake on this recovery as Japanese goods are overpriced on the world market because of this.

Consumer confidence is likely to remain fragile in Japan during the forecast period, as short-term contracts and lower wages look likely to persist, as does the pain of the last lurch into recession, which came out of the blue and shattered much of the confidence that had returned to the economy through 2003-2007. Matters are unlikely to be helped by the likely increase in sales tax from its current level of 5% to perhaps close to 10% in the future. The Japanese government faces a huge spending gap, especially in healthcare. A rapidly ageing population and underdeveloped health and social services network means that Japan will have to embark upon a protracted period of spending in healthcare, which is likely to be paid for by increased taxation on consumers. Increased taxation is likely to further constrain consumer confidence and spending over the medium term.

In addition, older consumers were largely responsible for spending and driving the country back into economic growth from 2000 onwards. However, these consumers appear unlikely to do the same in the new decade. The older consumers who benefited most financially from the boom years had either largely spent their savings by the end of the review period or are focused on funding their retirement and healthcare. A growing number of Japanese recognise that the state will be largely incapable of supporting them in their old age.

Future Impact

The changes that took place in Japanese retailing towards the end of the review period are expected to be the foundation for the development of Japanese retailing over the next decade. Retailers are expected to face a challenging time, as Japanese consumers appear to be following trends in Germany and other countries. For many retail channels, especially grocery retailing, price is increasingly consumers’ only consideration when making purchasing decisions. Consequently, prices are likely to continue to fall across retailing during the forecast period. With little indication that the current strength of the yen will subside during the forecast period, meanwhile, Japanese retailers and consumers will continue to benefit from cheap imports of fast-moving consumer goods, including commodities, personal computers and clothes, in the first year or two of the forecast period.

There will also be a growing focus on discounting in regular retail formats during the forecast period. The grocery retailers channel is expected to see the very rapid expansion of private label sales during the forecast period, along with falling prices for branded items as Japan gets hooked on discounting. However, discounters is unlikely to develop as a separate channel in Japan over the forecast period. New entrants are unlikely, as players are deterred by the country’s declining consumer base and strong presence of domestic grocery retailers as well as international operators such as Wal-Mart and Tesco already have a significant foothold. Instead, existing retailers are expected to reposition themselves downwards. This is likely to result in decline for mid-priced retailing, especially in grocery retailers.

However, premium retailing also might not fare well, with little likelihood that Japanese consumers will return to the levels of conspicuous brand consumption seen prior to the economic downturn of 2008/2009. Economic recovery might improve the situation for these retailers but consumer sentiment appears to be increasingly focused on bargains rather than designers, although there will continue to be space for luxury retailers.

Internet Retailing

Japan has a global reputation as a country of technological innovation and advancement, but somewhat surprisingly that had not translated into high levels of internet usage or e-commerce until quite late on compared to other countries such as the UK and South Korea. Certainly, usage of the internet was stunted through the difficulty in making searches in the Japanese language, which was not resolved until Google developed its Japanese language search function in 2002. The Japanese government, for its part, was also slow to realise the potential of the internet for society as well as its economy and still lags far behind South Korea in fast internet connection rates, which have been a key feature of its government’s aim to raise South Korea to be at the pinnacle of information technology.

Japan has lagged and continues to lag behind its neighbour, although home connection rates have continued to climb as Japanese consumers embrace the internet. An interesting feature of Japan’s internet connectivity has been the development of the mobile (cell) phone as a key means of connection, most notably for younger consumers who are frequently on the move as well as those who live in more outlying regions where fixed line connections are either expensive to install or unavailable.

Although currently Japan’s internet infrastructure resembles that of other developed countries there are still large variations in terms of use, especially with e-commerce. Payment methods remains a notable difference to the West, with most orders taken on trust and payment made on delivery, most commonly in cash. Consumers also often order goods or services online and pay through one of the thousands of cash machines such as Loppi found in convenience stores or simply pay at their bank. The culture of credit card payment online is surprisingly rare in Japan compared to practices found in the West, which continues to mark out the internet retailing channel as sometimes uniquely Japanese in its character.

Current Impact

With younger consumers driving sales with increased frequency of m-commerce usage, the slowdown in static internet retailing has been more troubling as it indicates quite clearly that there are significant age barriers to e-commerce. This remains a major issue in Japan, not least because Japanese society is on of the most aged (and rapidly ageing) in the world, with the internet retail industry having little success in engaging older consumers in online retail. This has been particularly true of grocery retail, which remains woefully underdeveloped in Japan compared to other countries, and although Ito-Yokado and Co-op can point to growing internet sales, most retailers lack regional let alone national coverage for deliveries.

While younger consumers do appear to be buying into internet retailing for its convenience, the massed ranks of grocery shopping housewives would not dream of allowing someone else to pick their groceries and for this reason overall demand has been light. That said, price comparison websites proved a big hit in 2010, with all age groups looking to make savings on their shopping bill, which is the prevailing fashion of the day, thriftiness is now a virtue for Japanese consumers so tools that help them to save money or discounts for purchasing online rather than in stores have been well received and saw department store internet operations boom just at a time when their bricks-and-mortar sales were falling through the floor due to the recession.

Established bricks-and-mortar retailers developing their own e-commerce businesses has been a key feature of Japanese market development with grocery retailers also spending large sums on developing the infrastructure necessary to handle larger volumes of online sales through 2009 and 2010. Some specialist retailers such as HMV, which elected to close its flagship Shibuya (Tokyo) store in 2010, have looked to shift to online as a key sales platform, while the remainder of retailers have largely seen e-commerce sales fail to break the 5% net sales barrier on the whole, making e-commerce still something of a niche in Japan.

However, internet-only companies dominate the Japanese internet retailing channel with international players Amazon and Yahoo leading the way and domestic business Rakuten in third place, these three accounting for roughly 18% of sales, placing them way in advance of non-specialist retailers in terms of presence. Indeed, internet retailing is unusual in Japan in as much as international firms dominate, which is indicative of Japan’s slow start to the internet in general and the lack of distribution resources, with the Co-op something of an exception as its growth into grocery internet retailing was easily grafted on to its sales model, which has always been based around home delivery.

Deregulation of Japan’s OTC drug laws is also likely to see the development of a more developed online OTC sales category with the likes of Kenko.com Inc looking to expand into what could be a lucrative area with easy delivery and higher margins possible after the overheads of running a store are removed.

Outlook

Internet retailing will likely become more important to Japanese retail although in order to realise its full

potential there are a number of barriers that will first need clearing. Japan’s future as one of the most rapidly ageing nations on earth will see demand for home delivery rocketing over the medium to long term. With the government looking to its citizens to be more self reliant in a bid to keep social security costs down the internet would appear to be at least part of the answer to some of the difficult social problem facing the country. Certainly, accessibility is a major problem facing the country with the likelihood of the country’s ageing housing stocks being updated to help older residents get out of the home somewhat unlikely, especially in major urban areas. For this reason home delivery of all kinds of products is likely to grow strongly over the medium to long term in line with the greying of Japan.

For internet penetration rates to increase significantly beyond 2010 levels involvement with the internet will have to expand beyond the under 50-year-old age group and up into the 50-70-year-old age group in order to tap into the most populous but least internet-savvy group of the Japanese population. With this age group benefiting from the bubble economy era there are opportunities for internet retailers to expand into this area in order to take advantage of the disposable income (savings) still present. M-commerce would appear to be the format most likely to succeed with this group as it requires no hard wiring or computers to operate and there are already moves afoot by leading mobile phone makers such as Docomo to introduce handsets that are easier to use for this technologically inexperienced age group.

There may also be further avenues for growth through the onward march of cocooning, which sees more Japanese spending extended periods at home rather than going out for meals and socialising. Fewer people venturing out of the home as well as the development of newer forms of e-payment are all likely to come together to push purchases among younger age groups.

Future Impact

In 2010, there were an estimated six million Japanese who were largely living lifestyles restricted to their home, this figure will likely increase to around 10 million in 2015, which, although representing a burden on Japanese social care, will also offer an opportunity to internet home delivery retailers. With at least 5% of the population living in this way – and with it set to grow to 8% – the opportunity for grocery retailers in particular to expand their online order and delivery services is expected to develop apace, with Ito-Yokado already investing in this format in the expectation of a 50% increase in orders over two years as well as Aeon looking to expand the number of stores operating delivery to 180 before the end of 2011. There are also signs that the Japanese Co-op will also migrate more of its business from homeshopping and direct selling to the internet, which makes ordering and inventory keeping a great deal more efficient, which will have its own influence on network efficiency.

Although television shopping will continue to appeal to consumers who are not internet savvy, Japan’s catalogue business is expected to all but disappear over the medium term with leading player Nissen indicating at the end of 2010 that improved sales within its online business through 2010 had made its catalogue business pretty much redundant. This migration to online operations is expected to quicken over the course of the forecast period as tablet PCs and the arrival of broadband for mobile communications devices under the WiMAX (KDDI) label expands, which will likely further boost the portion of sales taken by m-commerce in Japan. This will continue to boost media products internet retailing. Sales of media goods are expected to expand more widely into e-books, with the much-heralded arrival of the Apple Tablet in 2010. E-books have been anticipated to see dynamic growth in Japan for more than a decade. However, increased interest among manufacturers looking to break into lucrative book and academic sales may well have reached a point where technology, consumer expectation and price converge, in which case media goods may well be set for a boom.

However, internet spend per transaction is likely to continue to fall during the forecast period. This will be due to the widening usage of the internet for a broader range of purchases; this in turn will likely have wider implications for the long-term sustainability of business models such as Rakuten. The company is already seeing average transaction value eroded as consumers look elsewhere for bigger-ticket items. Although this downward trend has been more than made up for by increases in membership, the time will come in the not too distant future where new members will not make up the shortfall unless the company can position itself as an alternative to big-ticket specialists such as Yamada Denki.

Price will continue to be one of the most important features of internet retailing during the forecast period. The influence of price comparison websites is likely to remain strong, as consumers look for the cheapest big brand option. This is likely to result in further consolidation in manufacturers’ and retailers’ shares in many product areas and ultimately to result in more mergers and acquisitions and also spur on bricks-and-mortar retailers to make more efforts in providing destination retail outlets where consumers wish to spend time browsing without necessarily buying; Apple was one of the first to bring this concept to Japan, but Sony raised its standing through 2010, with even Konami opening its own branded store in Tokyo in the midst of a period when games sales are moving online, proving that no matter how powerful the internet is as a sales tool consumers will always appreciate a traditional retail presence.

Government Regulation

Although in the post-war era Japan was restructured around the US free market model the Japanese government continues to be a major force in shaping the future of the consumer market through regulation. At least in the post-bubble era the government has looked to a range of measures, on the one hand more tightly controlling building practices through the Large Scale Retail Law and more recently through its revised Law Concerning the Rational Use of Energy from 2010. On the other hand, in light of the closely regulated nature of Japanese society in general it has also looked to deregulate in many cases, which has allowed new business opportunities to develop, most conspicuously the 2009 Pharmaceutical Affairs Law allowed for much more relaxed sales of OTC medication, which followed similar moves that broke up the monopoly for tobacco and alcohol sales beyond a narrow band of independent licenceholders.

To date government regulation of this kind has encouraged the development of modern retail structures, such as the convenience store, which has developed over the last 20 years to become the most ubiquitous of Japanese retail outlets. On the whole, government policy has favoured retail, although it has sought to limit the expansion of large-scale retailers and made efforts to help and support the myriad of small independent operators that are still commonplace across Japan. For this reason, chained retail has been slow to develop in Japan compared to Western countries, although with margins slim and owners now retiring it would appear that this policy has only drawn out the long-term decline of the independent sector and has been little able to reinvigorate the independent retail sector.

The revision of the Pharmaceutical Sales Law in 2009 was the latest in a long line of policy changes that directly affected Japanese retail, although the extension of its eco-point reward system designed to encourage environmentally-friendly (or at least energy-efficient) purchases of a whole range of goods from cars to televisions also proved a significant boost to the retail trade. More recently legislation indirectly affected the Japanese retail trade with increased sales duty on tobacco seeing a surge in sales through convenience stores in October 2011 as well as environmental building legislation now encouraging businesses with annual energy use (in crude oil equivalent) of 1,500kl or more to make an annual average of 1% improvement in their "unit energy consumption".

Perhaps the most influential law affecting the retail industry has been the Equal Opportunities Act, which, although some decades old, has allowed female consumers to develop through work into an important force in Japanese retail, a trend that is still developing today, so much so that companies now target female consumers directly and exclusively in a trend known as “womenomincs”.

Current Impact

Government regulation both directly and indirectly affected the Japanese retail market in 2010, new consumer credit legislation saw credit card applications becoming more stringent and also compelled many who had overstretched themselves to make provision to repay their loans. Interestingly, Japanese housewives, a great many of whom had run up large debts against their husbands’ credit rating, were prohibited under current legislation from entering into credit agreements without their husbands’ consent. Although the change to consumer credit did not affect one particular area of retail, it proved another downward pressure on expenditure as Japanese consumers looked to repay debt as part of this legislative effort.

Other more discernable areas came from the decision to turn off analogue broadcasting as well as the use of eco-points, a system expanded into 2010 that encouraged consumers to buy a broad range of energy-efficient products, with LCD televisions proving key revenue generators for consumer electronics stores as Japanese consumers looked to make their purchases before the scheme ended in September 2010. The ending of the scheme does, however, have potentially severe implications for the performance of the channel through 2011, with Yamada Denki unveiling plans to introduce smaller local stores in a bid to encourage consumers who prefer shopping locally into their particular brand of stores.

The revised pharmaceutical affairs law perhaps had one of the most striking influences on the Japanese retail environment through 2010 with leading pharmacies such as Matsumotokiyoshi using the new law to open for longer business hours, which has helped them compete against 24-hour supermarkets and convenience stores. The new law allowed the company to extend its opening hours by up to two hours, which sees many of its suburban stores remaining open to 24.00hrs. The development of hybrid stores, which saw pharmacy units spread into convenience stores as well as convenience stores opening in larger pharmacies, was also an interesting by-product of the deregulation. AEON for example unveiled plans to develop its Ministop brand along with CFS Corporation and Takiya Co.

Environmental concerns also led to some criticism of retailers over the review period. Convenience stores, for example, were criticised for using too much electricity for lighting and air conditioning. The latest environmental legislation encouraged stores to act more responsibly, and can actively insist upon it; convenience stores for their part have been proactive in reducing their carbon footprint and were among the first to introduce energy-efficient LED lighting in stores.

Outlook

Deregulation would appear to be the key trend over the medium term with OTC medication likely to be afforded further relaxation and a greater number of switches from prescription status as the government looks to keep its spiralling social security budget under control as its population enters a rapidly ageing phase. As part of this accessibility and barrier-free living will become key for Japanese society to provide a reasonable quality of life for its elderly residents and due to the higher costs necessary to provide these kinds of environments and products these elements will likely be introduced in law.

At least in the short term the removal of the eco-points scheme will likely see something of a downturn, especially in the important electronics channel, which saw TV sales strengthen through the recession on the back of generous discounts and the prospect of analogue broadcasting ending in 2011.

Future Impact

Future regulation of the retail industry in Japan would appear likely, but it is difficult to see any specific policies that will be introduced. At least at the time of writing the proposed legislation that will have most impact would come from the introduction of a higher rate of sales tax. A rise in sales tax appears to be a question of when rather than if and may well see the tax double from its current 5% to somewhere in the region of 10% if the government is going to be able to meet its public health spending obligations. Although compared to many countries a VAT rate of 5% or even 10% is very favourable, at least compared to the 20% found in the UK, the increase would likely result in a dramatic dampening of spending patterns.

The introduction would also likely lead to a boom in sales before its introduction as was the case with the recent rise in tobacco duty, which saw smokers in Japan spending heavily in order to stock up even minutes before the increase came into force.

Private Label

Largely due to Japanese consumers’ loyalty and wide-ranging trust in brand names, private label remains an underdeveloped area within Japanese retailing. While private label is present, it accounts for only a small portion of sales, in grocery products typically accounting for less than 5% of value and thus remaining considerably less developed than in Western Europe. The low share of private label for much of the review period was partly due to manufacturers' lack of interest in cooperating with retailers when it comes to producing private label. Branded manufacturers feared the potential impact of private label production on margins and profitability. This was particularly the case during the review period, as many manufacturers suffered the effect of two decades of recession or low economic growth, which led to depressed consumer consumption levels.

However, private label products are found in many retail channels in Japan, including supermarkets, hypermarkets, convenience stores, mass merchandisers and health and beauty specialist retailers. Due to its increasing importance during the review period, private label products became one of the key components or objectives of mergers, acquisitions and other looser affiliations. The inflation witnessed in 2007 and 2008, as part of a rise in world prices for raw materials, food and fuel, resulted in an increase in private label production. Higher costs also encouraged Japanese manufacturers and retailers to work together in order to obtain more favourable prices from suppliers.

The onset of the recession in 2008 marks something of a watershed in the development of private label in Japan as consumers who had long suffered from the weak domestic economy began to look at ways to reduce their outgoing expenses. Indeed, higher levels of personal debt, which came from the boom in personal credit in 1995-2005, also saw many older consumers now facing repayment in much harsher conditions than had existed only a few years earlier. In order to meet demand for low prices from customers, retailers such as AEON Co Ltd and 7-Eleven Japan Co Ltd expanded their private label lines. However, the success of these players’ private label ranges was only made possible by these retailers becoming trusted brands in Japan in their own right. After frequent food contamination scandals associated with prominent food manufacturers such as Ajinomoto, Japan Tobacco and Snow Brand Milk, many Japanese consumers began to believe that retailers could produce better products than specialist manufacturers.

Current Impact

The recession had the biggest impact on private label sales towards the end of the review period, encouraging manufacturers to enter private label. In 2009, Ajinomoto, for example, began the production of private label mayonnaise. Ajinomoto is a trusted brand, but a distant second to leader QP in mayonnaise. The company thus appears to have moved away from its previously cautious attitudes to private label as it seeks to generate stronger volume sales. Where Ajinomoto leads, other manufacturers are expected to follow with the launch of a wider range of private label products. In electronics and appliance specialist retailers, Edion Corp meanwhile reported the continued growth of its private label range in increasingly commoditised product areas such as DVD players, with its Kaul range being particularly well received.

Private label rice was launched by 7-Eleven convenience stores towards the end of the review period, with this being launched in response to changing consumer circumstances. Within food, private label is strongest in processed food and the most common size of packaged rice sold at convenience stores is small packages of 2kg or 5kg, with these targeting single-person households. However, 7-Eleven launched private label rice in 10kg packs. This was in response to growing demand for rice due to the increasing price of bread, with this in turn resulting from high wheat prices. In addition, a growing number of households with two or more members are purchasing ingredients for meals from their local convenience stores, rather than driving to supermarkets or mass merchandisers. This enables these consumers to save on fuel.

Reflecting growing demand for private label products, retailers placed a greater emphasis on these products towards the end of the review period. Some companies established subsidiaries specialising in the production of private label products, while others created independent websites for private label ranges. In 2007, AEON Co Ltd established AEON TopValu Co Ltd, to manage its private label products. In 2008, The Seiyu Ltd meanwhile opened an online store for its private label range George in Rakuten Ichiba. This is an internet shopping mall operated by Rakuten Inc. George is a private label clothing range developed by the UK subsidiary of Seiyu’s parent company Wal-Mart. The Seiyu Ltd has sold George clothing since 2005, with the brand expanding rapidly and benefiting from a growing reputation for low-priced but high-quality clothing.

Outlook

Japan's low penetration for private label products in general offers strong medium- to long-term growth potential considering that Western Europe commonly sees 40-50% of fmcg sales made up of private label brands, with Germany the undisputed leader with its hard discounters encouraging penetration rates typically in excess of 60%. Brands are therefore likely to face further competition with a rapidly expanding range of private label products across the whole gambit of retailing channels during the forecast period. Although the domestic economy appears to be stabilising thanks to growth in Chinese demand for its finished products the spectre of higher oil prices as well as food price inflation on international markets is only likely to strengthen demand for consumers once more used to retail deflation. The ageing of Japan’s population will also be a contributing factor as year-on-year those existing on a fixed pension income will increase, forcing baby boomers to change their purchasing patterns (if they have not already done so) as the emerging mantra of frugality strengthens among this increasingly influential group.

Consumers are likely to widely comment on and evaluate private label products during the forecast period, with internet blogs, reviews as well as price comparison sites all likely to play their part in broadening the role of private label across Japanese retail. Other countries such as the UK saw private label products outperform branded rivals due to positive feedback in the press and from consumers, with this notably benefiting Asda's George range, which now includes (traditionally) non-commodity items such as clothing, homewear and make-up. Although by 2010 the limit of private label continued to be commodity items, the medium- to long-term future is likely to see the range and, importantly, the complexity of products develop, allowing for greater choice in a wider range of products; electronic retailers led the way in this respect over the review period with other categories likely to follow.

Retailers are meanwhile likely to continue to turn to private label products in order to secure volume sales in a challenging retail environment over the coming decade. Consumers’ resistance to private label products is meanwhile likely to disappear rapidly over the forecast period. Consumers are clearly increasingly focusing on thrift, which must concern retailers and manufacturers and is likely to result in many expanding their private label ranges in order to appeal to consumers.

Future Impact

As a widening range of private level products are launched, consumers will become more selective. Not all private label products will prove successful. For example, Uny Co Ltd experienced a double-digit decline in sales of its private label household goods towards the end of the review period. Shimamura Co Ltd in clothing and footwear specialist retailers also reduced its number of private label items towards the end of the review period.

However, both Uny and Shimamura plan to develop more private label products during the forecast period. Shimamura Co Ltd plans to increase its sales share for private label products. The company believes that the development of private label clothing will enable it to respond quickly to consumers’ changing demands. To strengthen its private label range, Uny, meanwhile, announced a tie-up with Itochu with a longer-term aim of developing private label products with other retailers such as Izumiya and Fuji in a bid to improve costing and broaden its current private label offer.

Towards the end of the review period, some pioneering Japanese retailers offered a potential blueprint for further private label development over the medium term. Companies such as ABC Mart, Nitori and Fast Retailing increasingly sought to increase their influence on the supply of private label. These companies increasingly designed private label products specifically to appeal to their consumers and then sourced overseas production. ABC reported that 50% of its sales were accounted for by private label in 2010, offering an example of how Japanese companies can be more active in sourcing products from overseas manufacturers, especially in China. China is increasingly capable of swift and small unit production, which is expected to transform Japan's clothing and footwear sales over the forecast period.

This trend will not be limited to clothing and footwear, however, with private label products offering a means to respond to consumer concerns regarding food safety. Consequently, AEON Group and Ito-Yokado entered agriculture towards the end of the review period in order to ensure the safety of their food.

Due to the growing demand for private label, many retailers aim to raise the proportion of total sales accounted for by private label products in the medium to long term. Seiyu, for example, aims to raise its private label proportion of sales to 10% of total value during the forecast period.

The growth of private label will make the environment more challenging for national brand manufacturers during the forecast period, especially smaller brands and local/regional manufacturers. One solution for these players will be to develop value-added national brands, while another will be to engage in private label production. Even major global manufacturers started the production of private label products for retailers by the review period. For example, manufacturers of the Seven Premium range include major global companies such as Kikkoman Corp, House Foods Corp, Ito En Ltd, Mizkan Group Corp, Nippon Flour Mills Co Ltd and Ebara Foods Industry Inc.

Further stratification within private label pricing remains uncertain during the forecast period. However, the likelihood is that value will remain the chief focus of private label in Japan during the forecast period. Premium private label is unlikely to make much headway until economic stability returns to Japan.

Chained retailers compete more aggressively

By the end of the first decade of the 20th century, Japanese retail had entered a new phase. An earlier period of inhibited chained retailer growth was gradually replaced by an era of direct competition between major retail chains, both in grocery retailers and the wider retailing environment. Many retailers focused on keener pricing, with this often promoted via TV advertising or in the form of promotional flyers carried in the national press. However, retailers also sought to engender customer loyalty through the introduction of loyalty cards. These were as common in chains as in independent retail groups such as market places, where retailers began to cooperate in order to see off the threat from larger chained competitors.

The extent to which retail has reached maturity in Japan can be seen in convenience stores. Although the introduction of TASPO age verification for tobacco vending saw a significant upswing in customer numbers through the convenience channel in 2008 and 2009 and this did much to mask a significant slowing of growth. This slowdown has led major operators to introduce scrap-and-build policies, which sees less profitable stores axed in favour of new sites, while the lack of suitable new locations has brought with it consolidation with merger and acquisition now the only option for continued rapid growth. This resulted in the failure of one of the biggest stories in retail during 2009, Lawson, and Family Mart's subsequent purchase of the am/pm chain.

The impact of chained retail growth in Japan was most keenly felt in the relationship between retailers and manufacturers. Towards the end of the review period, the balance of power between manufacturers and retailers shifted in favour of retailers. Retail chains’ buying power and power in negotiating pricing with producers, especially in grocery, dwarfed the power of producers. Chains were therefore able to offer lower prices and an increased range of private label products. They were also able to encourage more manufacturers to produce private label products. This pressure, meanwhile, resulted in more mergers and acquisitions across many industries, as manufacturers sought to bulk up in order to better resist the influence of chained retailers.

Current Impact

In line with consumers’ growing demand for value, retailers sought to achieve better economies of scale, with consolidation thus seen across Japanese retailing during the review period. Independent retailers suffered most from the economic downturn and found it increasingly difficult to compete with chains in terms of pricing and product availability.

The expansion of chains was perhaps strongest in convenience stores and electrical retailers, where players looked to franchising in order to expand their networks. Parent companies sought to build networks of hard-working franchisees at only a fraction of the risk associated with opening directly-owned operations. Franchising is particularly popular for chains seeking a rapid expansion, such as that seen for convenience stores over the review period.

The expansion of chains appeared to be reaching its limit in many channels by 2010, however. Convenience store operators began to close outlets that were less profitable due to strong local competition, with these stores reopening in a different location. Electronics and appliance specialist retailers meanwhile saw city centre locations become saturated. Players such as Edion thus teamed up with independent suburban dealers in opening new outlets in an attempt to tap into relatively underdeveloped local or suburban sales.

There was a growing focus on mergers and acquisitions within chained retailing during the review period. The difficult economic environment seen towards the end of the review period resulted in a growing consumer and retailer focus on value, with many chained players thus being attracted by the economies of scale provided by mergers and acquisitions.

Internet retailing in Japan, meanwhile, offered a huge variety of small specialist retailers an opportunity to thrive. Without the widespread access that the internet offers, a specialist shop or mail order company would be unlikely to succeed. At first glance, internet retailing is dominated by big high street brands. However, there remain strong opportunities for independent retailers on the internet. Rakuten is recorded as Japan's third largest internet retailer and provides a platform for tens of thousands of clients who use the Rakuten website as a cooperative platform to sell their products. This online sales format was copied by other online retailers, largely due to the success of Rakuten, and differentiates Japan's internet retailing channel from Western internet retailing. Internet retailing thus offers a strong sales channel for small independent retailers, counterbalancing the concerted pressure faced by these retailers in store-based retailing.

Outlook

Japan's economic outlook is less than certain and the spectre of higher taxation looms. The trends seen towards the end of the review period are thus expected to continue into the forecast period. Retail pricing is likely to be the main consideration for grocery retailers. Leading players such as AEON are expected to massively cut their number of lines in an attempt to rationalise their network and copy the price-focused business model of successful international grocery retailers such as Wal-Mart and Tesco. Competition is thus likely to become even fiercer over the forecast period. Further consolidation is likely among chained players and many retailers and manufacturers that are unable to offer value for money will struggle to survive. Ease of access, product range and customer service will continue to be important factors for Japanese consumers. However, these factors will increasingly become subordinate to pricing as a consumer purchasing consideration, in all but a small number of premium retail outlets.

This trend is likely to be further compounded by demographics, with population decline expected from 2011 onwards and ongoing population ageing. There are some opportunities for both foodservice and retail players to better target Japan's ageing population, however. Home delivery services for both grocery products and foodservice are likely to grow in demand and scope. This suggests that retailers and consumer foodservice players with the strongest distribution systems will benefit from growing sales to this increasingly important consumer group. Adaptation will be the key to survival, with strong consolidation likely over the forecast period. The internet does, however, offer smaller players low overhead access to a bewildering number of consumers, although it is unlikely that the larger high street retail groups would be content with allowing this situation to continue unchecked as competition heats up both in the real and virtual world for dwindling consumers spend.

Future Impact

A revision of Japan's urban planning laws was passing through the Diet towards the end of the review period. This looks set to severely restrict operators building stores in excess of 10,000 sq m. This is likely to slow down chain expansion in terms of new stores being built. However, this may speed up consolidation, as retail chains increasingly look to acquisition as the main means of expansion, as seen with Family Mart’s purchase of am/pm in 2009. Convenience stores and health and beauty specialist retailers are the channels most likely to see consolidation over the forecast period as both have a number of cash-rich chains generated through expansion over the last decade. There are also a number of mid-sized chains present and with expansion opportunities through new store building looking to be more constrained over the forecast period for the want of appropriate locations, consolidation through merger and acquisition is imminent.

However, it may well be large holding companies such as Mitsubishi and Itochu that ultimately develop as the leaders in more consolidated grocery retailing. In 2009, commentators suggested that a tie-up between Lawson’s and Uny's Circle K and Sunkus convenience store chains seems increasingly likely, as Itochu was a leading shareholder in both companies. Itochu also signed a cooperation deal with Uny in 2009.

With retailers such as Seiyu able to tap into the Wal-Mart supply chain and Seven & I being a formidable competitor, grocery retailers are expected to develop into larger groups during the forecast period in order to compete. This will also occur as investment houses look to consolidate their own portfolios in order to better compete in lucrative but difficult domestic retailing.

The opportunity for expansion abroad via mergers and acquisitions, especially in China and Southeast Asia, will also attract many leading players. Japanese chained retailers are expected to increasingly look abroad as they seek to underpin profitability and ultimately their share price.

A further consideration of how chains will look over the medium term will be further complicated by the development of e-commerce, which will see many of Japan’s most popular high street names operating a dual strategy with the bricks-and-mortar as well as the online sales platform. Interestingly, for all its breadth in terms of content that the internet offers, the top players are surprisingly concentrated compared to traditional retail, with non-grocery dominating, this is likely to change over the medium term as grocery retail chains look to expand, perhaps at the expense of the virtual markets currently offered by the likes of Rakuten.

MARKET DATA

APPENDIX

Operating environment

Foreign Direct Investment in Retail

• The primary law governing foreign direct investment in Japan is the Foreign Exchange and Foreign Trade Act. The Japanese government requires prior notification for foreign direct investment originating from countries without reciprocal investment agreements. Japan’s Ministry of Economy, Trade and Industry (METI) classifies foreign investment as the acquisition of at least 10% share ownership of a company listed on a Japanese stock exchange; the establishment of a business facility in Japan; at least a third of a domestic company switching hands to foreign ownership; or foreign loans to domestic companies.

• The Japanese government believes that the promotion of foreign direct investment will contribute to fair competition and the creation of an internationalised economic system. Greater foreign direct investment is expected to support the transferring of management resources and the introduction of new techniques and systems. In 1995, the Japanese government announced that it was essential to encourage more foreign direct investment into Japan in order to create a more open economy, with the government maintaining this stance during the review period. The government also believes that foreign direct investment can contribute to increasing employment.

Informal Retailing

• Although media goods internet retailing grew quickly during the review period, media goods internet retailers faced a strong challenge from informal downloading. It is sometimes difficult for internet users to differentiate formal internet retailing websites from informal websites. Consequently, the Recording Industry Association of Japan (RIAJ) launched a programme under which RIAJ issues an “L” mark to formal internet retailing websites, indicating that they are a source of legitimate downloads.

Opening Hours

• Most retailers in Japan, with the exception of some independent or family-operated retailers, open on Sundays. For convenience stores, 24-hour opening is very common. Towards the end of the review period, meanwhile, more supermarkets and mass merchandisers began to open 24 hours a day.

Retail Landscape

• According to the Japan Council of Shopping Centres, 50 or more new shopping centres opened every year since 2002. The expansion of shopping centres poses a substantial threat to small local retailers, which also suffered from the overall decline in retailing. This resulted in the increased problem of vacant shop sites in high street shopping areas. In 2006, the Act on the Improvement and Revitalisation of City Centres was revised and guidelines regarding legislation on the opening of large-scale retail outlets were reviewed. Following these revisions, it became necessary to conduct an environmental impact survey before opening a store with a selling space exceeding 1,000 sq m.

Cash-and-carry

• There is a traditional and complex wholesale network in Japan, although this saw some simplification during the review period. As a result of this complexity, the importance of cash-and-carry clubs and warehouse clubs is low in Japan. In 1995, Niigata-based Land Japan KK, a subsidiary of home improvement and garden centre player Arcland Co Ltd, opened wholesale club Land Club Nagaoka. However, the company no longer operates wholesale clubs, having closed its last two clubs in 2007 and 2008.

• International warehouse club operators, however, steadily expanded their business in Japan during the review period. Costco Wholesale Japan opened its first store in Japan in 1999 and operated nine stores as of 2009. The stores are open to general customers, with individual membership costing ¥4,200 annually. The annual membership fee for business customers is ¥3,675.

• In 2000, Metro Cash & Carry Japan KK opened its first store in Japan. As of December 2008, Metro operated four stores in the Kanto region and planned to open four more stores in that area. Membership is free, but only business customers can be members.

DEFINITIONS

This report analyses the market for Retailing in Japan. For the purposes of the study, the market has been defined as follows:

Store-based retailing

• Grocery retailers

• Hypermarkets

• Supermarkets

• Discounters

• Small grocery retailers

Convenience stores

Forecourt retailers: Chained forecourt retailers; Independent forecourt retailers

Independent small grocers

• Food/drink/tobacco specialists

• Other grocery retailers

• Non-grocery retailers

• Mixed retailers

Department stores

Variety stores

Mass merchandisers

Warehouse clubs

• Health and beauty specialist retailers

Chemists/pharmacies

Parapharmacies/drugstores

Beauty specialist retailers

Other healthcare specialist retailers

• Clothing and footwear specialist retailers

• Home and garden specialist retailers

Furniture and furnishings stores

DIY, home improvement and garden centres

• Electronics and appliance specialist retailers

• Leisure and personal goods specialist retailers

Booksellers and stationers

Audio-visual stores

Toys and games stores

Sports goods stores

Pet shops and superstores

Other leisure and personal goods specialist retailers

• Other non-grocery retailers

Non-store retailing

• Vending

• Homeshopping

• Internet retailing

• Direct selling

Sources used during research include the following:

STRATEGIC DIRECTION

• Although AEON Group predictably places customer satisfaction at the core of its mission statement, the real driving force behind the company’s strategic direction comes from its desire for expansion. In addition to its current operation the company appears poised to develop 500 small-scale supermarkets through 2012 or 2013 using vacated convenience store locations as its chief means of expansion in this area. With competition between larger stores and even malls likely to intensify over the forecast period, the development of a chain of local mini-supermarkets in urban areas is likely to be a clever strategy to adopt.

• In keeping with this micro-approach, the company has also revealed plans for a larger number of regional offices, with the intention of better tailoring products in stores to local tastes and preferences. Japan still boasts a wide variety of local cooking styles and favoured regional brands, so the move will do much to help the company compete with national as well as regional rivals.

KEY FACTS

INTERNET STRATEGY

• AEON continues to look to expand its internet operations, looking to expand the number of stores taking part in home delivery through 2010 and beyond.

COMPANY BACKGROUND

• AEON Group comprises AEON Co Ltd and its subsidiaries and affiliates. The group encompasses more than 150 companies, with these mainly operating in retailing.

• AEON Group has a presence in numerous retail channels, including mass merchandisers, hypermarkets, supermarkets, convenience stores, clothing and footwear specialist retailers, parapharmacies/drugstores and DIY, home improvement and garden centres. The group is also involved in the development of shopping malls and the leasing and management of commercial facilities.

• Since the opening of a Jusco store in Malaysia in 1995, AEON Group has also focused on expanding its overseas businesses.

• In addition to retailing companies, AEON Group operates an insurance company. In February 2008, AEON Co Ltd’s and AEON Mall Co’s insurance service businesses were combined as AEON Insurance Service Co Ltd.

• AEON also has a presence in banking with AEON Bank. AEON Bank’s branches are located in AEON shopping centres, AEON malls and other affiliate retailers. By July 2008, the bank had 42 branches. AEON Bank ATMs are installed in AEON Group’s convenience stores, as well as in supermarkets such as Ministop and Maruetsu.

• In 2008, the group established an alliance with CFS Corp, an operator of parapharmacies/drugstores and supermarkets.

• The company’s merger and acquisition activities, however, slowed towards the end of the review period and the group’s strategy became “Focus and Decentralisation”. In retailing, 14 of the company’s mass merchandise stores and 32 supermarkets were closed in the financial year ending February 2008, whilst 15 new general merchandise stores and 69 supermarkets were opened. In response to stagnancy in Japan’s retailing, AEON Group planned to close 40 supermarkets in the financial year ending February 2009.

• In addition, the review period saw a major restructuring for the group. In August 2008, AEON Group was transformed into a pure holding company. The company’s retail and other business divisions of AEON Co Ltd were transferred to AEON Retail Co Ltd, which formulates the group’s business strategies.

• AEON Group aims to reduce the amount of its CO2 emissions by 30% from the level recorded in 2006. As part of this strategy, AEON Group launched its Fleece Biz campaign in November 2008. This uses a concept similar to the Warm Biz campaign promoted by the Japanese government. During the campaign, AEON Retail Co Ltd’s employees wore jackets made from fleece, with ambient temperatures in their workplaces reduced by 3°C from the usual level. AEON Group suggested that customers and other companies also follow this practice. As part of the campaign, the Best Price By TopValu Fleece Full Zip Jacket was developed and sold at 496 stores in the AEON Group. Since 10% of this product is made from recycled plastic bottles, the amount of CO2 generated during the production process is smaller than for standard products.

PRIVATE LABEL

• Like other retailers, during the review period AEON sought to increase sales of its private label range TopValu. This range offers a huge range of products, including food, household goods and clothing.

• Although one of TopValu’s main selling points is its low pricing, AEON raised the prices of some TopValu products in July 2008. This was due to increased raw material prices. However, the company reversed this policy in 2009 and ultimately cut the prices of many products below 2007 levels.

• TopValu’s current value sales rose continuously over the review period. Supported by the company’s expansion into less developed retail channels and its realignment of distribution, TopValu’s sales posted 40% current value growth in the financial year ending February 2009, reaching ¥368 billion.

• With the importance of private label products growing towards the end of the review period, new items were introduced and new subranges were added to TopValu. One of the subranges, TopValu Green Eye, offers processed food with fewer additives and, in some cases, produced using organic vegetables. TopValu Select is, meanwhile, a quality-oriented subrange produced using premium ingredients.

• In 2007, TopValu Co Ltd was established to supply TopValu products to companies in AEON Group.

• AEON Group established a business tie-up agreement with Sanyo Electric Co Ltd in 2007 and launched the first TopValu products jointly developed by both companies in 2008. The initial range included five items, including rechargeable batteries and irons.

COMPETITIVE POSITIONING

• At a GBO level, AEON Group ranked second in terms of value share in retailing in Japan in 2010, behind Seven & I Holdings Co, Ltd. AEON is supported by its presence in a wide range of diverse retail channels.

• To improve product procurement efficiency and reduce costs, AEON Group established AEON Global Merchandising Co Ltd and AEON Global SCM Co Ltd in 2007. These subsidiaries helped the company to maintain its position as a value-led retailer towards the end of the review period, in keeping with consumer demand for value.

• AEON Group’s supermarket fascia MaxValu accounted for 5% of overall supermarket value sales in 2009. During the review period, the number of MaxValu outlets increased, whilst the total number of supermarket outlets in Japan decreased. AEON’s subsidiary Kasumi Co Ltd also operates supermarkets under the brand name Kasumi, whilst AEON Co Ltd also has an equity share of more than 30% in The Maruetsu Inc, which operated around 195 supermarkets in 2010.

• The company has, however, struggled in clothing and footwear, with poor results across its operations forcing the company to act quickly. The company closed around 20% of its female clothing and footwear outlets in 2009 alone.

STRATEGIC DIRECTION

• A cooperation deal formed between Circle K Sunkus’ parent Uny and Family Mart's chief shareholder Itochu suggests that closer dealings between the two chains are likely, particularly given the increasing demands on retailers in convenience stores. Due to the wider downturn in Uny's supermarket sales, the company is unlikely to relinquish control of Circle K Sunkus, its most important cash generator. However, further cooperation in terms of distribution and private label development appears likely for Family Mart and Circle K Sunkus, with this likely to be beneficial to both parties.

• High competition in the domestic market and lack of overseas expansion (as in the case of its competitors) have forced the company to rethink its strategy. It announced at the end of 2010 that it was about to embark on a period of expansion focusing on smaller retail outlets to be opened in business areas, train stations and larger offices. Although profits in these outlets are likely to be 60% lower than in standard stores, the company is looking to lower staffing levels and achieve high turnover of higher-margin items such as ready meals to maintain this new format, which is predicted to exceed 350 outlets by 2015.

KEY FACTS

INTERNET STRATEGY

• Circle K continues to see only a fraction of its sales go though the internet in 2010; as with other convenience store operators, its stores act as pickup points for internet-based orders.

COMPANY BACKGROUND

• Circle K Sunkus Co Ltd is a convenience store operator. The company was established by Circle K Japan Co Ltd, Sunkus & Associates Inc and C&S Co Ltd in 2004. The company’s largest shareholder is Uny Co Ltd, which owned 47.3% of equity at the end of the review period.

• Circle K Sunkus’ outlet network covers approximately 80% of all prefectures in Japan. The company operates more than 6,000 convenience stores across the country. Most of the company’s stores are located in the Kanto area, however. All of the company’s stores in Hokkaido and Kyushu are under the Sunkus brand, whilst most stores in the Tokai area are part of the Circle K chain.

• In 2006, Circle K Sunkus’s joint venture with Uny Co Ltd, Ichiba Co Ltd, established outlets under the 99 Ichiba brand. This brand uses a small supermarket format, with the brand offering fresh food at reasonable prices, mainly at ¥99.

• In 2006, Circle K Sunkus also launched the new store Fork Talk, targeting working women in their 20s and 30s. As of 2008, only one Fork Talk outlet was present, however. This is located in a business district of Tokyo and is open 24 hours. The store also offers a restaurant and customers can choose from a range of dishes including pasta, salad and breads. Bread is baked at the store and chefs cook pasta and salads to order, as in a restaurant.

• In 2009 the company announced a deal with Segami and Seijo parapharmacies/drugstores. This partnership was announced in response to the deregulation of OTC medicine distribution, which took effect in June 2009. Circle K Sunkus and Cocokara announced plans to begin trials in 2010, with a view to opening 50 joint outlets from 2012 onwards. Existing parapharmacies/drugstores will be renovated to operate as hybrid outlets encompassing convenience stores.

PRIVATE LABEL

• Circle K Sunkus Co Ltd offers the Kachial private label, which offers about 210 items including snacks, processed food and household goods. Since demand for private label products in general grew towards the end of the review period, the company expanded its private label products range in 2008.

• In April 2008, the company began to sell UUCS, a private label range developed jointly by the companies associated with Uny Co Ltd, including Circle K Sunkus; 29 items from the range were launched at Circle K Sunkus’s stores in September 2008.

• In October 2008, Circle K Sunkus meanwhile launched five items from the e-price range, which is Uny Co Ltd’s private label. Circle K Sunkus further expanded the lineup of e-price to include 21 items in November 2008.

COMPETITIVE POSITIONING

• Circle K Sunkus Co Ltd sought to increase profitability through a scrap-and-build strategy towards the end of the review period. The company also looked to move its 70 directly owned stores over to franchise status through 2010 in a bid to improve profitability in a market which is nothing if not hugely competitive. A down turn in sales across convenience retail in 2010 saw the company struggle to maintain 2009 sales levels even with a sales network which had increased by 100 stores over the year.

• The company reported an uplift in tobacco sales in October 2010 ahead of duty increases on tobacco products whilst sales of desserts such as cheesecake ($150) and midpriced ready meals and lunch boxes ($500) were strong performers, as were soft drinks through the unusually hot summer of 2010.

STRATEGIC DIRECTION

• Costco reported two million members in Japan and was reportedly looking to expand its current store number beyond the existing nine outlets as of 2010. Although warehouse clubs are something of a novelty in Japan, the close proximity of cash and carry outlets is something of a threat as the German Metro group has also made rapid progress in Japan over the same period by encouraging individual consumers as well as businesses though its doors.

KEY FACTS

COMPANY BACKGROUND

• Costco entered the Japanese market in 1999 and has continued to open new stores on a yearly basis since that date. Although there was initial scepticism over the company’s chances of success in Japan, due to a general lack of storage space in Japanese households which did not encourage bulk buying, the company has continued to recruit new members and open new stores.

PRIVATE LABEL

• Costco offers a range of Costco branded products.

COMPETITIVE POSITIONING

• Warehouse clubs are something of a novelty in the Japanese market and Costco is the only dedicated chained warehouse operator in Japan. Although bulk buying does not naturally fit with the limited space generally found in Japanese homes, the company has found that Japanese consumers are frequently willing to club together on trips to its stores to take advantage of heavy discounts offered by its stores compared to other retail outlets. Japanese consumers are familiar with this manner of purchase through the Japanese Co-op, which often supplies to communities rather than individuals.

STRATEGIC DIRECTION

• More of Culture Convenience Club Co Ltd’s business is likely to migrate to the internet during the forecast period. Consequently, the company has an interesting dilemma on its hands. Consumers are likely to download or stream more of what they watch during the review period, which gives the company an opportunity to scale back its store-based retailing operations. These are expensive to run in comparison to the overheads connected with a virtual business.

• However, the company is likely to maintain its presence in high street stores and especially its megastore operations in Tokyo's Shibuya district. These will maintain the company's brand image amongst consumers.

• The company's announcement that its will develop vending machines with NCR Japan in 2009 also indicates that it is willing to explore new retail channels. Vending will offer the company a low-cost means of maintaining a high-profile brand name. These rental vending machines are likely to stock up to 500 titles. However, with only 30 sites initially earmarked, the company may need a convenience store partner to further develop this concept.

• In late 2009, the company also announced plans to open a fleet of mini-stores, with these roughly 10% the size of current Tsutaya outlets. These are also expected to offer a boost to the company’s sales during the forecast period. Despite their small size, the new stores will carry some 50,000 titles, about as many as regular stores; this is possible as they will not display DVD packages on shelves. These outlets are also expected to sell magazines and business books. The company plans to open these small stores inside train stations and may also expand the format into office buildings, convenience stores, supermarkets and parapharmacies/drugstores. It may also team up with businesses such as convenience stores, supermarkets and parapharmacies/drugstores to launch these rental stores jointly.

• The company also aims to streamline its business over the forecast period in a bid to maintain profitability in difficult economic times. In 2009, the company thus made Sumiya Co Ltd a wholly owned subsidiary. It is also likely that the company’s Virgin Megastores Japan chain will be rebranded as Tsutaya.

KEY FACTS

COMPANY BACKGROUND

• Culture Convenience Club Co Ltd’s first store opened in 1983. The company rapidly expanded throughout the 1980s and 1990s as a franchised operator, primarily focused on the rental of video tapes and music. In 1994 the company boosted its profile with the launch of a huge store in the central Shibuya district of Tokyo, a site large enough to stock almost any conceivable title.

• Culture Convenience Club Co Ltd has a history of embracing technology. In 1999, the company launched its Tsutaya online service as well as a mobile internet service later the same year. This move was around five or six years ahead of most other companies, which only looked to mobile internet as a revenue generator towards the end of the review period.

• Culture Convenience Club Co Ltd benefits from its T Point loyalty card, one of the most widely used reward point schemes in Japan. With more than 20 million members, the company reports that more than 40% of 20-year-olds in Japan hold the card. Card membership swelled further in 2007, as popular convenience store chain Family Mart also began to use the T Point system.

• As well as driving outlet volume expansion via franchising, Culture Convenience Club Co Ltd was also active in terms of mergers and acquisitions during the review period. The company purchased Sumiya (2006), Digital Hollywood (2005) and Virgin Megastores (2009), seeking to become the leading retailer in its channel.

PRIVATE LABEL

• Culture Convenience Club Co Ltd offers no private label products.

COMPETITIVE POSITIONING

• Culture Convenience Club Co Ltd is most famous for its video and music rental operations, which fall outside the scope of this report. However, the company steadily increased its retail operations during the review period in a bid to make its stores more profitable.

• Internet retailing is becoming more important for sales of both music and video. Consequently, Culture Convenience Club Co Ltd developed a strong position in nonstore retailing, becoming a pioneer in internet retailing in 1999.

• Although retailing conditions were not favourable to many retailers, Culture Convenience Club Co Ltd benefited from consumers’ growing propensity to stay at home in an effort to save money. The company also benefited from brisk sales of TVs and DVD players via electronics and appliance specialist retailers, which boosted interest in the company’s rentals and also boosted retail sales. The company was also one of a number of retailers which benefited from the swine flu epidemic in Japan, as school closures and consumers’ desire to stay at home resulted in many consumers reaching for their Tsutaya card.

• Culture Convenience Club Co Ltd sought to expand its retail operations towards the end of the review period, introducing a ¥999 range of budget CDs in a tie-up with Universal Music LLC and Victor Entertainment Inc. Although music sales halved in value terms in Japan from 2000 to 2010, Culture Convenience Club Co Ltd is looking to tempt consumers into stores. The company also hopes to encourage impulse purchases through this low-priced range, which is priced at roughly half the level of similar products in competitors such as HMV Japan. Culture Convenience Club Co Ltd is aiming for sales of 400,000 units for the range by March 2010, with a view to extending the range if it achieves this goal.

STRATEGIC DIRECTION

• The year 2011 will see Daiei increase its spending on capital projects to $28.1 billion, double previous levels. The bulk of the money will be used to renovate the non-food sales sections of existing stores, as well as to open new outlets. Ambitious spending plans are designed to pull in new customers and improve sales in the high-margin non-food areas of clothing and household items. The company plans to open 22 new outlets in 2011 with 15 of these earmarked as discount stores.

• The company is also planning an efficiency drive though 2011 in a bid to cut costs. In a 60-store pilot, workers will be trained to take on multiple tasks, which will see workers move more freely from the back to the front of the house at busy times. There are also plans to cut inventory levels with a reduction of 30% in the number of lines these trial stores carry.

KEY FACTS

INTERNET STRATEGY

• Daiei does offers internet shopping options across its grocery and non-food operations, although these still remain limited with only a limited number of stores equipped with the means for delivery.

COMPANY BACKGROUND

• The Daiei Inc benefited strongly from the booming Japanese economy of the 1970s and 1980s, when the company expanded rapidly. Daiei stated at this time that consumers should control prices, rather than suppliers. The company thus offered affordable food products to consumers in the 1970s, when food items such as beef were positioned as luxury items by many retailers.

• Daiei Inc was once in a position to boast of being the largest retailing group in Japan, with its businesses including foodservice and credit cards, as well as retailing. However, in the late 1990s, the company’s financial condition began to deteriorate and the company shifted from expansion to focusing on profitability. Having separated off a number of Daiei Group subsidiaries, Daiei Inc itself joined AEON Group in 2007.

• More than 50% of Daiei’s shares are owned by Marubeni Co Ltd and AEON Co Ltd. With the support of these two companies, Daiei Inc strived towards the end of the review period to re-establish an attractive image for its stores amongst consumers.

• Daiei’s core business is the operation of Daiei mass merchandisers and Daiei Gourmet City supermarkets. The operation of Daiei Gourmet City in some regions is undertaken by Daiei Inc’s subsidiaries.

• The company sought to meet consumers’ changing needs towards the end of the review period by offering diverse store formats. The company launched a hybrid convenience store and supermarket named Foodiam in 2008, with these outlets offering a wide range of prepared food. Foodiam outlets are positioned between convenience stores and mass merchandisers in terms of outlet size.

PRIVATE LABEL

• Daiei’s first private label, Savings, was launched in 1980 and was followed by SALIV, a private label for domestic electronic appliances. Daiei Inc continued to launch private label products, with these reorganised into three ranges in 2008: Oishiku Tabetai, Aichaku Shiyo and SALIV.

• The company’s Savings private label range was withdrawn in fiscal year 2009. This occurred because the company started to sell AEON Group’s TopValu private label range in March 2008.

COMPETITIVE POSITIONING

• After experiencing financial problems, The Daiei Inc started to close unprofitable outlets during the review period. The company’s value share in store-based retailing thus declined between 2004 and 2010. Efforts to reduce the company’s debt were so vigorous that the impact of earlier cost-cutting exercises continues to be felt. The company is struggling to build sales with a grocery-focused product line, rather than the wide-ranging product portfolio favoured by the company in earlier times.

• In 2010, Daiei recorded further current value decline in its key mass merchandiser operation over the previous year. This was largely due to unhelpful economic conditions, which encouraged consumers to spend less and to demand lower pricing. There was a better perfomance in supermarkets, where new store openings helped value sales grow, although from a much smaller base.

STRATEGIC DIRECTION

• Daiso offers a wide range of products at a variety of price platforms, including 90,000 products ranging from ¥100 to ¥10,000 and above. The company seeks to improve its product range. However, this will take the company further away from its ¥100 price platform, which supported its boom, especially throughout the 1990s. To maintain consumer interest, Daiso is looking at a longer-term strategy. This will see stores regularly updated and new product lines added. The company is aiming to offer an additional 1,000 new products every month, whilst other lines are discontinued.

• With the domestic market saturated, Daiso’s medium-term goal is to become a global company, and is now looking more firmly at pushing development overseas. The company has almost 600 overseas stores in 25 countries. However, with half this number located in Korea and small in size (typically 50-200 sq m), the company has looking further afield to open larger outlets. Recent expansion has taken place in Taiwan, Singapore and the Middle East, and in 2010 the company linked up with the supermarket chain Casa Lay in Mexico, with a view to operating more than 500 stores.

KEY FACTS

INTERNET STRATEGY

• Daiso has no internet operations in Japan.

COMPANY BACKGROUND

• Daiso's first store opened in 1972 with Daiso Sangyo itself becoming incorporated in 1977. It was not until 1987 that the company developed the 100 Yen Shop format. This shifted the company’s positioning from general merchandiser to one-coin-shop discounters. The company firmly established itself within ¥100 shops by the end of the review period, creating its own specialised retail category.

• The high price of the yen enabled the company to base its 100 Yen Shop concept on cheap imports, most notably from China. However, it was not until the end of the bubble economy era in the early 1990s that the ¥100 store concept saw dynamic growth in Japan, with consumers looking for cheaper alternatives due to harsher economic times. Daiso expanded rapidly from 1991 onwards, with its growth supported by a domestic economic downturn.

• The company’s expansion was, however, not limited to Japan. The company first took its 100 Yen Shop concept to Taiwan in 2001 and then further with store openings across the world during the review period, from the US to Kuwait and even Romania in 2007.

PRIVATE LABEL

• Daiso offers no private label ranges.

COMPETITIVE POSITIONING

• Although ranked a lowly 25th in non-grocery retailers as of 2010, Daiso Sangyo Co Ltd ranked second in the variety stores channel and is something of a household name. The company’s 100 Yen Shop chain operates in more than 2,600 locations across Japan and thus has a high profile amongst consumers.

• The company does, however, continue to face a number of challenges. The domestic market is particularly saturated and even with the addition of 50 new stores in 2010, this had little impact on value sales due to this as well as to Japan’s general economic ill health. The company most notably suffered from competition from Seria (its chief rival) after the company entered into a design-led makeover which tempted female consumers into its stores rather than Daiso’s. The company suffered competition from other retailers, especially supermarkets and mass merchandisers such as AEON. These players also offer end-of-line and discontinued products in some departments, similar to those offered by Daiso.

• Whilst the company looked to overseas expansion to circumvent domestic issues, threats also appeared with foreign retailers such as Wal-Mart reported to be looking to purchase a chain of its own to help fend off the encroachment from dollar stores on its own supermarket/hypermarket operations in North America

STRATEGIC DIRECTION

• Edion Corp operates more than 1,000 outlets, with franchised stores accounting for about two thirds of these. The company’s franchised stores are smaller than its directly operated stores and are scattered around core directly operated stores in each region. This structure enables the company to offer more thorough and specialised services to local communities.

• Edion Corp plans to expand its store network over the forecast period, especially in the Kansai region. In this region, the company aims to expand its franchise operations by 600 outlets during the forecast period. It will achieve this largely by expanding franchise agreements with local retailers affiliated to manufacturers based in the Osaka area, such as Panasonic and Sanyo.

KEY FACTS

INTERNET STRATEGY

• Edion, like other retailers in its category, already has a well-developed internet sales operation, although with the end of the government-sponsored Eco Points system, which subsidised purchases of more environmentally friendly products, the company, is looking to the internet as a key area for expansion. The company is planning to offer electronic games in 2011, for example, in an attempt to soften the blow.

COMPANY BACKGROUND

• In 2002, Edion Corp was established as a joint holding company for two electric appliance specialist retailers, DEODEO Corp and EIDEN Co Ltd. Midori Denka Co Ltd joined the group in 2005, and the group established a strong base in western Japan. DEODEO Corp is based in the Chugoku, Shikoku and Kyushu regions. EIDEN Co Ltd is based in the Chubu region and Midori Denka in the Kinki region.

• Since 2006, Edion Corp’s store network has expanded to the east of the country. The company achieved this by acquiring a third of the equity of Ishimaru Denki Co Ltd, which is based in Tokyo, and 40% of 3Q Co Ltd, which is based in Hokuriku and operates stores under the brand name Hyakuman Volt throughout Japan, including eastern Japan. To strengthen its store network in the Tokyo area, Tokyo Edion Corp was established in 2007.

• Companies that are a part of the Edion group usually continue to use their own brand names after joining the group. After establishing Tokyo Edion Corp, Edion Corp intended to expand its business in the Tokyo area under the EIDEN brand and transferred the operation of Midori and DEODEO stores in Tokyo to the Edion chain. Two stores named Edion opened in Tokyo and five Midori Denka stores changed their name to EIDEN. Edion, however, struggled to succeed in the Tokyo area due to severe competition, with this being further intensified by the entry of Yamada Denki into Tokyo in 2009.

• Owing to the fact that the company was established through mergers, Edion Corp offers four chain brands. DEODEO accounts for the largest number of outlets, with 801 stores in 2009. Nearly 80% of DEODEO stores are franchised and operate the DEODEO Family Store format, the size of which is about 300 sq m. These franchised stores are located as a network around directly operated stores, which meanwhile typically have a selling space of 1,500-3,000 sq m.

PRIVATE LABEL

• Edion Corp offers four private label ranges: Kaul, Keyword, MY & OUR and EGG plus. Overall, the company offered 2,500 private label items in March 2008.

• Kaul products aim to offer added convenience and functionality. The range includes air conditioners, vacuum cleaners, rice cookers, microwaves, washing machines and personal computers. Sales of Kaul air conditioners accounted for nearly 90% of Edion’s total value sales of air conditioners at the end of the review period. Other Kaul products also account for a large portion of total sales in their respective product areas. Kaul dominates the company’s value sales of vacuum cleaners, rice cookers and microwaves.

• Of the company’s other private label ranges, Keyword targets single-person households and offers products in three different colours. MY & OUR offers eco-friendly products, such as low-energy batteries and light bulbs, whilst EGG plus offers high-quality computers at reasonable prices.

• The company continued to add more products to its private label lineup towards the end of the review period. The company eventually aims to increase sales of private label products to account for 25% of its total sales value.

COMPETITIVE POSITIONING

• In line with Edion Corp’s outlet expansion towards the end of the review period, the company’s sales value also increased. The company ranked tenth in overall retailing in 2010 non-grocery retailing with a value share of 1%.

• Edion Corp saw sales and outlet numbers grow in 2010 and traded well on the back of Eco Points, a rebate system which encouraged Japanese consumers to purchase more eco-friendly products. With the scheme ending in December 2010, there was a surge in consumers’ purchases of eco-rated goods. Edion in particular was trading well on air conditioners, which saw sales double over a year earlier, helped by the hot summer of 2010. Also, flat screen TVs, air purifiers and later in the year room heaters showed strong growth as the winter struck hard.

STRATEGIC DIRECTION

• FamilyMart introduced plans for very aggressive expansion into China through to 2020 with plans to open 8,000 stores across the country though a partnership with Ting Hsin group, a major Chinese food processor. With competition tight at home, the company looks set to move ahead of its competitors with these very ambitious plans, which will likely see the company become the largest convenience store chain in the Asia Pacific.

KEY FACTS

INTERNET STRATEGY

• The company’s internet retailing business is operated by its subsidiary Famima.com Co Ltd. By using Famima.com, customers can place online orders at home and then pick up the goods at a specified store.

COMPANY BACKGROUND

• Family Mart began life in 1981 with the opening of its first stores in Japan. The chain has since expanded rapidly both domestically and abroad with stores now trading as far afield as Thailand and North America.

• The company announced the purchase of am/pm Japan in December 2009 following the breakdown of a planned merger with Lawson. The addition of around 1,090 additional outlets though this deal saw the company rival market leaders 7-11 and Lawson in terms of store numbers in 2010.

PRIVATE LABEL

• Private label products are a key element in Family Mart’s product differentiation strategy. The company responded to changes in consumer trends by introducing private label packaged food to accommodate local tastes during the review period, such as a wide variety of bento box sets.

• Family Mart’s private label range allows the company to adjust its range to differing consumer preferences in each region of Japan and to customise its product offerings. The company divides Japan into seven regions and aims to meet the localised needs of each region’s consumer base. This approach allows Family Mart to maximise its coverage.

• The company plans to invest further in its private label range during the forecast period, with the creation of a beverage production facility to help secure the supply of private label beverages. This facility will be developed in partnership with brewer Hombo Shuzo Co, with its production scheduled to start in June 2009.

COMPETITIVE POSITIONING

• Family Mart Co Ltd ranked fourth in Japanese retailing in terms of value sales in 2010 and gained share over the previous year through its acquisition and subsequent absorption of am/pm. This acquisition added a further 1,090 stores to the company’s chain and secured it as a leading retailer in convenience stores now competing with industry giants 7-11 and Lawson.

• Family Mart Co Ltd gained value share, with the company continuing to be extremely popular amongst mid- and high-income consumers aged below 30 years old with its food offerings in particular winning many plaudits.

STRATEGIC DIRECTION

• Fast Retailing Co Ltd plans to continue to expand in Japan and abroad during the forecast period, opening more outlets both domestically and internationally. Fast Retailing Co Ltd also plans to open further Uniqlo outlets in the US, after current stores posted strong sales in the country in spite of the recession. Further expansion is planned into Germany and Spain, to complement the brand’s success in the UK and France.

• The company is planning to expand its g.u. retail chain, which offers budget clothing in Japan, from its current 150 or so stores to over 200 by August 2012. In a bid to maintain supply of budget clothing lines, the company is looking to lessen its reliance on Chinese suppliers, which is currently around 80% of supply to around 50% over the next two years, with cheaper sources hailing from Bangladesh and Vietnam grabbing the company’s attention.

KEY FACTS

INTERNET STRATEGY

• Fast retailing also reported rapid growth of its internet sales, which ran to some $16.0 billion in 2010 with customers now keen to browse and purchase clothing online as something of a leisure activity. Certainly, the low average pricing offered by the chain has encouraged this, as Fast Retailing products are considered less of a risky purchase for internet users than higher-priced branded items. The company is predicting further double-digit growth of its internet retail arm though 2010.

COMPANY BACKGROUND

• Fast Retailing Co Ltd is an international clothing retailer that operates the Uniqlo chain in the UK, China, the US and Korea. Its low-price strategy has resulted in the brand gaining strong popularity amongst consumers.

• Fast Retailing Co Ltd operates several subsidiaries, including companies such as Onezone Corp and Cabin Co Ltd. These companies are also well established as clothing and footwear specialist retailers in Japan.

• Fast Retailing Co Ltd views mergers and acquisitions as an important part of its strategy to expand its brand portfolio, not only domestically but also globally. During the review period, two French companies became subsidiaries of Fast Retailing Co Ltd.

PRIVATE LABEL

• The company only supplies its own manufactured products.

COMPETITIVE POSITIONING

• Fast Retailing Co Ltd experienced steady sales growth over the review period, despite the overall decline in clothing and footwear specialist retailers in Japan. The company’s growth was driven by sales expansion within its mainstay brand Uniqlo. This posted good growth in sales value in 2010, due to the opening of large-scale outlets as well as the appearance of outlets within department stores.

• Fast Retailing Co Ltd’s value share of clothing and footwear specialist retailers increased to 9% in 2109. The company attributed its good performance to high-quality customer service and its ability to meet customers’ needs, which in Japan 2010 meant keen pricing. The company enjoyed rapid expansion of its g.u. fascia, offering deeply discounted pricing on both men and women’s clothing, which secured the company’s presence across the key lower and middle pricing levels.

STRATEGIC DIRECTION

• Gap continues to look to develop a point of difference with its key competitors in the Japanese market and has concentrated its efforts in gaining a stronger foothold in the Tokyo market with the development of another flagship store in the fashionable Harajuku district. The arrival of the Harajuku store scheduled for opening in January 2010 will mark the start of an expanded range in Japan with extended leisurewear lines as well as underwear and a Stella McCartney-designed range for Gap Kids.

KEY FACTS

COMPANY BACKGROUND

• Gap first opened for business in Tokyo’s upmarket Ginza district in 1995, although it was only in 1997 that the company opened its first purpose-built flagship store in Tokyo’s Shinjuku district. The company expanded rapidly through the close of the 1990s and into the new millennium on the back of its Khaki Swing promotion, which saw Gap’s cargo trousers become must-have fashion items in Japan as in the rest of the world.

PRIVATE LABEL

• Gap offers only Gap branded products, although it has made efforts to develop a point of difference with competitors by developing its clothing line with leading fashion designers including Stella McCartney, who developed an exclusive range for Gap Kids in 2009.

COMPETITIVE POSITIONING

• Gap, although ranked a respectable eighteenth in clothing and footwear retailers in 2009, continued to see value sales eroded as both the company’s core Gap and its Banana Boat fascias saw operating conditions become worse with the onset of recession. Sales were hit in 2010 not least by consumers’ penny pinching but also by the onset of an industry-wide price war in the clothing and footwear category, typified by the high-profile launch of sun ¥1,000 jeans by Uniqlo and later Seiyu.

• Although Gap makes a strong play for the ethical sourcing of its clothing in the West, there is still limited consumer interest in this kind of positioning in the Japanese market. That is not to say ethical issues are unimportant in Japan, but against a background of recession, job insecurity and deflation, ethical issues are not sufficient for the company to make headway.

STRATEGIC DIRECTION

• Although low cost will be the key to IKEA’s further development in Japan, the company appears set to continue to offer an expanded range of design-orientated products in Japan. The company already employs local designers to produce products specific to the local market, and this is set to continue as IKEA in Japan looks for more of a Japanese flavour, which should serve to widen its consumer base.

• Although IKEA experienced a warm reception on its re-entry into the Japanese market in 2006, the company still has some obstacles to overcome if it is to better compete with Nitori. Japanese consumers are still unfamiliar with self-assembly furniture, report that home delivery charges are too high and have questions as to the life span of its products in the Japanese climate. Warranties on IKEA products in Japan range up to 25 years and with the company only re-entering Japan in 2006, its products remain relatively untested in Japan. Some observers are suggesting the company could be in line for an expensive period of product replacements, which could be damaging both financially and in terms of reputation.

KEY FACTS

COMPANY BACKGROUND

• IKEA first entered the Japanese market in 1976 at a time when the company was little heard of in Europe, let alone the rest of the world. Distribution problems and rising prices from its supplier forced the company to pull out of Japan in 1986, concentrating on expanding in its local European market.

• Twenty years later, IKEA returned to the Japanese market in 2006, with stronger brand recognition and distribution network, which proved vital to its more recent success. Learning from previous difficulties in Japan, the company opened six stores on land the company purchased as a precaution against rising rents.

• The opening of its own distribution centre in Aichi prefecture in 2008 allowed the company to have greater stock control as well as widening its Japanese range, which now includes products sourced from 50 different countries.

PRIVATE LABEL

• IKEA only offers IKEA branded furniture and furnishing products within its Japanese network

COMPETITIVE POSITIONING

• IKEA continues to trade well on its low-cost high-availability trading strategy, which appears to have been almost tailor-made for operating in recession-hit Japan. The company will continue to introduce new lines and update existing ones in a bid to remain competitive in the face of competition with domestic operators such as Nitori. In August 2009, the company announced price cuts on over 1,400 items, a policy which is likely to be widened as the company better integrates Japan into its global distribution network.

STRATEGIC DIRECTION

• The company’s medium-term business plan was released in November 2008 and included extensive cost-cutting initiatives. These aim to cut ¥6 billion through natural attrition and ¥8 billion through consolidation of indirect operations. The company is expected to hold down advertising budgets at a steady level, close stores to reduce rent payments and reduce wage costs through the integration of its distribution system and other operations.

• Sales dropped further in 2009, with swine flu keeping consumers indoors. Consequently, the company appears to have adopted a change in strategy with the closure of its Tokyo Ikebukoro store in May 2009 to be followed by the closure of its Kichijoji store in March 2010. Other less profitable stores are also expected to close during the forecast period.

• The company plans to invest heavily in non-department store businesses during the forecast period, notably developing internet retailing. This will provide Isetan with new channels for revenue and allow the company to expand its business focus beyond its core and traditional area of department stores.

• Furthermore, Isetan hopes to form a network of shops in suburban areas, with an urban flagship store at the centre for each location. The company thus hopes to effectively target the younger population who primarily live in suburban areas. Meanwhile, older consumers are more concentrated in urban areas, where the company’s flagship stores are located.

KEY FACTS

COMPANY BACKGROUND

• Mitsukoshi originated as a kimono silk store founded in 1673. The company transformed itself into a department store in 1904, with this remaining the company’s main business at the end of the review period.

• Headquartered in Tokyo, Mitsukoshi operates department stores throughout the country and is one of the leading department store players in Japan.

• A merger between Isetan and Mitsukoshi occurred following a share swap in April 2008. This gave the group a clear lead as the largest department store player. The two chains retained their fascias, reflecting their complementary portfolios in terms of geographic coverage, product assortment and customer base. Isetan appeals to young fashion-conscious adults, whereas Mitsukoshi caters for more conservative consumers.

PRIVATE LABEL

• Isetan operates a number of private labels, most notable in its clothing department where Isetan Men’s and Cornice were introduced as a reaction to rising demand for private label goods amongst its consumers.

COMPETITIVE POSITIONING

• Isetan Mitsukoshi retained its number one position in department stores in 2010. Isetan was relatively slow to innovate and adapt its store formats during the review period, with the company thus engaged in major store renovation and refurbishment programmes towards the end of the review period to increase its chains’ appeal.

• The company strived to improve its competitiveness towards the end of the review period, by moving beyond the traditional department store concept and establishing new venues in suburban settings. The company thus sought to appeal to new target groups, such as younger consumers who are primarily located in suburban areas near major cities.

• Customer service is at the heart of the company’s positioning and is used to differentiate it from its competitors. The company’s success in this area was rewarded in 2009 when it was voted number one in a customer satisfaction survey carried out by Nikkei.

STRATEGIC DIRECTION

• Franchising is a key strategy for the company, especially in the Kyushu, Shikoku and Hokkaido regions. The company places a strong focus on pricing and maintains a negotiable pricing system at stores, which is a traditional feature of many Japanese electronics and appliance specialist retailers. To offer reasonably priced goods, the company started to sell Rocket Fish brand products after concluding agreements with Best Buy in 2007.

• The company looks set to further expand its suburban network during the forecast period. This is in order to address the demands of older consumers, who increasingly favour local over city centre shopping.

KEY FACTS

COMPANY BACKGROUND

• K’s Holdings Corp was originally established as Kato Denki Shokai in Ibaraki prefecture in the Kanto area. However, the company sought to create a nationwide network through mergers and acquisitions over the review period. This enabled the company to gain regional bases in the Tohoku, Tokai, Kansai and Shikoku areas, by merging with Yotsuba Denki KK, Gigas Corp, Yachiyo Musen Denki Co Ltd and Big-S Inc respectively. After these mergers, Yotsuba Denki KK and Yachiyo Musen Denki Co Ltd changed their names to Tohoku K’s Denki and Yachiyo Musen Denki Co Ltd respectively.

• In 2007, Tohoku K’s Denki merged with Tohoku-based Denkodo Co Ltd, which was already a subsidiary of K’s Holdings Corp. Denkodo Co Ltd, which had a strong store network in the Tohoku region, remained separate as a corporate entity, although its chain’s brand was changed to K’s Denki. To establish a regional base in the Tohoku area and other northern parts of Japan, Denkodo Co Ltd acquired Fujiya KK, a franchisee of K’s Denki Group, in 2008.

• In 2008, Ibaraki-based Shimizu Denki Co, a franchisee of K’s Holdings, became a subsidiary of K’s Holdings. In addition, three of the company’s subsidiaries completed mergers in this year, including the Denkodo-Fujiya merger.

• In addition to mergers and acquisitions, franchising is another driver behind K's Holdings Corp’s growth, especially in the Kyushu area. In this area, stores are managed by Kyushu K’s Co Ltd, which was established in Ibaraki by K’s Holdings Corp.

• K’s Holdings Co offers Pasokon Clinic service sections in its stores to offer PC-related services. These are operated by PC Depot Corp. However, as of October 2009, they will be operated by K’s Holdings as a franchisee under affiliation agreements. The agreement also states that four PC Depot stores that are operated by K’s Holdings Co as a franchisee will be transferred to PC Depot Corp.

PRIVATE LABEL

• K’s Holdings Corp does not carry private label products.

COMPETITIVE POSITIONING

• In spite of difficult times, K's Holdings Corp reported a reasonable year in 2010, as 27 new stores were added to the company’s network. This helped the company maintain its sales at a largely unchanged level from 2008 at ¥567 billion, although same-store sales suffered a slight downturn as a result. K's scrap-and-build policy and its focus on suburban rather than city centre locations helped the company tap into less saturated regional consumers.

• However, the main boost for the company’s sales came from the government’s Eco Points system, first introduced in June 2009. The introduction of this government programme to encourage purchases of energy-efficient appliances boosted demand for televisions and refrigeration appliances. According to the company, 2010 saw sales of TVs, refrigeration and air conditioning appliances all up, in part helped by the long hot summer of 2010.

• K's Holdings benefited from its cost-cutting initiatives over the review period. The company has lower cost-to-sales ratios than its nearest competitors, with its rivals seeking to improve their ratios. The company’s more streamlined structure partly stems from the fact that it only offers electrical products. It does not offer additional products such as drugs, sports gear or miscellaneous daily goods, as many of its competitors do. K's Holdings’ sole focus on consumer electronics helps it contain employment costs linked to the requirement for additional workers to sell other items.

• Most mass retailers of consumer electronics award points to customers, with these able to be used towards future purchases at outlets. However, K's Holdings shuns this practice and instead offers cash discounts, which K’s believes are more popular with consumers as well as beneficial to K's, as this avoids the expense of managing and maintaining a reward point system.

• The company also operates a unique outlet location strategy. The company tends to shun popular sites such as those near major train stations, where both sales and costs are large. The company instead focuses on outlets in suburban areas and along roadsides, even in regional cities. It is therefore able to minimise initial investment costs.

STRATEGIC DIRECTION

• Lawson Inc spent most of 2009 locked in negotiations to purchase am/pm Japan Co Ltd, only for the deal to fall through. Lawson Inc’s most likely acquisition target is Ministop Co Ltd, also present in convenience stores. This company belonged to AEON Group at the end of the review period. However, Mitsubishi is the largest shareholder in both AEON Group and Lawson Inc. Consequently, a merger or acquisition could be likely.

• The company was also reported to have reached a deal to purchase the HMV brand in Japan, Lawson set to take over the 36 HMV stores currently operating along with HMV’s online operation. Lawson considers its more youthful customer base to be a perfect match for the failing music specialist. Away from home, the company (like its chief rivals) is looking to expand operations in China. It aims to open 300 stores through to 2015 and hopes to have 5,000-10,000 stores in China by 2020.

KEY FACTS

INTERNET STRATEGY

• Lawson Inc does operate internet sales, usually for collection though its stores, but this still forms only a very limited portion of its business. The purchase of the HMV online operation will likely extend this and introduce Lawson’s online sales to a much broader consumer base.

COMPANY BACKGROUND

• Lawson Inc was originally established as a wholly owned subsidiary of Daiei Inc in 1975. Later, Lawson Inc increased its number of outlets by establishing regional franchising companies and by acquiring Spur convenience stores in the Tohoku region in 2004.

• Lawson Inc was the first convenience store operator to open stores in all 47 prefectures across Japan. The company’s number of outlets exceeded 8,600 by 2009 and continued to increase over the previous year.

• The company saw the need to change its nationwide homogeneous store format and enhance the profitability of existing stores. The company adopted this strategy due to increasing saturation in convenience stores, Japan’s ageing population and the declining profitability of existing stores. Consequently, Lawson Inc launched new store formats and sought to meet local consumers and different consumer groups’ differing demands. The company offers the formats Natural Lawson, Lawson Store 100, Lawson Plus and Happy Lawson, in addition to regular Lawson stores, which mainly target men in their 20s and 30s.

• Natural Lawson is a store format targeting working women and offering a wider range of health-oriented products. Natural Lawson stores used to be operated by Lawson Inc’s consolidated subsidiary, Natural Lawson Inc. Natural Lawson Inc was, however, dissolved in October 2007 and Lawson Inc began to operate Natural Lawson stores directly.

• The Lawson Store 100 format was created to attract more housewives, middle-aged consumers and the elderly. This store format offers a wide range of fresh food, whilst most products are sold at a price of ¥105.

• Lawson Plus stores are converted from regular Lawson stores by changing interior décor, fittings and signage. The range of products on offer in Lawson Plus outlets is also adjusted to suit the preferences of customers in local areas. Lawson Inc plans to continue the conversion of regular Lawson stores to Lawson Plus stores during the forecast period.

PRIVATE LABEL

• Lawson Inc’s private label Value Line was developed in 2005, specifically to be sold via the Lawson Store 100 chain. The product range originally numbered 34 items, ranging from processed food to stationery such as envelopes. Sales of Value Line increased towards the end of the review period and Lawson Inc thus started to sell Value Line products at some Lawson Plus and Lawson stores. In 2008, Lawson Inc planned to launch 300 new Value Line items.

COMPETITIVE POSITIONING

• Lawson Inc held second place within convenience stores in terms of both value sales and number of outlets in 2010. However, the third largest player, Family Mart, is catching up in terms of outlet numbers, especially since its purchase of am/pm in December 2009.

• Lawson suffered from increased competition from other retail categories such as supermarket retailing, which is increasingly offering consumers late night and even 24-hour shopping opportunities. Consumers are also becoming savvier in the recession, planning their purchases in advance and looking to use convenience stores less frequently. To counter this, Lawson expanded its private label lines in 2010 and looked to increase the number of services it offers in stores.

• The company formed a deal towards the end of the review period with pharmacy operator Qol to launch outlets that offer prescription drugs alongside products typically sold at convenience stores. This hybrid was launched in 2010 and followed an agreement with Matsumotokiyoshi Holdings to develop similar hybrid stores in 2009.

STRATEGIC DIRECTION

• LIFE Corp is the second largest supermarket company in terms of value share, although its number of outlets is relatively small. Its store locations are concentrated in eight prefectures of Kansai and Kanto and more than 80 of the company’s supermarkets are located in Osaka prefecture. The company plans to keep this area-specific focus and plans to open 50 more outlets in the forecast period. However, the company also plans to develop a new store format in collaboration with other companies.

• With its strategy of trying to dominate in a specific area, LIFE Corp aims to meet demand from local customers. With the trend being towards eating at home instead of eating out, there is growing demand for prepared food. In response to this, the company has founded an education centre in Osaka for its employees, enabling them to learn about prepared food. It is expected that employees will receive training annually at the education centre.

KEY FACTS

INTERNET STRATEGY

• Unlike other supermarkets and mass merchandisers, the company has not started full-scale operations in internet retailing.

COMPANY BACKGROUND

• LIFE Corp has one consolidated subsidiary, LIFE Kosan Corp, which operates in insurance. Other related companies in the Life group mainly support LIFE Corp, with subsidiaries focused on the supply and delivery of goods and the education of employees.

• A new subsidiary, Japan Education Centre for Future Retailing Inc, was established jointly with The Maruetsu Inc in 2003. The centre is located in Saitama prefecture and offers courses specialising in supermarket operation and e-learning courses.

PRIVATE LABEL

• LIFE Corp does not offer its own private label products. However, the company sells private label products developed by Nihon Ryutsu Sango Co Ltd. This company was established by seven mid-sized supermarket operators as a cooperative buying organisation in 1974.

COMPETITIVE POSITIONING

• LIFE Corp remained the second largest supermarket operator in 2010, with a value share of 3% in supermarkets. Its outlet numbers increased from 188 in 2004 to 214 in 2010 and this was a key sales driver. The company has always had a value focus, and this has gone down well with consumers in Japan, especially towards the end of the review period when the Japanese economy went into recession.

• During the period of sluggish consumption seen towards the end of the review period, the company attempted to create locally oriented stores. Its POS (point of sale) data are shared with wholesalers and other related companies to enhance efficiency and accommodate local demand.

STRATEGIC DIRECTION

• Liberalisation of the laws pertaining to the distribution of OTC medicines encouraged Matsumotokiyoshi to develop partnerships towards the end of the review period, such as that with Lawson Inc in convenience stores. This saw its staff dispatched to Lawson convenience stores to oversee OTC sales, along with the development of some Lawson store-in-store outlets within Matsumotokiyoshi outlets. Lawson indicates that 1,500 co-branded Matsumoto Kiyoshi/Lawson stores are likely to be opened by 2015.

KEY FACTS

INTERNET STRATEGY

• Matsumotokiyoshi Holdings Co Ltd has only a very limited internet retail footing.

COMPANY BACKGROUND

• Matsumotokiyoshi Holdings Co Ltd was established in 2007, as a holding company. The company’s core business is the operation of parapharmacies/drugstores.

• Matsumotokiyoshi also operates in DIY, home improvement and garden centres. The company started this business in 1988. However, this business area accounts for only a small portion of the company’s total sales. The number of DIY, home improvement and garden centres in its portfolio remained at five over the review period.

• In 2008, Matsumotokiyoshi Holdings formed a franchising agreement with Super Value Co Ltd, which operates supermarkets and DIY, home improvement and garden centres in the Kanto area. Matsumotokiyoshi Holdings continues to look for opportunities to conclude franchising agreements with other DIY, home improvement and garden centres, parapharmacies/drugstores and mass merchandisers.

• Other than Matsumotokiyoshi parapharmacies/drugstores, the company also operates parapharmacies/drugstores under other chains. These include Tobu Drug, Family Drug, Drug Papasu, Drug Max, Health Bank and Kusuri no Love. These chains are operated by the company’s consolidated subsidiaries and affiliated companies.

• Matsumotokiyoshi Holdings’ businesses are not confined to retailing. The company’s business areas include wholesaling. The company’s wholesaling operations were transferred from Matsumotokiyoshi Co Ltd to Matsumotokiyoshi Holdings in 2007, in order to utilise the scale of the group as a whole. In the same year, Mogi Pharmaceutical Co Ltd, whose business is the wholesaling of drugs and health-related goods, became a wholly owned subsidiary of Matsumotokiyoshi Holdings.

PRIVATE LABEL

• Matsumotokiyoshi offers a private label range called MK Customer.

• This range includes over 1,000 items and its product range includes medical products, cosmetics, food and household goods.

COMPETITIVE POSITIONING

• Although the pace of the company’s new outlet openings slowed down during the review period, Matsumotokiyoshi Holdings saw steady growth in sales towards the end of the review period based on continued store expansion.

• The liberalisation of Japan's pharmaceutical distribution came into effect in June 2009. This began a period of increasing competition in consumer health sales. Players from a range of retailing channels and notably from supermarkets and convenience stores consequently plan to enter OTC healthcare. Matsumotokiyoshi has, however, used the revision to the law to extend opening hours at a quarter of its 1,200 or so stores by about two hours, with many staying open until 24:00hrs. Most of the late-night outlets are in suburban and other residential areas, which will see the company competing more effectively with convenience stores for late night sales.

• Some industry observers also feel that the company benefited from declining sales of colour cosmetics and skin care in department stores. Many consumers opted instead for more economical self-selection products at parapharmacies/drugstores, with Matsumotokiyoshi stocking a significant range and thus attracting many consumers.

STRATEGIC DIRECTION

• Rakuten Inc is one of the most successful Japanese IT-related companies and experienced rapid expansion via mergers and acquisitions during the review period. Internet retailing is an intensely competitive environment. However, the company aims to grow both domestically and internationally, whilst strengthening its core business of internet retailing.

• The company also appears to be focused on international expansion for the forecast period. In 2009, the company signed an agreement with internet search provider Baidu in China. Baidu is the world’s third largest internet search operator and looks set to provide Rakuten with unparalleled access to lucrative Chinese internet retailing. This international expansion follows the company’s earlier entry into US and Taiwanese internet retailing.

KEY FACTS

INTERNET STRATEGY

• Rakuten is an internet-only retailer in Japan.

COMPANY BACKGROUND

• Rakuten Inc’s core business is the operation of the internet shopping mall Rakuten Ichiba, where retailers can operate online shops and sell goods. In related operations, the company also operates Rakuten Travel and Rakuten Books within internet retailing. The company was established in 1997.

• Mergers, acquisitions and tie-ups were important for the company in reinforcing its core business area and diversifying and strengthening its business scope during the review period. To strengthen its core internet retailing business, the company acquired Infoseek Japan KK in 2002. The service level and customer base for Rakuten Travel were meanwhile enhanced by the acquisition of MyTrip.net in 2003. Meanwhile, Rakuten Books was established as a joint venture with Nippon Shuppan Hanbai Inc earlier, in 2000.

• Beyond internet retailing, Rakuten aggressively expanded in finance. The company acquired 97% of the shares of DLJdirect SFG Securities in 2003, with this company subsequently becoming Rakuten Securities Inc. After then, the company formed mergers, acquisitions and tie-ups with finance companies almost every year. Rakuten Inc acquired 100% of Aozora Card in 2004, with this becoming Rakuten Credit Inc. Kokunai Shinpan Co Ltd became a subsidiary of Rakuten Inc and was named Rakuten KC in the following year. Operational tie-ups with Shinsei Bank Ltd and The Tokyo Tomin Bank Ltd were concluded in 2006.

• Rakuten’s entry into Japan’s professional baseball league in 2004 also raised the company’s profile nationwide. Rakuten Baseball Inc operates and manages the Tohoku Rakuten Golden Eagles baseball club and is a subsidiary of Rakuten Inc.

• The company gained a very positive industry reaction to its purchase of a 50% stake in BitWallet in 2009, the operator of the popular Edy payment system in Japan. Rakuten's strategy seems to be focused on becoming a bigger player in e-money, especially in the mobile payment systems already offered by the Edy system. The company gained greater access to current Edy users as a result of this acquisition, as well as the opportunity to offer its wider consumer base more flexibility in payment systems.

PRIVATE LABEL

• Rakuten Inc supplies no own-branded private label products, although with thousands of suppliers, private label products are likely to be sold though its site.

COMPETITIVE POSITIONING

• Rakuten Inc saw spectacular sales growth during the review period. The company’s retailing sales value increased from ¥17.7 billion in 2004 to ¥123 billion in 2010. By the end of the review period, the company ranked as the third largest internet retailer in Japan. In addition, the company also operates significant travel and finance operations, which fall outside the scope of this report.

• The company’s sales growth remained buoyant in 2010, with Rakuten increasing the number of its suppliers to almost 30,000. Rakuten, however, faced increased competition from Amazon Japan Co Ltd, as well as from price comparison sites such as Kakaku.com. In addition, the developing recession saw the company’s average transaction value fall to around ¥7,000. Therefore, whilst Rakuten continued to increase traffic towards the end of the review period, it faced an underlying problem in encouraging consumers to move up to bigger-ticket items.

• Internet retailing is increasingly popular in Japan due to the convenience it provides for consumers. Rakuten Inc tapped into this trend and thus enjoyed strong year-on-year sales growth over the review period. Rakuten Inc offers diversified and customised benefits to end consumers and businesses, which offers it a competitive advantage. The users of the company’s website can access up to 20 million items and can easily purchase these items through a user-friendly interface.

STRATEGIC DIRECTION

• With reduced consumer consumption in Japan, Ryohin Keikaku Co Ltd was forced to review its operations towards the end of the review period. The company aims to streamline its business in terms of retail distribution and general and administrative expenses, in an effort to maintain profit margins. To improve its product range and pricing, the company plans to develop a new product planning system during the forecast period to speed up product development. The company also plans to build a production and procurement system that is fully integrated with its factories and production sites.

• By the end of the review period, Ryohin Keikaku Co Ltd was one of the more successful Japanese retailers abroad. The company plans to further expand internationally, with three stores in Poland planned to open by 2012. The company’s plans to expand further in North America and Europe appear to have been shelved, however. The company will instead focus on developing its Asian operations, especially in China where a number of new store openings are planned over the forecast period.

INTERNET STRATEGY

• Ryohin Keikaku generated $9 billion from internet sales in 2010, and although this was just a small fraction (5%) of group sales, it is increasingly becoming an important sales channel for the company as it looks to insulate itself from difficulty in its store-based operations.

COMPANY BACKGROUND

• Ryohin Keikaku Co Ltd’s MUJI began life as a private label range for Seiyu supermarkets in 1980. The range’s initial line up of 40 products, meanwhile, expanded to cover more than 7,000 products by the end of the review period.

• In 1989, Ryohin Keikaku was spun off from Seiyu and became a manufacturer and retailer. This company now focuses on the planning, development, production, distribution and sale of MUJI products, which include a wide range of necessities such as clothing, household goods and food.

• Although the company was already engaged in overseas production and procurement, it was not until 1991 that Ryohin Keikaku Co Ltd opened its first overseas store in London. International operations subsequently spread far and wide, with the company opening stores across Europe and North America.

PRIVATE LABEL

• Ryohin Keikaku Co Ltd’s MUJI was initially a private label range. Although MUJI subsequently developed as a retail brand in its own right, MUJI stores continue to only sell MUJI products.

• MUJI goods are also available in a number of other chains, including Family Mart and Seiyu, where the range is positioned as a brand in its own right.

COMPETITIVE POSITIONING

• In Japan, Ryohin Keikaku Co Ltd’s MUJI faced a difficult year in 2010, with ongoing weak consumer confidence resulting in consumers cutting back on their expenditure.

• MUJI prides itself on offering quality products at a low price. However, whilst this positioning was responsible for the company’s boom in the 1990s, it became mainstream in Japan by the end of the review period. Clothing makes up roughly 35% of the company’s sales, but the company’s clothing range faced growing competition from players such as Fast Retailing and Seiyu. These retailers spent 2009-2010 developing budget clothing lines, with jeans priced at below ¥1,000 becoming a key sales driver.

STRATEGIC DIRECTION

• After being made a full subsidiary of parent company Wal-Mart Stores Inc in 2008, Seiyu appears to be on the path to financial recovery in spite of Japan's perilous economic position. The company benefited from its access to Wal-Mart’s extensive and low-priced supply chain, particularly in clothing and footwear. This enabled the company to hold off its competitors. The bulk buying power of the Wal-Mart group will continue to benefit the company during the forecast period, recession or no recession.

• The company’s extension of its private label range is also expected to be a key driver of its growth during the forecast period. The company aims for private label sales to account for 10% of its total value sales over the forecast period. The Seiyu brand is expected to expand over this period. The company is likely to favour acquisitions over new store openings. With so many smaller supermarket operators struggling, some attractive outlet sites and chains are likely to become available at reasonable prices. The company will benefit from its economies of scale, with this enabling it to survive better than independent players given consumers’ growing price sensitivity.

KEY FACTS

INTERNET STRATEGY

• Seiyu continues to look to expand its internet operations, looking to expand the number of stores taking part in home delivery through 2010 and beyond.

COMPANY BACKGROUND

• Prior to the review period, The Seiyu Ltd was suffering from the sluggish Japanese economy and the company thus became affiliated with Wal-Mart Stores Inc. The affiliation failed to bring about an expected recovery in fortunes for Seiyu, however, and the company thus eventually became a subsidiary of Wal-Mart Stores Inc in 2005.

• Wal-Mart Inc’s control over Seiyu Inc continued to increase and Seiyu Inc became a wholly owned company belonging to Wyoming Holding GmbH in 2008, with this holding company being wholly owned by Wal-Mart Inc.

• The Seiyu Inc also underwent domestic structural changes in 2008. The company absorbed its five subsidiaries in order to streamline its retailing business. The companies merged were Hokkaido Seiyu Inc, Tohoku Seiyu Inc, Kyushu Seiyu Inc, Seiyu SSV Inc and Sunny Co Ltd.

• With support from Wal-Mart Inc, Seiyu followed an Every Day Low Price (EDLP) strategy during the review period, rather than offering time-limited discounts on certain items and advertising these in promotional flyers. This strategy proved unsuccessful, however, because Japanese consumers are accustomed to checking flyers for discount prices. The company thus sought to adjust its strategy to the demands of Japanese consumers, whilst incorporating Wal-Mart’s system and private label products. In response to increasing food prices, the company meanwhile announced the further promotion of its EDLP strategy in 2008.

• Seiyu completed the installation of the SMART system in all of its outlets in 2007, which is Wal-Mart’s store management system.

PRIVATE LABEL

• As part of Wal-Mart, Seiyu’s private label portfolio consists of two types. The company offers private label products developed by Seiyu but also offers those developed by other Wal-Mart group companies. An example of the former is the Shoku no Sachi (“Food Delights”) label. This was developed in response to growing concern regarding food safety amongst Japanese consumers. An example of the latter is Great Value, a major private label from Wal-Mart.

• Seiyu also began importing the George private label range of woman and children’s clothing in 2003. This is a major private label range available through the ASDA chain in the UK.

COMPETITIVE POSITIONING

• Despite its strength in terms of advertising and the strong media profile associated with its parent company Wal-Mart, Seiyu Ltd only ranked 16th in Japanese store retailing in 2010 with less than 1% value share.

• The company’s most significant retailing channel continued to be mass merchandisers in 2010. In this channel, although sales slid for the largest part of the year, there were encouraging signs indicating that the company had turned a corner. The company achieved sales growth in some product areas within mass merchandisers, which was largely contrary to the underlying trend towards grocery retailers and mass merchandisers as a whole.

• Responding to growing competition from AEON in grocery retailers and from discount clothing and footwear specialist retailer Fast Retailing with Uniqlo, the company also sought to introduce headline-grabbing product lines. These included a 32-inch LCD television for ¥39,800. The company also took advantage of Wal-Mart’s low-cost clothing and footwear supply by expanding its low-cost clothing line. These aim to see off competition from Fast Retailing and its prominent Uniqlo brand.

• The Seiyu Ltd refurbished about 170 of its small- and medium-sized stores towards the end of the review period and began the refurbishment of large stores, which total about 100 outlets. Aside from its refurbishment plans, the company also announced its store network strategy in September 2008. The company plans to aggressively expand its number of small stores in metropolitan areas. The company is meanwhile considering new openings for large stores or acquisitions of large stores in areas where Seiyu had no store network.

STRATEGIC DIRECTION

• Senshukai’s previous mid-term plan ended in 2007. Following this, the company announced the start of another three-year mid-term plan. According to the plan, the company will adopt a multi-brand strategy to target customers from various age groups. The company also hopes to develop a mixed-channel business method, incorporating catalogue homeshopping, internet retailing and store-based retailing. The company hopes to increase its customer base within two key consumer groups: people in their 20s and those in their 50s. The company plans to achieve this through the use of media such as the internet, mobile phones and magazines.

• Away from its mail order format in the domestic market, Senshukai is looking to expand its store-based female apparel business in China due to sluggish demand at home. At the time of writing, it manages six stores in cities such as Shanghai and Beijing, but aims to have 11 by the end of 2011 and 16 by the end of 2013. Plans are also afoot for the company to launch franchise stores in addition to directly managed ones.

KEY FACTS

INTERNET STRATEGY

• The company’s rapid migration of sales from homeshopping to internet retailing was in keeping with overall trends in these channels. In addition, however, the company invested in mobile internet technology. Mobile internet sales are thought to account for around 20% of the company’s internet retailing sales alone in 2010.

COMPANY BACKGROUND

• Senshukai was established in 1995 and its core business is non-store retailing, with the company mainly focusing on homeshopping and internet retailing.

• The importance of internet retailing for the company grew in the latter part of the review period. In 2009, the company’s sales via internet retailing exceeded those from catalogue homeshopping for the first time.

• The company’s retailing brand Belle Maison offers a huge range of products, with these targeting women aged 20-30 years old. The chain sells a range of both grocery and nongrocery products, including cosmetics and toiletries, clothing and footwear and gourmet food.

PRIVATE LABEL

• The company only supplies its own manufactured products.

COMPETITIVE POSITIONING

• In 2010, Senshukai was the 14th largest player in non-store retailing in terms of value sales, with ¥125 billion.

• During the review period, Senshukai’s sales breakdown showed a significant change. The company’s value sales increased rapidly in internet retailing, whilst continuously declining in homeshopping. The company’s sales via internet retailing doubled from ¥35 billion in 2004 to ¥69 billion in 2010. In contrast, the company’s sales from homeshopping, which was previously its core business, dropped from ¥113 billion in 2004 to ¥56 billion in 2010.

SEVEN & I HOLDINGS CO LTD

STRATEGIC DIRECTION

• Seven & I Holdings promotes itself as a “comprehensive lifestyle industry,” seeking to provide consumers with a comprehensive range of retail and service products. Diversification was at the heart of its development to date, with diversification also being singled out as a key development strategy over the longer term. Diversification into new areas will be essential to keep sales growing at a time when the Japanese economy has lurched into another recession. In addition, competition in retailing continues to stiffen whilst the ranks of Japan’s elderly population continue to swell.

• In an interview towards the end of the review period, Seven & I Holding’s outgoing CEO intimated that to encourage spending, retailers must stimulate consumers with creative product offers and concepts. This CEO was replaced by Ryuichi Isaka, who has a strong background in product development. This suggests that the company will further ramp up its efforts to develop products relevant to its consumers to tempt new consumers into its stores. The company is therefore likely to focus on product quality and innovation during the forecast period.

KEY FACTS

INTERNET STRATEGY

• Seven & I continues to look to expand its internet operations, looking in particular to expand the number of stores taking part in home delivery through 2010 and beyond. Ito-Yokado announced in 2010 that it was planning to double its internet delivery routes though 2011. In 2010, 80% of its stores were delivering direct to customers, which generated some $30 billion in sales. The additional capacity and more flexible delivery times are expected to drive sales increase to $35 billion though 2011.

COMPANY BACKGROUND

• In 1973, 7-Eleven Japan Co Ltd, then called York Seven Co Ltd, was established. The company was established through licensing agreements and an area contract with US-based company Seven Eleven Inc, then called The Southland Corporation.

• In 1991, 7-Eleven Japan Co Ltd started to participate in the management of The Southland Corporation, which in 2005 became a subsidiary of 7-Eleven Japan Co Ltd. Another major change of the company’s corporate structure took place in 2005, with the establishment of holding company Seven & I Holdings Co, Ltd.

• Since its inception and since 2000 in particular, the company has sought to bolster its position in Japan through a mixture of rapid franchise-driven expansion, as seen in its convenience store network. The company also focused on acquisition to acquire some of the leading names in Japanese retailing, such as Sogo Co Ltd in department stores in 2006 and York-Benimaru Co Ltd in supermarkets in 2005.

• The company continually sought to refine its structure through its holding company structure. It also focused on assimilating its acquisitions and developing stronger economies of scale towards the end of the review period. The company’s 2009 announcement of restructuring in its department store business is further evidence that the company will continue to strive towards the most efficient operating structure possible.

• The company established a joint venture with Ain Pharmaciez Inc in 2009. This joint venture will develop generic drugs for the group, to take advantage of the relaxed licensing terms for OTC healthcare in 2009. The company thus continues to focus on cooperation with other companies to expand its businesses.

PRIVATE LABEL

• Seven & I Holding’s private label, Seven Premium, was launched in May 2007. This was initially sold via the company’s mass merchandiser and supermarket chains, such as Ito-Yokado and York-Benimaru. However, in August 2007 these products began to appear in 7-Eleven convenience stores, albeit in a more limited range than that found in larger outlets.

• Compared to other countries, private label continues to be fairly underdeveloped in general in Japan. This offers Seven & I Holdings a wide scope for future developments. The company aims to extend its private label range to include 1,300 items by February 2010, with these projected to generate sales of ¥320 billion for the year.

COMPETITIVE POSITIONING

• Seven & I Holdings retained its position as Japan’s number one retailer in 2010. The company operates a vast store network and enjoys a consistently high rank in all major retailing channels with household names such as 7-Eleven, Ito-Yokado, Sogo, Seibu and York.

• In grocery retailing, the company continued to make headway in 2009 in spite of difficult trading conditions. The company saw moderate growth in its key supermarket chain York after additional stores were added though the year, although the company’s convenience store chain 7-Eleven continued to be its chief concern. In 2009, the company amassed over 12,500 convenience stores, some 4,000 more than its nearest competitor Lawson. Although the recession and general saturation within the convenience segment made growth more difficult to achieve in 2009, the continued development of new services allied to its scrap-and -build policy for less profitable stores saw the company continue to make progress in 2009.

• Seven & I’s mixed retailers operation was, however, badly affected by the recession with key department store chains Sogo and Seibu seeing sales decline rapidly in 2009 as consumers looked to cheaper alternatives to department store shopping. The downturn was, however, categorywide, which resulted in the company’s category share remaining largely unchanged from 2008.

• Mass merchandising was similarly affected, with discounting the order of the day as well as falling footfall to its larger Ito-Yokado operations. Therefore 2009 was a mixed year for Japan’s leading retailer, largely as a result of the ongoing recession. The company therefore introduced a plan to close 30 loss-making stores by fiscal 2012. This is part of an ongoing drive to streamline the company and make it more profitable.

• The company’s strongest competition comes from Seiyu in mass merchandisers, with this player focusing on discounted grocery products. However, Ito-Yokado proved successful with its initial rollout of The Price discount mass merchandisers in 2008. This saw the company reveal plans to expand the chain to 30 stores in 2010. The company plans to use the new chain to redevelop older locations, especially those near rail stations. These have been earmarked as the outlets most in need of renovation in the pursuit of a larger consumer base and particularly of younger consumers.

STRATEGIC DIRECTION

• Under its motto “Never Changing, Always New”, Takashimaya, whose origins date back to the 19th century, remains independent, whilst other major department store companies have made business or capital tie-ups in the context of a difficult business environment for department stores. Takashimaya’s long-term business plan, called “Strategies for Growth”, was launched in 2005. Although its numerical targets were revised in 2008, the company is still striving hard to strengthen its earnings base by renovations of stores, in accordance with “Strategies for Growth”.

KEY FACTS

INTERNET STRATEGY

• Takashimaya continues to look to expand its internet operations, which accounted for $7 billion in 2010, although gains, especially in clothing, were undercut by larger declines in its homeshopping operations.

COMPANY BACKGROUND

• Takashimaya Co Ltd generally did not participate in the restructuring seen in the department stores channel in Japan towards the end of the review period. However, Iyotetsu department store joined the Takashimaya Group and became Iyotetsu Takashimaya, with Takashimaya Co Ltd owning 33.6% equity in the business.

• Takashimaya Co Ltd also established JR Tokai Takashimaya Co Ltd, to operate JR Nagoya Takashimaya in affiliation with Central Japan Railway Company in 2008. Takashimaya holds a 33.4% equity stake in this company.

• In addition to its domestic business, Takashimaya Co Ltd also runs four overseas outlets in Singapore, Taiwan, France and the US.

• The company diversified its retail channels towards the end of the review period. Takashimaya Food Maison, for example, specialises in the food products typically found in department stores and was launched in 2007. The company also launched Takashimaya Online Shopping in autumn 2008, with this being an internet retailing site specialising in women’s clothing.

PRIVATE LABEL

• Takashimaya Co Ltd offers a range of private label products under the T-OWN range. This range includes clothing and accessories, jewellery and bags for women.

COMPETITIVE POSITIONING

• Takashimaya Co Ltd retained its leading position in department stores operators in 2010. However, the company was not immune to the swift downturn in sales seen in the year, following weakness in the Japanese economy, fear of unemployment and weak consumer confidence. Whilst the company’s current value sales declined, at least Takashimaya was not alone in posting these kinds of negative figures.

• The company looked to establish itself as a major player in internet retailing towards the end of the review period. The company sought to expand its online presence through a tie-up with H2O Retailing Corp, which already operated internet retailing stores for Hankyu and Hanshin department stores. Takashimaya Co Ltd is expected to further expand its cooperation with H2O Retailing Corp during the forecast period, seeking synergies and also seeking to benefit from its promotional expertise in a bid to grow internet retailing sales. Internet retailing is regarded as a strong potential revenue generator for high-end department stores.

STRATEGIC DIRECTION

• Although Tesco has continued to develop its position in the Japanese market, it appears that the company has little appetite for the major investment required to lift its position into the realm of the mainstream in Japanese grocery retail. Rumours abound that the company may look to sell its assets in Japan and to concentrate on emerging markets instead.

KEY FACTS

COMPANY BACKGROUND

• Tesco Japan entered the Japanese market in 2003 following its purchase of the C Two-Network chain of 78 discount-orientated supermarkets. Reviewing the Japanese market, Tesco opted for a smaller store format, believing it to be more suited to metropolitan areas, especially in the wake of difficulties experienced by the likes of Carrefour, which earlier entered Japan with hypermarket-size stores.

• Tesco continued to follow a policy of acquisition in 2004 with the acquisition of 25 Fre'c stores, a local retailer native to the Chiba and Saitama areas and again in 2005, acquiring Tanekin stores in the Nerima district of Tokyo.

• In 2007 Tesco opted to drop its C Two-Network title in Japan in favour of Tesco Japan Ltd.

PRIVATE LABEL

• Tesco offers a limited range of private label products under its Tesco and Tsurukame fascias.

COMPETITIVE POSITIONING

• Tesco continued to see sales growth in 2010 on the back of new store openings; the company also benefited from its presence in the Tokyo metropolitan area, which was less badly affected by the recession than other areas in Japan.

STRATEGIC DIRECTION

• Uny Co Ltd announced its mid-term management plans in 2008. The company aims to enhance synergies in its group. In accordance with the plan, the company plans to add more items to its private label range through working with its group companies.

• The company’s chief competitors in supermarkets include AEON and Seiyu, which through the massive buying power of its Wal-Mart parent company gained easier access to low-priced products abroad. To better compete, Uny will team up with other local players, including Izumiya and Fuji, with a view to gaining greater purchasing power. The company’s partnership with Izumiya is likely to develop into wider private label purchasing and production. The company may well also find new members for this partnership, if it is successful beyond the development of private label goods.

KEY FACTS

COMPANY BACKGROUND

• Headquartered in Inazawa City, in Aichi prefecture, Uny Co Ltd has a strong retailing network in the Chubu area. The company operates Uny variety stores, Apita mass merchandisers and U-Store supermarkets. Utilising its local expertise, the company’s range of merchandise is adjusted to suit local needs. The company also operates U-Home, in DIY, home improvement and garden centres.

• Uny Co Ltd has many retailers as subsidiaries. Those include clothing and footwear specialist retailers Sagami Co Ltd, Palemo Co Ltd and Suzutan Co Ltd. In convenience stores, the company meanwhile has a presence as a major shareholder of Circle K Sunkus Co Ltd.

• The company reviewed its group structure during the review period. U-Store Co Ltd, a consolidated subsidiary operating U-Store supermarkets, was absorbed by Uny Co Ltd and then dissolved in August 2008. Roughox Co Ltd in clothing and footwear specialist retailers was meanwhile dissolved after transferring part of its business to Aoki Holdings Inc in 2008. To focus on its core business of retailing, Uny Co Ltd also separated out IT-related company Bynas Co Ltd from its group in 2008.

• UCS Co Ltd, a subsidiary of Uny Co Ltd, issues credit cards under the USC card name. These are affiliated with major credit cards such as MasterCard, Visa and JCB. USC cardholders are entitled to benefits at Uny’s retail outlets. For example, cardholders can obtain 5% discount at U-Store supermarket on certain days. As well as its credit card business, UCS Co Ltd also offers other services, such as car leases and insurance.

• As part of its international expansion strategy, the company signed a memorandum of understanding on a business and capital alliance with trading house Itochu. This led to Itochu purchasing 3% of Uny’s shares in 2010. The move aims to help the company scale down costs and expand in the wider Asian region. This relationship could also become much closer if it proves to be at least initially beneficial to both parties.

PRIVATE LABEL

• In April 2008, Uny’s new private label UUSC was launched. UUSC was developed initially with U-Store Co Ltd and Circle K Sunkus Co Ltd. Its products are sold at stores operated by Circle K and Sunkus. The number of items offered by this range at its launch was 29 and the company increased this to 50 in 2009.

COMPETITIVE POSITIONING

• Uny Co Ltd’s share of store-based retailing increased slightly in 2010 based on increases in outlet numbers, most notably in the mass merchandisers category. Uny’s partnership with local mass merchandise players Izumiya and Fuji initially focused on the procurement of grocery bags and other supermarket equipment such as shopping carts. However, the partnership’s initial success encouraged the development of private label products such as processed food, household goods and other items, including 160 products.

• Sales through the company’s U-Home chain in DIY, home improvement and garden centres were also down in 2010. This was in keeping with a general sales decline in the channel, which experienced similar deflationary pressures to grocery retail.

STRATEGIC DIRECTION

• Yamada Denki’s forecast period goals revolve around expansion at home and overseas in China. Domestically the company had looked to open 50 small stores per year, but following strong results in 2010 this goal has been increased with a view to opening 150 small (600-1,500 sq m) stores by 2012 in rural areas. These are in addition to a further 2 large and 30 mid-sized Techland stores which will form the distribution backbone for its more outlying operations.

KEY FACTS

COMPANY BACKGROUND

• Yamada Denki is an electronics and appliance specialist retailer that was established in Maebashi City in Gunma Prefecture in 1980. In 2008, the headquarters of Yamada Denki Co Ltd moved to Takasaki City, also in Gunma Prefecture.

• The company opened its first store outside of Gunma prefecture in 1985 and since then has expanded its store network rapidly through the establishment of subsidiaries operating regional retail outlets.

• In 2008, Yamada Denki Co Ltd established new subsidiary Yamada Auto Japan Co Ltd. This company was established jointly with Usen Corp, Mazda Car Rental Corp, Climb Entertainment Co Ltd and Jump Japan Co Ltd. Yamada Auto Japan deals in used cars and has six stores, which are located in Yamada Denki’s electronics and appliance specialist retailer outlets. Yamada Denki Co Ltd owns 70% of Yamada Auto Japan’s equity.

PRIVATE LABEL

• Yamada Denki was the first retailer in electronics and appliance specialist retailers in Japan to offer digital electronics under a private label range.

• Yamada Denki acquired Kouziro Co Ltd in January 2004 to manufacture its private label Frontier computers. Kouziro also manufactured Frontier PCs for Yamada Denki prior to the acquisition.

• Frontier computers are available in both desktop and notebook formats. The range offers a wide price range, from budget to high end, and enables customers to tailor specifications to their particular needs.

COMPETITIVE POSITIONING

• Yamada Denki experienced strong sales growth over the review period. The company’s current value sales doubled between 2004 and 2010 to reach ¥1,258 billion. The company was the seventh largest retailer in Japan and its continued store expansion in 2010 helped maintain its position as the leading specialist electronics retailer in Japan. Yamada Denki traded well though 2010 on the back of the government-sponsored Eco Points system boosting television sales as well as the long hot summer which saw sales boom for air conditioning units, for example.

• After establishing a firm sales network in suburban areas, the company started to open new stores in city centres under the LABI store brand in 2006. A further large-scale opening in Tokyo's Ikebukuro ward followed in 2009, with an additional store opened in Tokyo's Shinjuku district during 2010.

• With electronics and appliance specialist retailers increasingly focusing on a value positioning, Yamada will have to better position itself as offering value for money during the forecast period. Some of its competitors offered consumers cash redemption of up to 30% on some products towards the end of the review period, with this ahead of the channel’s average cash redemption of 20%.

• Yamada Denki has also sought to expand its commercial services towards the end of the review period. In 2009, 200 of its stores were fitted with special counters for commercial customers, with the number of these outlets having increased by 10% over the previous year. The company is expected to continue to strengthen its efforts in this area during the forecast period, especially in urban centres. The company anticipates strong demand for television upgrades from small and mid-sized businesses' offices, as analogue TV broadcasting is nearing an end in 2011. The company plans to double its sales staff for commercial customers in its Tokyo Ikebukuro store during the forecast period, making it possible for salespeople to call on all businesses in the area in person.

STRATEGIC DIRECTION

• Yodobashi Camera Co Ltd’s strategy for the forecast period is to continue to open large stores located close to selected major train stations. With these store locations, Yodobashi Camera’s outlets will be able to attract many customers on weekdays, unlike some of its roadside stores in suburban areas. To this end, the company has acquired a previous Seibu department store site in Sapporo, a concert hall in Tokyo, with a view to conversion into large-scale retail outlets. This is in addition to plans already afoot to expand its Shinjuku (Tokyo) store. The company has a medium-term goal to expand its outlets to 30 in Japan.

• Yodobashi Camera is also expected to increase its efforts to attract international travellers during the forecast period, especially those coming from China. The company invested in a tourism trade show in Beijing towards the end of the review period in a bid to encourage Chinese tourists in Japan to visit its stores. The company aimed to make Chinese travellers aware that its stores in Japan differ from similar stores in China, due to an extensive product range. It also emphasised that its outlets offer detailed explanations of products in Chinese.

KEY FACTS

COMPANY BACKGROUND

• Yodobashi Camera Co Ltd was established in 1960, with the company initially mainly selling cameras and peripherals, as its name indicates. Other electronics goods and domestic electrical appliances were added to the company’s product range and the company gradually expanded its store network. The company focused on cities with large populations and places where people gather, such as train stations.

• As the company is selective about its store locations, the company had only 20 outlets in 2008. Twelve of these outlets are in Tokyo and Kanagawa prefectures and the remaining eight stores are scattered across eight prefectures.

PRIVATE LABEL

• Yodobashi Camera offers a range of private label personal computers under its iFriend range, including desktops and notebooks. iFriend is manufactured by MCJ Co Ltd, a well-known computer manufacturer in Japan that also offers its own branded products.

COMPETITIVE POSITIONING

• Yodobashi Camera focuses on large city centre stores, with 20 outlets in 2010. Like other electronics and appliance specialist retailers, the company, however, benefited from the government’s Eco Points which helped sales expand in the channel through the year as consumers rushed to purchase products before the scheme was withdrawn.

• With competitors such as Bic Camera also operating in prime city centre locations, Yodobashi Camera's business model came under pressure in 2009. The company notably faced stronger competition as players such as Yamada Denki sought to move into vacant spaces left by the closure of large department stores in Tokyo's Ikebukuro district. Yodobashi, however, continued to invest in internet retailing, and dynamic mobile internet retailing was a notable success for the company.

• Yodobashi Camera also expanded its repair services towards the end of the review period, in keeping with consumers’ increasingly thrifty nature. The company reported a huge surge in demand from consumers wanting mobile handsets repaired towards the end of the review period. This costs just a fraction of the cost of purchasing a new handset and also allows users to keep the photos and other stored data that they have on their mobile phones.

HEADLINES

• In 2010, clothing and footwear specialist retailers posts a current value decline of 6%, to ¥6,808 billion

• Consumers continue to favour low-price clothing options as confidence remains low

• Outlet volume decreases by 4% in 2010, to 135,394 outlets

• Fast Retailing with its Uniqlo brand remains the leading clothing and footwear specialist retailer in 2010

• A 4% CAGR value decline is expected over the forecast period to ¥5,550 billion in 2015

TRENDS

• Clothing and footwear specialist retailers was one of the channels most affected by Japan’s continuing economic problems and resultant low consumer confidence ratings. This followed on from a slow shift in consumer attitudes in Japan during the review period, with consumers increasingly looking for bargain buys as well as designer labels. Consequently, clothing and footwear specialist retailers had to adapt to survive towards the end of the review period.

• Some stores began to offer discounts to consumers who traded in old clothes towards the end of the review period, especially suits and coats. This was something of a novelty in 2008 but persisted though 2009 and 2010. This occurred as companies attempted to attract customers and also to face growing competition from expanding sales of secondhand or nearly new clothing and footwear in Japan.

• Consumers began to steadily cut back spending on clothes during the review period. There was also a notable trend towards clothing and footwear becoming more akin to disposable items. The increasingly disposable view of clothing and footwear drove the development of low-cost bulk retailers towards the end of the review period. Fast Retailing Co Ltd’s Uniqlo brand was perhaps the most successful in positioning itself as both cheap and fashionable and achieved widespread success.

• The retail model used by Uniqlo is not, however, unique to Japan, with similar retailers such as Primark performing equally well in Europe for example. The arrival of Hennes & Mauritz, which opened its first store in Tokyo in 2008, is evidence that this is something of a global trend. Low-priced European clothing and footwear specialist retailers are likely to face a good reception in Japan if they can get their store locations and product mix right.

• Japanese clothing and footwear specialist retailers also focused on global expansion towards the end of the review period, seeking to benefit from internationalisation and unification in global fashion trends. This was largely the result of centralised production in Asia, particularly China. Fast Retailing Co had stores in the UK, France and China by the end of the review period and plans to open its first stores in India, Russia and Singapore during the forecast period. Onward Holdings Co Ltd also plans to open a Joseph brand store in Russia. The company acquired UK brand Joseph in 2005.

• Many independent operators exited towards the end of the review period, due to consumers cutting back on overall expenditure on clothing and footwear or competition from expanding chains. Independent players also suffered most from supermarkets selling a wider range of clothing and footwear and from the popularity of internet retailing in 2010. However, growth in chained clothing and footwear specialist retailers also slowed towards the end of the review period. Expansion plans for leading players such as Aoyama were cut once the extent of Japan’s economic woes were more fully realised.

• There was also a continued fall in luxury clothing sales through boutiques and also through department stores. Louis Vuitton Japan KK had until 2008, for example, performed well in Japan even during periods of recession or deflation. However, the player saw declining current value sales in 2009 and 2010, although there was some evidence that middle-class consumers were returning to the previous spending patterns, which saw the decline of the luxury category though boutiques and department stores start to flatten out though the year.

• Conditions for retailers of men’s formal wear notably worsened towards the end of the review period. The customer base for these products diminished due to Japan’s low birth rate and the retirement of baby boomers. Companies such as Aoki Inc and Aoyama Trading Co Ltd attempted to cope with the challenging environment by closing unprofitable stores, expanding its casual clothing business and entering into internet retailing. The Aoyama Premium internet retailing site was launched in 2008, with each customer being allotted a follow-up store, where customers can try on clothes or have them adjusted.

• Supermarkets and economy clothing and footwear specialist chains such as Uniqlo are expected to continue to attract consumers with budget clothing during the forecast period, such as the below-¥1,000 jeans offered in 2010. It therefore seems unlikely that there will be any return to constant value growth for clothing and footwear specialist retailers over the forecast period. Department stores are also reported to be shifting their prices downwards. Consequently, as long as cheap imports keep coming in, Japanese consumers are expected to continue to view clothing as a disposable item, with this constraining growth.

CHANNEL DATA

HEADLINES

• In 2010 direct selling posts a current value decline of -4% to ¥1.8 trillion

• Decline driven by competition from internet retailing and consumers’ reluctance to spend

• DIY and gardening direct selling posts growth of 1% in 2010

• Legislation covering direct selling amended to prevent unfair selling practices and to protect consumers

• A -3% constant value CAGR is expected for the forecast period as sales fall to ¥1.5 trillion in 2015

TRENDS

• In contrast to the expanding sales value of internet retailing, direct selling saw a continuing decline during the review period. In 2010, current value sales of direct selling decreased by 4% over the previous year. Direct sellers face major obstacles when operating in Japan, simply because the concept of door-to-door sales is something quite alien to Japanese sales culture. Cold calling is difficult to get right in Japan and over the last two decades was increasingly associated with fraudulence and trickery, with unsuspecting citizens being swindled out of money. This negative image constrains direct selling, while direct selling players that focus on agents selling products to family and friends generally have more success.

• In 2008, the Act on Specified Commercial Transactions and Instalment Sales was amended. The amendment was made in response to a growing number of problems regarding online purchase return policies, unsolicited e-mail advertisements and unscrupulous door-to-door salespeople. Direct salespeople were highlighted as persuading consumers, especially the elderly, to purchase large amounts of goods, accompanied by credit contracts. Although the effective date of these amendments was not specified by the end of the review period, the amendments will pose a challenge for direct selling. These amendments require more stringent procedures for concluding contracts through door-to-door sales. For example, it will be legally required to state the salesperson’s full name, not only their surname, and other more detailed information on contract documents. The amendments also state that some important parts of contracts, such as the cooling-off period within which the contract can be cancelled, should be written in red.

• Food and drink continued to dominate sales with home delivery still well established in Japan with Japan Consumers Cooperative Union and Yakult both successfully breaking consumers’ aversion to direct selling through their long association with Japanese suburban life.

COMPETITIVE LANDSCAPE

• Japan Consumers Cooperative Union has by far the largest player in direct selling sector with sales of ¥450 billion in 2010, equating to 25% of total sales. Although traditionally door-to-door selling has not been widely trusted in Japan, Co-op has an extremely good reputation with Japanese consumers both for the standards of its produce which is GM and additive free, but also for the reliability if its delivery system.

• Consumers place orders with the delivery driver for the following week’s delivery and local communities commonly club together to buy staple items such as rice and noodles in bulk in order to save money. Co-op delivery services have a lot to do with local community and continue to have the support of the army of housewives who are the regular Co-op members.

• That said, sales did take a downturn in 2010 for Co-op as a result of consumers switching to more modern ordering with the company’s internet and homeshopping sales becoming more popular with consumers for personal rather than group delivery, which is more common for younger members, who often work and appreciate the to-the-door specific delivery times offered.

• Aside from Co-op, Japan’s direct selling channel is heavily fragmented. The combined value shares of the next three players, Amway Japan, Miki Corp and Yakult Honsha, amounted to less than 15% of overall sales in 2010.

• The share of Amway Japan Ltd remained virtually static in 2010, with the company’s actual current value sales shrinking. This continued the review period trend of falling sales for Amway. Amway Japan Ltd traditionally drove sales expansion through distributors and party plans. However, in response to changing conditions the company shifted its focus from direct selling to internet retailing towards the end of the review period. Amway’s sales decline in direct selling is likely to continue because the number of its distributors declined towards the end of the review period.

• In addition, Amway suffered due to amendments to the Act on Specified Commercial Transactions and Instalment Sales. The company is making efforts to educate its distributors about the legislative changes, however. In addition to seminars, the company launched an e-learning system in order to educate its distributors and the company’s qualifications are required in order to become a registered distributor.

PROSPECTS

• The environment for direct selling is likely to become harsher during the forecast period. This will be due largely to competition from internet retailing. Internet retailing offers similar convenience to direct selling, but also offers a greater capacity for consumers to undertake research regarding the goods they are purchasing.

• In addition, people’s concerns regarding security at home are expected to negatively effect direct selling during the forecast period. A growing number of houses and flats have security cameras at their entrances and drop-in door-to-door salespeople are frequently refused entry.

• Sales from party plans are likely to shrink during the forecast period, because these goods are often luxuries. Consumers’ confidence in party plans was also reduced due to some incidences of deceitful sales techniques during the review period. Nissen Co Ltd, a subsidiary of Nissen Holdings Co Ltd, withdrew from party plan sales in 2008 and focused instead on store-based retailing. This was due to consumers’ waning confidence in party plans and stagnant sales of Japanese kimono clothing.

• In direct selling, a company is only as good as its sales representatives, with company structures reliant on remote and loosely-organised sales staff. The general suspicion from Japanese consumers towards cold callers meanwhile makes the recruitment of suitable sales representatives and good training programmes more of a necessity. Avon announced ambitious plans to expand its sales force in Japan during the forecast period. This kind of investment may well be necessary if direct selling hopes to return to long-term growth. Good levels of training could counteract the negative press suffered by direct selling during the forecast period and prevent the further loss of sales to internet retailing.

CHANNEL DATA

HEADLINES

• DIY, home improvement and garden centres posts current value decline of 6% in 2010, to ¥2,276 billion

• Intensified competition leads expansion of store sizes and growth for chains at the expense of independents

• Outlet volume decreases by 6% in 2010, to 3,518 outlets

• Cainz Home leads sales with 20% value share in 2010, growing due to new outlet openings

• Constant value sales are predicted to decline by CAGR 4% over the forecast period to ¥1,885 billion

TRENDS

• In 2010, DIY, home improvement and garden centres recorded sales of ¥2,276 billion, posting a 6% current value decline over a year earlier. This was the fifth consecutive year of decline but a slight improvement on the heavy 8% and 9% declines reported across 2008 and 2009. The recession and subseuent drop in consumer confidence have had a significant effect on the category, with consumers looking to cut spending on a wide range of products for both home and garden.

• Typically, larger home centres such as Cainz and Konan offer a wide range of products well in excess of the DIY products they are perhaps best known for. Konan, for example, offers in addition to DIY, furnishings, pets, stationery and office supply as well as a pharmacy, household care and even grocery. With perhaps the exception of pets and pharmacy, there is little in the company’s key product areas which has not come under intense pressure from other retailers and the general move to discounting.

• Like furniture and furnishing stores, the big chains of DIY, home improvement and garden centres have benefited from the strong yen, which has allowed them to maintain profitability even when average unit prices have fallen quickly. With a significant portion of products imported, particularly from China and Thailand, key chained players have managed to ride out what appears to have been the worst of the recession by offering low prices on a wide range of goods. This has allowed them to remain competitive though bulk buying even against competition from specialists.

• Whilst chains, as in other categories, have been able to insulate themselves more effectively against the poor state of the economy, independent outlets have not been quite as lucky and have suffered a continued period of store closures. They make up the majority of the 200 or so outlet closures reported in 2010. Simply, independent retailers were less able to compete with larger stores and also saw further competition arriving from other categories.

• Seven & I Holdings, for example, expanded the rollout of home and garden departments in some of its inner-city stores. These naturally posed strong competition to local retailers, with far broader interest in these goods likely from nonspecialists looking to break into new product areas. The popularity of gardening and now urban agriculture has been a key factor to these new entrants looking to tap into rising consumer interest in this area.

• Away from the garden, DIY sales were particularly lacklustre in 2010 as the recession in 2008-2009 lingered in the housing market, where there were fewer homes built, fewer refurbishments and less movement in the rental market. All of this conspired to reduce demand from professionals and amateurs alike. Perhaps the barometer of how badly sales are doing in this and other segments comes when there is any concerted effort to tempt female consumers into a segment which is not traditionally a key area for that particular demographic. True to form, the DIY industry, retailers and tool makers alike looked to develop female-friendly products in an attempt to instigate a boom in female sales.

• As well as imported goods, DIY, home improvement and garden centre retailers used private label product lines to offer their customers low prices. Komeri Co Ltd, for example, saw private label sales (excluding fuels) increase by 26% in 2009, well in excess of branded items. Further expansion was likely in 2010 as the company as well as others looks to private label as a key sales strategy, with Japanese consumers now more open to the thought of purchasing own label products if there are significant savings involved.

• Other significant developments in 2010 came from the government’s redistribution of its Eco Points system, which offers a rebate on prescribed environmentally friendly products in the form of store points for purchases on other items. In 2009, this system was limited to electronic goods and caused a boom in flat panel TV sales. In 2010, however, this system came to encompass double glazing and solar panels amongst other items and has seen home centres well positioned to take a lead on sales, although electronics retailers also looked to expand into this field after experiencing positive sales a year earlier though the same system.

• Cainz Co Ltd’s leading position in DIY, home improvement and garden centres is supported by the company’s large store sizes and its low prices. Cainz Co Ltd’s average store size is around 7,300 sq m, which is over 2,000 sq m larger per store than for Uny Co Ltd’s U-Home, which has the second largest average store size. Japanese consumers like the big box-style stores, the bigger the better, and this has been a trend which has been evident in this category as well as others, including electronics retailers and even department stores.

• The second largest player, Konan Shoji Co Ltd, gained value share in 2009 and 2010, with this mainly due to new outlet openings. Konan Shoji’s strategy for opening new outlets is based on selecting the appropriate store format out of its three store types. The company offers three store formats: Home Centre, Home Stock and Konan Pro. Home Centre is a large-scale store with a size of about 3,000 sq m, whilst Home Stock is a smaller format, with a selling space of 1,000 sq m or less. In contrast to these two store types, which target local and general customers, Konan Pro stores offer goods for professional use.

• DIY, home improvement and garden centres is predicted to see declines in constant value sales, outlet numbers and selling space over the forecast period. These declines are expected due to unfavourable economic conditions persisting for some time to come with their negative influence on consumer confidence and ultimately spending. However, the largest chains with their economies of scale and ability to source their own products both at home and abroad will prevail, with independent stores likely to see the majority of store closures over the forecast period.

CHANNEL DATA

HEADLINES

• In 2010, electronics and appliance specialist retailers posts decline of 3%, to reach ¥7,405 billion

• Government subsidy in the form of Eco Points helps encourage consumer spending in difficult times

• Outlet volume decreases by 5% in 2010, to 43,131 outlets

• Yamada Denki leads with 17% value share in 2010, with a healthy lead over chief rival Edion Corp

• Sales are predicted to record a constant value decline of CAGR 2%, to reach ¥6,578 billion by 2015

TRENDS

• For electronics and appliance specialists, 2010 proved an interesting year. The beginning of the year saw them bemoaning the end of the government-sponsored Eco Points scheme on some goods such as television and DVD recorders. This scheme was intended to encourage spending in key industries such as automotives and electronics, where the lurch into recession at the end of 2008 looked likely to be most keenly felt. In electronics, energy-efficient refrigerators, air conditioners and televisions initially benefited from the Eco Points rebate scheme. Retailers visibly promoted this scheme, as did appliance manufacturers, via TV and print advertising.

• Manufacturers were meanwhile very active in widening the number of products that can qualify as environmentally friendly, with a degree of apparent government collusion. The government was keen to shore up an electronics industry suffering during the recession. Anything from energy-efficient plasma televisions to long-play Blu-ray discs were brought into the Eco Points scheme. The Eco Points scheme thus was viewed by many as a means to encourage consumption rather than a genuine attempt to improve Japan’s environmental standing.

• The introduction of the Eco Points scheme made 2009 a boom-and-bust year for electronics and appliance specialist retailers. The scheme was launched in July 2009, around the same time as a government free cash giveaway designed to help stimulate the economy. Consequently, many consumers put off making purchases throughout the first half of the year, even after receiving end-of-year bonuses, with this generally a time of strong sales. The introduction of the scheme, however, saw sales boom in the second half of the year as consumers made up for lost time. The scheme ended for TV and DVD recorders in April 2010, which led to a last-minute rush by consumers to take advantage of the low prices offered.

• Although 2010 looked to be heading for a worse performance than even 2009, retailers were saved by an upturn in white goods which came along with the very hot summer of 2010. Sales of air conditioners and refrigerators (still part of the Eco Points system for models 400 litres and above) boomed as retailers saw temperatures of 36°C and above loosening consumers’ wallets. The Japanese Electrical Appliance Manufacturers Association also reported growing shipments of washing machines, vacuum cleaners and rice cookers with the suggestion that consumers who had made do though the recession either had been forced to buy through appliance breakdown or were feeling slightly more confident to purchase essential items.

• There were no notable must-have electrical products launched over the latter half of the review period. Despite this, sales, although declining by 5% over the year, were remarkably buoyant though the latter half of 2009, given the background of recession and consumers’ seeming unwillingness to buy big-ticket items in other areas, most notably housing, home refurbishment and cars. Some leading players suggested that electrical items are prioritised by many consumers, with new TVs or washing machines being purchased by those unable to afford a new car or kitchen in 2009. Sales therefore remained buoyant amongst the general gloom reported in retailing as a whole.

• Apple was particularly active in 2010, making a splash with its iPad as well as updates for its popular iPod and iPhone products. Although iPad’s early adoption was not as widespread as in Europe, particularly the UK, the advent of tablet notebooks appears to have captured the imagination of Japanese consumers and looks set to be a boon to the PC category, which has suffered from declining sales as retail prices reached rock bottom in 2010.

• In an area of the market where styling rather than pricing is key, again Apple leads the field in Japan. The

• company took the bold step of removing its products from many chained retailers to maintain levels of customer service and product display which it deemed to be lacking in some stores. This brought some confusion to the market as Apple products were withdrawn seemingly overnight from many locations. This move broadly came at the same time Sony began opening its own Sony Style outlets, which largely imitate the Apple store. But this suggests that Sony is looking to compete directly with Apple. News that the Sony Walkman was now outselling the Apple iPod saw competition heat up at the premium end of the market.

• Sony was also one of a number of manufacturers which launched 3D TV in 2010, a further key product launch which came as the Eco Points system ended for standard TV sets. Sales of 3D TV were reported as strong by key players such as Edion, although TV sales as a whole were reported to be performing well as consumers replaced older models in greater numbers, anticipating Japan’s full switch to digital broadcasting and the closing down of the analogue system in July 2011.

• For electronics and appliance specialist retailers, scale is particularly important, because consumer demand for low prices is strong and larger operations offer retailers greater bargaining power with manufacturers. It became progressively easier to compare the price of goods between different electronics and appliance specialist retailers towards the end of the review period, as information became more widely available via the internet. Consequently, mergers and acquisitions became an important means for electronics and appliance specialist retailers to increase their scale. Best Denki’s largest shareholder is Bic Camera Inc and these two companies strengthened their ties towards the end of the review period. K’s Holdings meanwhile merged its franchisees to expand its scale.

• Chained retailers continued to perform well above the market average in 2010, as a result of continued large-scale store openings. The Eco Points scheme also favoured larger chained retailers, as the scheme was promoted by leading retailers such as Bic Camera and K's. Chains thus continued to gain share from independent operators in 2010. This trend became more apparent with the onset of the recession at the end of the review period, as consumers looked for the best value for money possible, which generally resulted in a shift away from local independent retailers.

• However, there is some evidence to suggest that town centre store openings had less of an impact for chains towards the end of the review period. Yamada Denki continued to opt for large sites such as Ikebukuro in Tokyo, which became vacant with the closure of the Mitsukoshi department store on this site. However, other retailers such as Edion instead looked to partnerships with local retailers as their chief strategy for future growth. Edion responds to Japan's ageing population and thus plans to focus on better appealing to older consumers. These consumers meanwhile typically favour shopping in local areas rather than city centre stores.

• To this end, a joint venture between Best Denki (51%) and Bic Camera (49%) known as B&B was established with a view to rebranding some of Best Denki’s ailing stores as Bic Camera and also with a view to partnering local independents under a franchise agreement to gain both parties better penetration in local areas.

• The year 2010 also saw internet sales continuing to take precedence with all leading retailers reporting higher sales through this channel. As with the rest of internet retail, the pace of pure web-based sales began to slow towards the end of the review period. Electronics and appliance specialists, as with other categories, looked to mobile sales as a chief sales development area for companies looking to take every opportunity to boost sales. It is hoped that mobile sales will appeal to a consumer base that appears to have less rather than more time for shopping during the recession, as social activities are taking on a greater importance in Japan.

• The end of the review period saw the continued erosion of unit prices within electronics and appliance specialist retailers. Price competition and discounting were increasingly players’ main focus areas, rather than customer service and aftercare. There was thus a small but notable trend towards “outlet” electrical stores, standalone stores which offer a range of discounted products which often come from end-of-line stock or ex-display models. K's Denki operated 12 such stores in 2009, with nine operated by Joshin in its Osaka home sales area. Both brand operators report that sales saw dynamic growth through these outlets in 2009, with Japanese consumers happy to make a specific trip to get themselves a bargain. Further expansion for these stores is planned, with more operators likely to experiment in this area during the forecast period.

• Customer loyalty cards remained an important feature in electronics and appliance specialist retailers in 2009 and 2010. Retailers looked to these cards as they sought to maintain customer interest or at least to boost the possibility of customers returning to the same store by offering a range of points and rewards. Bic Camera was particularly active in this area and increased its incentives throughout the first part of 2009 to encourage consumer spending prior to the launch of the government’s Eco Points system.

• The widening of the Eco Points scheme to include new business areas such as household insulation, solar panels and wind generators saw DIY, home improvement and garden centres coming into closer competition with electronics and appliance specialist retailers. Competition between sometimes quite different sectors has been a theme of Japanese retail in its entirety as competition for dwindling expenditure heats up. Electronics and appliance specialist retailers has not been immune from this trend, with supermarkets such as Seiyu Ltd now offering low-priced electrical items as part of their ever-widening range of non-food items.

• The Eco Points system is, however, unlikely to fully compensate for the impact of the recession or the population’s ageing, with a growing number of consumers entering retirement. Operating conditions for electronics and appliance specialist retailers are thus likely to become more difficult over the forecast period. There is also likely to be a notable and widening gap between the winners and losers at both retail and manufacturing levels. Best Denki states that it plans to close 30% of its overall outlets and a significantly larger proportion of directly operated stores during the forecast period, in a bid to remain competitive.

• Forecast period expectations for the category would appear to be gloomy. However, outlet numbers are likely to fall faster as independent players go out of business, leaving the larger chains to fight over the displaced revenue. Sales through 2011 are expected to worsen as the effects of the blistering summer of 2010 and the boom of TV sales are expected to recede. Longer-term sales are likely to stabilise but a declining population, larger numbers of retirees and economic uncertainty do not bode well for an upturn in consumption.

• Retailers will likely have to look at new ways to gain an audience amongst older consumers; homeshopping is one option as well as developing franchising systems for local independent stores. As over the review period, the performance of the category over the forecast period will also rely heavily on manufacturers coming up with products which are more applicable to older consumers as well as new product development which can capture the imagination and open the wallets of consumers who are still gong to be reluctant to spend.

CHANNEL DATA

HEADLINES

• In 2010, furniture and furnishings stores posts current value decline of 8%, to ¥1,957 billion

• Weak consumer confidence drastically cuts spending on bigger ticket items

• Outlet volume decreases by 7% in 2010, to 41,241 outlets

• Nitori Co Ltd leads with 16% value share in 2010, growing sales from 2009 due to outlet expansion

• Further constant value decline of CAGR 5% is expected for the forecast period, with sales to dip to ¥1,532 billion in 2015

TRENDS

• Furniture and furnishings stores suffered heavily following the recession and its subsequent negative influence on consumer spending. Even with some improved economic figures in 2010, Japanese consumers continue to be less inclined to spend, and this has had a significant influence on the housing market as well as consumers’ eagerness to go though the expense of moving their home even within the rental category. Consequently, consumers opted to live with older furniture for longer and, where they had to prioritise, typically opted for consumer electronics such as TVs rather than furniture such as sofas.

• The situation worsened in 2010 with a revision of the Japanese consumer credit laws making it more difficult to obtain credit, which has pretty much forced many consumers to look at repaying their outstanding debts which were largely built up over the consumer credit boom in the years after 2000. Ability to pay has therefore had a significant influence on the kinds of furniture consumers are now looking for, with price a determining factor as well as the greater acceptance of flat-pack self assembly furniture as the price of cheaper furnishings.

• As such, Japanese consumers’ attitudes to home furnishings radically altered from 2000 to 2010. Japanese homes became more Westernised in terms of furnishings whilst many consumers shifted away from regarding furniture as a long-term purchase and began to view it as a shorter-term and more disposable product. The arrival of IKEA in 2006 hastened this trend in Japan. However, this was also part of a more widespread trend in Japanese society. Modern manufacturing technology allows consumers of all income levels to buy into aspirations for designer homes and lifestyles.

• Deflation was a key issue in the consumer economy as whole in 2010, and nowhere was this more felt than in the furniture and furnishings stores category, which saw prices plummet on the back of monthly rounds of discounts. Leading players such as Nitori used the strong yen as a means to drive down prices, resulting in the average price of imported goods declining by as much as 40% since 2007. The savings were passed on to customers in the form of wide-ranging discounts. The influence of discounting was so extensive that even low-priced IKEA faced competition in terms of pricing. IKEA thus had to promote discount lines at prices even lower than those it already offered.

• Competition at the bottom end of the market (in terms of price) continued to be high as a glut of retailers from mixed retailers to DIY stores all stock a wide range of furnishings at low pricing, meaning that consumers have a wide range of choice outside of dedicated home furnishings stores. With imported furniture the key driver, the larger chains with bulk purchasing power continued to dominate furniture and furnishing stores at the expense of smaller independent stores, which took a battering again in 2010 and accounted for the vast majority of the 3,000 or so closures reported in 2010.

• Leading player Nitori Co Ltd gained share in value terms in 2010 over the previous year, with its retail value sales increasing by an impressive 10%. The company benefited from 18 new store openings over the year and increased footfall as consumers warmed to its core strategy of offering goods at reasonable prices. The company was one of the strongest exponents of discounts for customers, with these enabled by the strength of the yen bringing down import costs. The company also benefited from the locations of its stores, which are conveniently located in urban areas. The company also invested heavily in modernising its image and stock towards the end of the review period, focusing on modern and fashionable furniture in line with the prevailing trend of the day.

• Otsuka Kagu is the leading and perhaps most high-profile furniture and furnishings stores retailer in Japan, offering large city centre stores that compete directly against Nitori and IKEA. The company, however, focuses on higher-end items and has struggled to better position itself within Japan’s recessionary environment. With many of its products imported direct from Italy, this retailer may have to close less profitable stores and streamline itself to make it ready for a future upturn. However, the strength of the yen may give it an opportunity to widen the appeal of some of its import brands.

• IKEA Group entered Japan by opening two outlets in 2006. IKEA Japan KK added three new outlets in 2008. Free shuttle bus services are available from nearby train stations to two of the company’s new outlets, as well as to its Funabashi store, which was its first store in Japan. The Funabashi store receives five million visitors annually and IKEA Japan KK is expecting to draw about the same number of customers to its new store in Kobe.

• Furniture and furnishings stores is likely to see further value declines over the forecast period. The performance of the Japanese economy will be a key factor in purchasing decisions, with many consumers putting off buying new furniture or choosing to buy cheaper items as job security and wages are likely to remain an issue throughout the forecast period.

• The key to the forecast period health of the category will inevitably be the strength of the Japanese yen, which allowed leading players to offer huge discounts whilst remaining profitable at the end of the review period. At the time of writing, the Japanese government was still resisting calls to intervene to cheapen the yen in order to support the Japanese export economy. Opinion is mixed as to if or when the government will choose to act, so the likelihood remains that retailers will continue to benefit from a strong yen though the first year or two of the forecast period.

• Even if the value of the Japanese yen is corrected, it is unlikely that the furniture and furnishings category will see many changes over the course of the forecast period. Certainly, further discounts will end, but with inventory levels high it will likely be some time before a change in the cost of imports begins to affect in-store prices. The economies of scale associated with this category and the ability of the larger chains to cope in advance of changing market conditions will almost certainly result in large numbers of independent retailers going out of business over the forecast period, with little likelihood that an upturn in house buying or movement in retailing might come along to save them.

CHANNEL DATA

HEADLINES

• In 2010, grocery retailers posts a current value decline of 5%, with sales falling to ¥32 billion

• Independent small grocers performs especially poorly in 2009, with current value decline of 8%

• Outlet volume declines by 3% in 2010 to 331,669 outlets

• Consumers’ growing sensitivity to prices leads to the expansion of private label

• A 3% constant value decline is expected in the forecast period to ¥28 billion in 2015

TRENDS

• The prevailing trend within the grocery category in 2010 was the primacy of value for money, which has manifested itself in both chains and independent operators looking to cut prices and introduce more extensive ranges of private label to keep customers coming though their particular set of doors. Major chains such as Ito Yokado and Seiyu were most effective in aligning themselves with this trend, able as they are to utilise their economies of scale and global supply reach to guarantee lower pricing.

• Although pricing has become a key feature of grocery retail in Japan, there is no equivalent to the European discounters format in Japan. Discounters typically have a very strong focus on private label, whilst in Japan most retailers still only carry minimal levels of private label products. Cost-conscious consumers with limited spending power instead often frequent variety stores, and increasingly opt for ‘Gyomu’ supermarkets (supermarkets primarily dealing in food service products sold as retail).

• Hypermarkets has very limited penetration in Japan, largely because variety stores are well established, with these being effectively shopping centres run by major retailing chains. There is also a high density of supermarkets in Japan. Consequently, hypermarkets did not develop into a significant force within Japanese retailing. The small number of hypermarkets present in the country represents the remnants of a previous retailing era in Japan, before its Large Scale Retail Law was introduced in 2000 introducing planning restrictions for larger retail outlets.

• Reports at the end of 2009 indicated that AEON is seeking to discontinue the Carrefour brand in Japan, converting its hypermarkets to an undisclosed brand name. AEON was contracted to use the Carrefour name for five years and with that period ending 2010 and the company looking to streamline its portfolio, the Carrefour name looks set to leave Japan and with it its supply of private label goods.

• Non-grocery continued to take a large share of sales though supermarket retailing in 2010, as cheap supplies of clothes and electronics often sourced abroad provide retailers with much greater profit margins than grocery items. As such, retailers have flocked to offer as wide a range as possible under one roof. Supermarkets saw non-grocery rise to 14% share of value sales in 2010, a full one-percentage-point increase over 2009, although with more limited floor space than hypermarkets, this fell some way below the 59% share reported though hypermarkets.

• Convenience retail is well established in Japan, although after four decades of value sales growth, the convenience store category saw value sales decline in 2010. Although the decline was light at less than 1%, it was the result of falling consumer footfall, driven by uncertain economic times and the corresponding trend to cut back on expenditure. This behaviour hit convenience stores, forcing them to adopt discounting as a matter of course and also the introduction of a wider range of private label items in a bid to align themselves with the prevailing trend of the day.

• One interesting development which came with the liberalisation of pharmaceutical laws in 2009 was the dash for alliances with pharmacy and drugstore chains. Lawson and Matsumotokiyoshi teamed up, for example, and are looking to develop hybrid stores. With other retailers following these companies, the landscape and variety of convenience store retailing is likely to look quite different by the end of the forecast period. Lawson’s plans to ramp up expansion of its Lawson 100 fascia through 2010 also suggest a discount convenience category might well emerge in its own right.

• The category was, however, buoyed by the long hot summer of 2010 which saw footfall and sales increase through from July to September as the mercury rose to 36°C on almost a daily basis for much of the period. High temperatures drove consumers into convenience stores in search of soft drinks and food, most notably chilled foods such as onigiri (rice balls) and chilled noodles, which helped insulate the category from what would have otherwise been a larger downturn in 2010 which could well have run to 3% in value terms.

• Forecourt retailers is not a strong retail distribution channel in Japan. The format did not prove popular in urban areas due to the widespread availability of convenience stores. Convenience stores often have their own parking facilities and can be found no more than a few hundred metres from most service stations. Retailers on Japan's extensive motorway network are, meanwhile, almost always part of service stations, including food and beverage retailers and often souvenir shops. The low presence of forecourt retailers is also due to the Japanese tradition of full-service forecourts, where customers do not need to step out of their cars for fuel or payment.

• International retail chains only have a limited presence in Japan; indeed, the Carrefour brand pulled out of Japan in 2010 and was replaced with domestic brand Aeon. That said, Seiyu Ltd is a Wal-Mart-owned company and has had a significant affect on retail in Japan well above its presence in terms of number of outlets. Seiyu Ltd has pushed hard on developing private label (hitherto uncommon in Japan) as well as non-grocery thanks to its access to the global Wal-Mart supply chain and as a result has forced domestic players to follow suit. Thus supermarket retail changed markedly over the decade the company operated under its US parent through 2010.

• Small grocery retailers continued to perform badly in 2010, without the resources to compete with larger chains. Consumers continued to move to one-stop shopping, which has seen covered markets (shotengai) continue to struggle, especially during the recession and retrenchment of consumer spending. Small grocery operators tend to appeal to an older age group and are themselves run by owners who are either reaching or beyond retirement age, which is likely to result in a significant shrinkage in the category over the forecast period.

• Food continues to be the largest category in food/drink/tobacco specialists; similar to small grocery, these retailers are struggling through competition with chained retailers, especially since value for money has become a key area of focus for consumers. Like small grocery, specialist food outlets can often be found in covered marketplaces and saw continued contraction over the course of the review period. There is a similar story for tobacco and drink specialists, which have seen an increasing portion of sales migrate to convenience retail.

• There is no equivalent to the European discounters format in Japan. Discounters typically have a very strong focus on private label, whilst in Japan most retailers only carry minimal levels of private label products. Cost-conscious consumers with limited spending power instead often frequent variety stores, which are well established.

TRADITIONAL VS MODERN

• Although Japan’s reputation internationally is of a country at the cutting edge of technology and modernity, traditional retail continues as a major if declining force in the grocery channel. Certainly traditional retailers are in rapid decline as older consumers who often frequent these outlets either die off or look to more modern channels which have increased their presence since the 1980s. Local governments have embarked on programmes to support these traditional retail channels with little success, and many market areas are now without full occupation and look decidedly rundown in some cases.

COMPETITIVE LANDSCAPE

• Owning to the fact that grocery retailing is dominated by independent stores and smaller regional chains, convenience stores dominates the retail landscape with nationwide chains of outlets which are seemingly on every street corner in Japan’s urban centres. Most convenience store retailers saw sales increase in 2010, and this was due to further outlet openings made during the year.

• Indeed, Family Mart was seen as one of the best performers across grocery retailing as a whole in 2010 through acquisition with its purchase of the AMPM chain, elevating the company to the top table of convenience store retail and giving leader 7-Eleven and Lawson further competition.

• AEON Group retained the leading position in supermarkets in 2010. In that year, AEON Group, which had become a holding company, worked to enhance its efficiency and streamline its logistics system. The newly established AEON Retail Co Ltd manages the group’s retailing businesses and AEON Co Ltd meanwhile focuses on the management of its group companies.

PROSPECTS

• Japan’s economic health will continue to be the key driver of trends in grocery over the forecast period. If weak consumer confidence continues to pervade the market, then pressure on pricing will remain with cash-strapped consumers loath to spend higher prices on daily goods. Certainly, the strength of the Japanese yen will be an important factor as high yen prices (2008-2010) have allowed for very cheap imports to encourage deflation in grocery retail as a whole.

• Supermarkets will continue to be the most important channel in terms of value sales. Further chained expansion is likely as the supermarket channel is still less saturated due to the preponderance of traditional retailers, which are expected to contract rapidly as owners reach retirement or a point at which they do not wish to carry on. Hypermarkets is likely to see a very similar trend to supermarket retail over the forecast period, with an increased focus on lower-cost value items and the expansion of private label undermining same-store value sales.

• Internet sales and home delivery will, however, prove very buoyant over the forecast period. With as many as six million Japanese consumers reported to be facing difficulties in engaging in life beyond the home due to frailty, home delivery will necessarily develop as a key channel as well as a social necessity for the general wellbeing of the Japanese population.

• Although the convenience store channel is likely to continue to expand over the forecast period, there will be little respite from increased competition, especially in urban areas, which store expansion has brought with it. The acquisition of am/pm by Family Mart in 2010 hints that further consolidation within the industry is likely over the forecast period. In keeping with this highly competitive environment, the range of products and services is likely to continue to develop and expand as retailers look for points of difference and new revenue streams.

• Certainly, smaller retail formats will continue to be the key area for expansion, as supermarket operators such as AEON announce plans to develop small-scale local supermarkets through 2011 with a view to competing against convenience stores for grocery sales. For their part, convenience store operators are likely to develop yet more private label, ready meal and fresh food options in a bid to fend off this not inconsiderable threat in what is an extremely crowded area.

• During the forecast period, supermarkets is forecast to see 16% constant value decline. Supermarkets will continue to be a major sales channel and will take sales from markets and independent retailers. However, the recession and a return to deflation will place pressure on supermarket retailers. These retailers will thus be largely forced to focus on value as their primary sales position over the course of the forecast period.

• The forecast period is expected to see the widespread expansion of private label across Japanese grocery retail. Meanwhile, the recession will force Japanese consumers to be thriftier in their shopping habits. It is therefore likely that supermarket retailers will continue to develop a private label-focused value-orientated business model, although to what extent this could develop into stores resembling European discounters such as Aldi and Lidl is open to debate.

• The emergence of ‘Gyomu’ supermarkets (supermarkets primarily dealing in food service products sold as retail) towards the end of the forecast period indicates there is space in the market for this kind of retailer, although the development of national chains would appear unlikely through competition with incumbent retailers such as Seiyu.

• Specialist retailers, which are for the most part independent outlets, are unlikely to fare well over the forecast period as consumers migrate to chained retail and the often lower prices and more flexible opening hours offered by these formats.

CHANNEL DATA

HEADLINES

• Health and beauty retailers posts strong growth of 4% in value terns through 2010 to ¥13 billion

• Liberalisation of pharmacy laws sees longer opening hours and emergence of hybrid format stores

• Outlet numbers increase by 1% to 81,500 in 2010 due to expansion of national chains

• The category remains fragmented (92% others in outlet numbers) due to preponderance of independents and small local chains

• Ageing population and liberalisation are likely to drive strong CAGR of 4% to ¥15 billion in 2015

TRENDS

• The key story through 2010 was the process of modernisation which has continued apace though health and beauty specialist retailers is a category which is typified by independent outlets and small local chains, which dominate with 92% share of outlet numbers. This process has seen increasing numbers of independent operators signing up to be part of larger national chains as well as distributors of pharmacy products, such as Alfresaand Toho, for example, continuing to invest in the stock of publicly listed chains such as Hanshin.

• The appeal of pharmacy is clear. Japan not only has a very aged population but also benefits from government policy which has continued to liberalise the OTC retail environment. Due to economic problems and the high burden placed on funds by the state medical system, this policy continues to see more of the health burden pushed back to consumers, which has served to play into the hands of pharmacy and chemist stores. This has encouraged larger (nonpharmacy) chains to buy their way into the category. Ain Pharmacies Inc was purchased by Seven & I Holdings Co, Ltd and CFS Corp by AEON Group.

• The most recent liberalisation of pharmacy retail over the review period took place in summer 2009 and allowed for wider availability of OTC products though different channels and also for extended opening times of pharmacy outlets. Matsumotokiyoshi, for example, took the opportunity to open its suburban stores to 24:00hrs in many instances, which served to extend opening times by two hours each day, helping to encourage value sales growth.

• One of the most interesting developments in the aftermath of liberalisation came in 2010, with health and beauty specialist retailers making numerous tie-ups between convenience store operators. Circle K Sunkus and Cocokara trialed hybrid stores through 2010, with a view to opening 50 joint outlets from 2012 onwards. Lawson also looked to develop a partnership with pharmacy operator Qol along with an earlier agreement with Matsumotokiyoshi Holdings to develop hybrid stores reached earlier in 2009. Hybrid stores see qualified pharmacy staff seconded to convenience stores whilst in the case of Matsumotokiyoshi’s larger stores, convenience store areas have been developed.

• The emergence of these hybrid formats is fairly typical of Japanese retail in general. That is to say, retailers on the whole have looked to expand their range of products to appeal to as broad a range of consumers as possible. An odd but successful trend in 2010 saw large chemists stores such as Silk trading very well on alcohol sales, for example, offering consumers discounts on bulk purchases.

• Whilst liberalisation has introduced new retail possibilities, it also poses threats to chemists/pharmacies and parapharmacies/drugstores, not just because it will lead to increased competition but also because large retailing groups have greater buying power and resources. Consequently, it is likely that the new competitors will sell generics at lower prices than those offered by chemists/pharmacies and parapharmacies/drugstores. Mass merchandiser Ito-Yokado and supermarket operator Maruetsu plan to sell generics in their stores.

• Other companies that plan to take advantage of the new legislation include electronics and appliances specialist retailers such as Yamada Denki Co Ltd, DIY, home improvement and garden centre players such as Cainz Co Ltd and convenience store operators such as Family Mart Co Ltd.

• The average selling space for health and beauty specialist retailers grew towards the end of the review period. The fourth largest player in terms of value share, Cawachi Ltd, boasts the largest average selling space. Leader Matsumotokiyoshi Holdings Ltd’s stores are meanwhile mainly located in the centres of large cities throughout Japan. In contrast, Cawachi focuses on large-scale stores in smaller cities, mainly in eastern Japan. The company defines a store with a selling space larger than 1,200 sq m as a Mega Drugstore, whilst some of its stores are larger than 9,000 sq m.

COMPETITIVE LANDSCAPE

• Health and beauty specialist retailers is fragmented. Matsumotokiyoshi Holdings Co Ltd remained in first position in 2010 with a value share of 3%. The company was active in expanding its store network towards the end of the review period through franchise agreements. However, the company’s pace of new store openings gradually slowed down towards the end of the review period. This was mainly because the company focused on closing unprofitable stores. Aside from closing unprofitable stores, Matsumotokiyoshi sought to increase its profitability by cutting down on advertising and by expanding its MK Customer range of private label products.

• The second largest player, Sundrug Co Ltd, meanwhile followed an aggressive new-store opening strategy towards the end of the review period. The number of its outlets increased to 675 in 2010, whilst current value sales increased to ¥301 billion. In line with the rapid growth in the company’s store network and sales, five new distribution centres were established over the review period.

PROSPECTS

• The expansion of health and beauty specialist retailers, especially chemists/pharmacies and parapharmacies/drugstores, will be aided by a government focus on reducing medical expenditure in hospitals during the forecast period. Growth will also be boosted by the ageing of Japan’s population. Due to government campaigns focused on prevention rather than cure, Japanese consumers are paying more attention to their health and spending accordingly.

• Nevertheless, the new law expanding the distribution of generics means that the forecast period will be a difficult time for chemists/pharmacies. This law requires that outlets have qualified and registered staff to sell generics, however, which will offer parapharmacies/drugstores and chemists/pharmacies an edge over new entrants, initially at least.

• However, it is inevitable that parapharmacies/drugstores and chemists/pharmacies will have to reduce the retail prices of generics to remain competitive during the forecast period. This issue could prove crucial for parapharmacies/drugstores, which typically attract customers by selling food, drinks and daily necessities at discounted prices and counterbalance this by selling higher-margin consumer health and beauty and personal care products. In addition to convenience stores’ ability to offer lower prices for such products, meanwhile, these outlets will also benefit from the appeal of their longer opening hours to consumers

• The quality, pricing and range of private label products will be most important for parapharmacies/drugstores during the forecast period. Private label is expected to prove a major competitive weapon for this channel, given consumers’ increasing focus on low prices and an expected increase in competition from other retail channels, especially mass merchandisers and supermarkets. Therefore, the development of private label products will be accelerated, particularly by large chained players such as Matsumotokiyoshi Holdings Co Ltd. For smaller parapharmacies/drugstores, affiliations with mass merchandisers are likely. CFS Corp, for example, established a business tie-up with AEON Group towards the end of the review period and will start to sell AEON’s TopValu private label range during the forecast period, in addition to its own private label products.

• Due to the fragmented nature of health and beauty specialist retailers and the introduction of new legislation, the trend towards mergers and acquisitions is likely to continue. The launch of hybrid stores in association with convenience stores is likely to change the landscape of health and beauty specialist retailers during the forecast period. Many independent operators are likely to struggle due to the encroachment of chains, especially in suburban areas. It is difficult to assess the full impact of this trend, however, as no retailer had committed to large-scale hybrid operations by the end of the review period. However, the growing range of services offered by convenience stores already had a major impact on tobacco and alcohol sales during the review period. Consequently, this trend is expected to have a major impact on sales of OTC healthcare in Japan over the forecast period and beyond.

CHANNEL DATA

HEADLINES

• 2010 sees homeshopping take a downturn with value sales falling by almost 1% to ¥3 trillion

• Close proximity to internet retailing as well as financial problems see sales falter

• Consumer appliance homeshopping continues to perform well DIY sees the biggest actual gains

• Competition from stores and the internet means the convenience of homeshopping is under pressure

• Homeshopping expected to see a moderate -2% value CAGR decline to 2015

TRENDS

• Although homeshopping was going through something of a renaissance at the tail end of the review period, the recession and low consumer confidence meant that sales began to stall in 2010. That said, with TV air time now particularly cheap to acquire, the appearance of infomercials and half-hour sales slots were a common feature on terrestrial non-dedicated channels such as Fuji Television. Japan’s movement to digital switchover in 2011 as well as a proliferation of cable and satellite broadcasters and also internet TV available in most homes meant that audience reach had pretty much attained saturation point.

• Homeshopping is well established in Japan by international standings, ranking up alongside the US in terms of per capita spend where consumers spend around US$340 per annum with Japan a respectable US$260 in 2010. Sales are largely underpinned by Japan's burgeoning elderly population, which are targeted by many homeshopping products. For many older consumers, mobility is an issue, with homeshopping offering many products to assist mobility. With more time on their hands to watch TV or look through catalogues, the elderly population is thus the key consumer group for homeshopping, along with Japan's large number of housewives and young mothers.

• Homeshopping also benefited from its less obtrusive nature in comparison with direct selling. With the exception of a few companies such as Avon or Pola, direct selling is a sales method increasingly associated with strong-arm tactics and attempts to defraud the elderly. Many consumers appreciate the convenience of buying products from home and the more benign and less complex nature of homeshopping compared to direct selling or internet retailing was a strong factor underpinning the channel’s development towards the end of the review period.

• There was increasing polarisation within homeshopping between growing companies and shrinking companies. This was largely due to differences in marketing strategies. Some companies reduced investment or withdrew from homeshopping altogether, in order to focus on other channels such as internet retailing. An example is Dinos Inc, which is owned by Fuji Television Network Inc. In December 2008 Dinos Inc withdrew from homeshopping and subsequently focused on internet retailing, which is an underlying theme for the channel as a whole.

• Internet retailing allows for a greater degree of interaction between retailers and customers than homeshopping, whereas TV homeshopping and catalogue homeshopping are generally one-way communications from retailers to customers. Some catalogue homeshopping retailers responded to this by adjusting their catalogues in accordance with customers’ preferences and past purchase histories. This strategy not only increases purchases by focusing on customers’ favourite goods but also reduces costs, avoiding the printing of unnecessary pages and reducing the weight of catalogues.

• Many if not all homeshopping channels give consumers the opportunity to order online and with growing interest in internet retailing this is both an opportunity and a threat to the channel. The internet provides free delivery of promotional material and greater efficiency with orders so the migration to internet ordering was a theme of 2010, but also puts homeshopping up against some powerful retailers such as Amazon and also risks leaving its core elderly consumer behind.

• Excluding the “other homeshopping” channel, which covers a very broad variety of products, clothing and footwear homeshopping is by far the largest channel, accounting for approximately 16% of homeshopping sales in 2010. This channel registered a 4% decline in value over the year, largely through competition from the growing presence of online retailers, but also traditional retailers such as Fast Retailing, which offer discount high street fashion popular across age ranges.

• Home appliances, electronics and media products all performed well in 2010, posting solid growth as homeshopping increasingly became a key means by which to sell technology-based products to older consumers who are less likely to be seen shopping in electrical retailers such as Yamada Denki. Sales in 2010 were boosted (as they were in 2009) by the government’s eco-points rebate system for energy-efficient products as well as the fast approaching date for Japan’s full switchover to digital broadcasting, which encouraged consumers to replace older analogue equipment.

• The very large “other homeshopping” channel, which accounts for some 48% of value sales, is for the most part made up of fresh food sales, which are often sold through catalogues and delivered by Japan Consumers Cooperative Union. As with other forms of homeshopping, this delivery method is facing increasing competition from internet and telephone ordering. However, it still remains an important part of Japan’s homeshopping marketplace with armies of housewives up and down the land posting personal and community orders for a broad range of staples, which fall under “other homeshopping” as well as food and drink homeshopping.

COMPETITIVE LANDSCAPE

• Japan Consumers Cooperative Union (Co-op) accounted for a 30% share of retail value sales in homeshopping in Japan in 2010. However, behind Japan Consumers Cooperative Union company shares in homeshopping remained highly fragmented at the end of the review period with the other six players in the top seven companies accounting for a combined value share of 18% in 2010. The fragmented nature of homeshopping illustrates the ease with which businesses can develop their own homeshopping sales platform, especially within catalogue homeshopping. Although TV homeshopping is the more glamorous side of homeshopping, the bulk of sales continues to stem from catalogues and mail-outs, which are widely distributed in Japan.

• Companies specialising in homeshopping showed significant current value sales growth during the review period. QVC Japan Inc’s sales double, increased from ¥52.7 billion to ¥105 billion in 2009. Mitsui Co & Ltd owns 40% of QVC Japan’s equity and these two companies worked together during the review period in order to offer a wider range of products, especially in clothing and accessories.

• Belluna Co Ltd remained in fifth place, in spite of a decline in sales. Belluna’s core business is catalogue mail order retailing and the company was hit by the expansion of internet retailing and the rising price of paper. Belluna also has a presence in internet retailing and sought to develop the efficient use of both retail channels. The company’s Internet Strategy Office was established in 2008, with this aiming to direct the company’s internet retailing business and to oversee catalogue planning. Through its presence online, the company is trying to attract more young female customers.

• Although homeshopping grew in Japan over the review period, some companies registered declines in sales between 2004 and 2009. These included Senshukai Co Ltd, Fancl Corp, Mitsukoshi Ltd and Takashimaya Ltd. Companies such as Senshukai and Fancl, which have homeshopping as their core business, started to open retail stores and also expanded into internet retailing. Two department store operators with interests in homeshopping, Mitsukoshi and Takashimaya, also declined due to a shift in focus in non-store retailing from homeshopping to internet retailing.

PROSPECTS

• In constant value terms homeshopping is predicted to post a declining CAGR of -2% over the forecast period. This decline is likely to come from the continued migration from TV homeshopping and catalogue-based homeshopping due to the popularity of internet retailing. Therefore, for companies that have a core business of catalogue shopping, multi-channel strategies are crucial. For these players, the synergistic effects of combining catalogue shopping and internet retailing may provide opportunities for growth. TV shopping retailers are also working to enhance sales by connecting websites and TV programmes.

• Major retailing groups such as Seven & I Holdings hope to integrate TV homeshopping, internet retailing and store-based retailing. In 2007, Nittele Seven Co Ltd was established by Seven & I Holdings, Nippon Television Network Corp and Dentsu Inc, a major advertising agency.

• The transition to digital terrestrial television was scheduled to be completed in Japan by July 2011. The penetration of digital terrestrial television is seen as a key factor in the development of homeshopping during the forecast period. The high resolution quality of digital terrestrial television is ideal for showing the textures of clothing. Consequently, TV homeshopping is expected to become an important retail channel for luxury clothing. Major trading companies, such as Mitsui & Co Ltd, Sumitomo Corp and Itochu Corp had already established ties with homeshopping companies by the end of the review period and this trend is likely to continue.

• However, homeshopping is set to face direct competition from internet retailing during the forecast period. In addition, TV viewing is likely to decline due to the diversification of consumers’ leisure activities. Growth in the number of working women will also affect homeshopping negatively, because one of the main customer groups is housewives. Therefore, companies will need to develop new formats during the forecast period in order to draw in a wider range of customers.

CHANNEL DATA

HEADLINES

• Internet sales continue to grow strongly in 2010 by 10% to ¥3.3 trillion

• E-retail expands the range of services with players such as HMV abandoning retail for internet-only offers

• Clothing and footwear as well as home care see strongest current value growth of 15% in 2010

• Amazon Japan Co Ltd continues to lead in internet retailing with a value share of 10% in 2010

• Sales to continue to expand by a CAGR 6% over the forecast period as m-commerce takes off to reach ¥4.5 trillion in 2015

TRENDS

• Although representing something of a decline from the huge growth rates posted earlier in the review period, further 10% current value growth in 2010 indicated that internet retailing is in good health in Japan. Sales continued to grow despite fragile consumer confidence and a widespread desire to cut back on expenditure. Sales growth earlier in the review period was driven by expanding home access to the internet and retailers’ development of their online sales platforms. However, growth in 2010 stemmed from growing per capita expenditure on internet retailing rather than growing per capita internet usage. Growth also stemmed from retailers and manufacturers looking for direct access to consumers and their continued development of online promotional offers.

• Indeed, 2010 saw continued migration to the internet retail platform, which saw grocery retailers in particular expand their home delivery options in a bid to encourage the elderly and housewives to take up internet sales as a part of their shopping routine. 7&Y, for example, looked to double its delivery options from six to 10 daily, allowing consumers greater flexibility with delivery times split into 1-hour segments between 08.00hrs and 18.00hrs. There was also continued migration from other non-store formats such as homeshopping and direct selling towards internet retailing, which offered lower overheads, greater reach and broader consumer acceptance.

• An interesting development in 2010 saw the internet retailing channel beginning to influence physical retail channels. This was evident with Yamada Denki, for example, although the company is best known as a big box electronics retailer, its online stores continue to offer a range of products from shampoo to beer, which are not at first associated with the company’s core offer. Finding positive sales of these products on the internet the company has looked to introduce them into its physical stores with hair care products now found alongside hair care devices in its Labi stores.

• 2010 saw the continued expansion of mobile internet retailing. Mobile phones in Japan increasingly expanded their services beyond communication, to include access to the internet, music on the go, television as well as touch payments. With mobile phones increasingly entwined in modern Japanese life, internet retailing players tailored their sites to mobile phones in terms of layout, accessibility and ease of payment. These mobile phone pioneers found that consumers responded favourably, particularly in domestic electrical appliances and clothing and footwear internet retailing.

• The growth of internet retailing was encouraged by busy lifestyles and consumers’ quest for convenience, but also by Japan's highly developed distribution system. In many Western countries, reliable delivery can be difficult to maintain, especially at times of peak demand. However, there are no such problems in Japan, where highly developed distribution networks such as Takyubin and Footwork were already present and held in high esteem by Japanese consumers. Internet fraud is also less of an issue in Japan than in many other countries. If internet fraud is a problem, it was not highlighted regularly in the press and consumers thus remain generally confident when making purchases online.

• Internet retailing performed quite differently to store-based retailing at the end of the review period. The economy forced many department store and supermarket players to close stores, move staff to job share systems and shorten operating hours. The opposite was true of internet retailing, however, which has expanded rapidly with store-based retailers expanding their online services as a cost-effective alternative to traditional store-based retail, especially as internet retailing is accessible 24 hours a day and often comes with lower overheads and operating costs.

• Internet retailing was also boosted by consumers’ growing interest in price comparison websites in search of the best deal. The usage of price comparison websites increased markedly towards the end of the review period, expanding from big-ticket items such as refrigeration appliances or air conditioners. These websites are increasingly used for comparing the price of everyday food and household care items at different supermarkets. The price comparison website run by Kakaku.com Inc, for example, attracted 59 million hits in November 2009, with this being 32% more than a year earlier. The number of people checking the prices of daily necessities, including food items and bottled water, nearly quadrupled. Previously, the site was used mainly for comparing prices of domestic electrical appliances.

• Credit card or cash payment upon delivery are the most common payment methods for internet retailing. The use of electronic money was increasingly popular in Japan towards the end of the review period and internet retailers thus accepted this form of payment from 2007. Electronic money systems used in Japan use mobile phones or financial cards. Consequently, card- or phone-reading devices are required to use this payment method, which constrained the growth of electronic money as a payment method for internet retailing. For example, a device called Felica Port is necessary to use the Edy card. Nevertheless, the use of electronic money for internet retailing is expected to grow rapidly. Felica Port can be connected to personal computers, while some new personal computers have Felica Port already installed.

• Although food and drink internet retailing was the largest channel within internet retailing, it still remains largely underdeveloped. Large grocery retailers continued to develop their online order and delivery services in 2010. In December 2009 leading retail group Seven & I Holdings Co announced plans to expand its internet retailing operation Seven & Y Corp, in which Yahoo Japan holds a 30% stake. Seven & I plans to work with Yahoo in guiding online customers to each other's websites, settling transactions and developing products. Points earned on Seven & I's Nanaco e-money system and those accumulated via Yahoo Japan accounts will become interchangeable. The new website will feature 32 speciality stores, including shops selling products from Avex Group Holdings and animation film production firm Studio Ghibli Inc. Seven & I intends to boost its internet retailing sales to ¥100 billion by 2011. The retailer plans to use its 7-Eleven convenience store network to deliver products sold over via internet retailing.

• According to a survey published by the Ministry of Internal Affairs and Communication, the share of internet users as a proportion of the population increased from 67% in 2005 to almost 75% in 2009, reaching 90 million. Over the same period, the shift in internet connections from DSL to broadband or optical lines also progressed rapidly. The percentage of DSL connections among households using a home PC declined from 34% to 19%, while broadband and optical line connection rates increased from 65% to 68% and from 15% to 31%, respectively.

COMPETITIVE LANDSCAPE

• Amazon Japan Co Ltd retained first place in internet retailing in Japan in 2010, recording a steady growth rate of over 7% on 2009. Sales reached ¥333 billion in 2010 – more than double those of the chief rivals of its type, Yahoo Japan or Rakuten Inc. In line with its increasing sales, Amazon Japan built a new Fulfilment distribution centre in Japan in 2007. To make efficient use of its large Fulfilment Centres, the company launched a new service. This enables retailers that have stores on Amazon’s internet shopping mall to store goods at Amazon’s Fulfilment Centres, with Amazon subsequently delivering these goods to customers. Goods can thus be delivered using Amazon’s express service, which brings in higher fees for the retailer, while enhancing convenience for customers.

• Yahoo Japan also continued to trade strongly through 2010, seeing sales rise by 13% to ¥135 billion. Yahoo continues to benefit from being the search engine of choice in Japan, which guarantees constant traffic to its online retail business, although it still lacks the presence or reputation of its peers, Amazon or Rakuten. That said, the company continues to invest in accessibility and reported that the release of smart phone applications resulted in 30% growth of sales through mobile phones, an area the company is well positioned to take advantage of over the medium term.

• Rakuten Inc posted current value growth of 19% in 2010, with sales reaching ¥123 billion. The company made particularly good progress in its online media offer in 2010 on the back of introducing a free delivery offer in February 2009, following Amazon’s lead. Rakuten also took its offer a step further by offering consumers the chance to browse selected pages on some books, a feature that has proved very popular with consumers and has seen traffic to the site increase markedly, with the company looking to take on Amazon more directly through 2011 and 2012 through further innovation.

• Japan Consumers Cooperative Union also saw sales grow strongly in 2010 to ¥67 billion and is typical of retailers moving into the e-commerce in as much as strong growth during the review period was generated largely from migration of its customers from other areas of its business such as direct selling.

PROSPECTS

• Although internet usage is unlikely to strongly develop in terms of household penetration over the forecast period, a healthy constant value CAGR of 6% is expected for internet retailing. Although Japan's economic outlook looks weak at best, internet retailing sales are likely to see healthy growth. This will occur as more consumers are won over by retailers’ efforts for their internet retailing sales platforms. Mobile internet sales are particularly expected to grow in importance during the forecast period, due to improved mobile layouts and expanding mobile connectivity.

• The ongoing popularity of price comparison websites is likely to be a main driver of growth for internet retailing over the forecast period. Consumers are expected to turn to the internet as they seek to cut their expenditure over what appears to be a protracted period of recession for the Japanese economy. The challenge for leading retailers such as Rakuten and Amazon will be how to keep ahead of the competition in an environment where consumers increasingly focus on price alone when making purchasing decisions. Although there is still room for all players to grow sales in internet retailing, competition is expected to increase between players, both big and small.

• During the review period, Japanese supermarkets were held back in internet retailing by their slow uptake of internet retailing and home delivery services. With a growing elderly population and increasing numbers of consumers switching from daily to weekly grocery shopping, there is a strong opportunity for grocery retailers to expand this part of their offer. Supermarkets already account for a large portion of internet retailing sales in North America and Europe and are expected to become more significant in Japan over the forecast period.

• Internet retailing is expected to account for a larger sales share of media products over the forecast period. The continued development of portable entertainment technology makes it likely that Japanese consumers will download media products more in the future. Growth may be driven by dynamism in e-books, although the success of e-books has been predicted for a number of years with no significant developments by the end of the review period. However, Amazon is increasingly promoting e-books, which is likely to drive growth in this area over the forecast period.

• Stronger competition is expected during the forecast period, as entering internet retailing from other retailing channels is fairly easy. There are already many retailers that view internet retailing not merely as an extra service attached to their websites, but as an additional major sales channel. Yodobashi Camera, for example, uses internet retailing as a tool to attract more female customers, by selling bags and wallets aimed at women on its website. The importance of internet retailing as a means to boost sales and gain new customers is expected to grow over the forecast period, while the use of internet retailing is expected to become increasingly sophisticated.

• As internet retailing became common for almost all types of retailers by the end of the review period, innovation in and diversification of services will be important to success during the forecast period. Some companies are trying to attract more internet users to their websites by offering goods that are only obtainable through this channel. For example, Odakyu Department store has a special section for such goods on its website and Amway, a direct selling retailer, also sells goods exclusively via internet retailing.

CHANNEL DATA

HEADLINES

• In 2010, sales through leisure and personal goods specialist retailers see a value decline of 4% to ¥6,208 billion

• Internet retailing erodes sales of leisure and personal goods specialist retailers in Japan

• Outlet volume decreases by 3% in 2010, to 96,499 outlets

• Alpen Co Ltd and Culture Convenience Club (CCC) lead the field in 2010

• A 4% CAGR value decline is expected in the forecast period to ¥5,173 billion in 2015

TRENDS

• With perhaps the exception of sports goods stores and pet shops and superstores, leisure and personal goods was heavily impacted by the changing role of technology during the review period, as well as consumers’ preference for controlling how, when and where they shop for a range of products. The advent of e-books, burgeoning secondhand sales, the influence of mobile phones and the widespread success of the internet all had a significant influence on a core channel in leisure and personal goods retailers: media products stores.

• Current value sales decline for media stores towards the end of the review period was due to the growing number of consumers using internet retailing and internet downloading, especially to obtain music. This has been a long-term trend, but industry figures for 2009 show that even the download market for music dropped for the first time as well as high street sales. Indeed, such has been the downturn that HMV announced the closure of its flagship store in Tokyo’s Shibuya district in 2010 and Virgin Megastores sold up in the same year. Consumers appear to have lost their love for music in 2010 as well as video games, as sales in this area declined significantly also.

• Despite this adverse environment, Cultural Convenience Club Co Ltd, which operates the Tsutaya brand in media products stores, recorded 2% current value sales growth in 2010. Whilst rental revenue is not included in Euromonitor International figures, this created increased footfall in stores in 2010 which boosted retail sales, especially in the early part of the year. The company also purchased Virgin Megastores in 2009, which further boosted its share. This move probably had more to do with gaining favourable retail locations rather than any longstanding desire to maintain the failing Virgin Megastore brand in Japan, however.

• Media products stores experienced continuous decline over the review period. This channel was also affected heavily by the expansion of internet retailing, with competition from Amazon especially strong in 2010 as the company began offering free delivery on even single book items. However, development continued to be strong for booksellers focused on secondhand items such as Book Off, which maintained its leading position in 2010. The strength of these lower-priced secondhand players and the growing popularity of internet retailing sales, as well as a degree of migration to electronic books, however, undermined sales.

• Traditional toys and games stores also posted disappointing sales in 2010. This was part of a longer-term trend, with children purchasing fewer traditional toys. This was compounded by a migration to electronic entertainment on PCs, game centres or portable devices such as the PSP. There was also a movement to nontraditional retailers for the purchase of toys and games, such as electronics and appliance specialist retailers. This channel’s bigger stores often offer a whole floor assigned to toys and games. The growth of internet retailing and the increasingly widespread acceptance of purchasing secondhand games further hindered sales. Consequently, 4% current value decline in 2010 is likely to be considered a reasonably good result by many observers.

• Leading toys and games store retailers such as Toys R Us sought to develop other lines such as children’s clothing towards the end of the review period. This move was largely due to the worsening of Japan's operating environment, as players sought to insulate themselves from slumping toy sales. An expanded product range was also aimed to attract more consumers into outlets. The company also focused on more fully developing its internet retailing platform towards the end of the review period, with this taking a greater share of sales over the review period. Its ‘side by side’ store development, which sees a Toys R Us store located adjacent to a Babys R Us store, did prove a successful formula for the company and saw further expansion in 2009 and 2010.

• Sports goods stores reported reasonable sales in 2010, with less than 2% current value decline. Considering a return of deflation for the Japanese economy as a whole, this could be considered as something of an achievement. Japan is in the midst of a sports boom, with baseball, soccer, running and cycling all seeing increased take-up amongst consumers of all ages.

• Importantly, many sports benefited from the emergence of female participants during the review period, for example, golf. This resulted in sports manufacturers increasingly developing female-orientated lines, which drove stronger retail sales. Sales in 2010 were also boosted by key sporting events such as the Winter Olympics and the FIFA World Cup, which promoted an upturn in some key product categories such as footwear and apparel over the year.

• Pet shops and superstores meanwhile proved the exception to the rule in leisure and personal goods specialist retailers in 2009. This channel benefited from Japan's pet keeping boom, which continued to grow. Small dogs and cats continue to be the most popular pets and Japanese landlords increasingly enable tenants to keep pets. This resulted in a steady increase in Japan's pet population. In addition, pet owners became more likely to buy premium products for their pets.

• Jewellers continued to see difficult trading conditions in 2010 as consumers stayed out of the category due to ongoing economic problems. The downturn in the category continued with a 5% value decline in 2010, which was pretty much in line with declining sales in the luxury end of the retail market as a whole. There was some suggestion that towards the end of 2010, middle-class consumers had rediscovered their passion for spending, which bodes well for a forecast period upturn at the upper end of jewellery.

• Stationery/office supply stores also saw sales declining in 2010, with many smaller local stores closing and sales migrating from stores to online and catalogue sellers such as Askul, which continued to trade well in 2010. With many businesses looking to cut back expenditure and the continued move to the paperless office, sales are expected to decline throughout the forecast period.

• Over the forecast period, the forces that saw sales migrate away from media products stores are expected to continue and become stronger. These channels will suffer due to competition from modern technology. This is likely to develop to the point where the majority of music stores become more or less redundant due to file downloading and sharing websites on the internet. In the long term, consumers may well become more likely to pay a subscription for unlimited downloadable content, rather than buying single songs or albums, which will further erode sales.

• There will be major changes in how, what and where consumers purchase a whole range of leisure products during the forecast period. However, leisure time in Japan will remain as important as ever. There are therefore still opportunities for stores to appeal to this underlying demand. A focus on leisure is likely to increase further during the forecast period, as the ongoing recession will compel more consumers to entertain themselves as well as their friends and family in their homes.

CHANNEL DATA

HEADLINES

• In 2010, mixed retailers posts a current value decline of 6%, with sales falling to ¥17 billion

• Department stores performs especially poorly in 2010

• Outlet volume declines by 3% to 11,180 outlets in 2010

• Consumers’ growing sensitivity to prices leads to the expansion of private label

• A 4% CAGR value decline is expected in forecast period to ¥14 billion in 2015

TRENDS

• The year 2010 proved another bad year for mixed retailers on the whole. Every channel saw large declines in current value, with the exception of warehouse clubs, which is still a relatively new category in Japan and still growing from a low base. Mixed retailers suffered due to a dramatic shift in the economy and consumer behaviour, which increasingly made value for money the most important consideration for consumers. Mixed retailers also appeared to suffer by its very nature, Japanese consumers apparently favouring specialist stores, especially larger chains, which have the best reputation for choice and low pricing.

• Department stores was probably the retailing channel worst affected by the economic downturn in 2009 and the depressed consumer confidence in 2010. There was an underlying movement towards greater thrift over the course of the review period, as inflation outmatched wage increases. However, for much of the review period there was sufficient economic growth to encourage growth in department store sales, especially driven by a long-running boom in consumer credit. Japanese retailers embarked on store renovation and expansion over this same period. This was something of an international trend, with department stores in Europe and the US also expanding over this period.

• The crash in 2009, however, badly impacted Japanese department stores with a massive 20% or more decrease in sales of clothing alone being reported by most operators. The slump continued in 2010 with a current value decline of 6% over 2009, which was a much lighter fall than the 10% reported a year earlier thanks to many players’ earlier attempts to streamline their operations and close less profitable stores. Seibu Department Stores Co Ltd, for example, closed its landmark Seibu department store in Yurakucho in Central Tokyo in December 2009. This closure followed sluggish sales throughout the year and was met by a positive reception on the Japanese stock exchange, an indication that many investors view department stores as a hindrance to larger operators.

• The closure of stores was not restricted to outlying areas, with city centre locations heavily affected during the review period. H20 Retailing for example announced that it would close its Shijo Kawaramachi Hankyu department store in Kyoto towards the end of the review period. This is based next to a railway station and was once seen as a prime location. However, with younger consumers turning their backs on its premium pricing towards the end of the review period, the company had no choice but to close the store. Hankyu reported that at its peak the store turned over some ¥17 billion in 1990 but that sales dwindled to just ¥5 billion by 2009, a stark illustration of department stores’ declining appeal since the end of the bubble era.

• The year 2010 also saw the completion of some large new stores which had been under construction. Iseten Mitsokoshi, for example, reopened a key store in Tokyo’s upmarket Ginza district in September 2010.

• Mass merchandisers also experienced a further downturn in sales towards the end of the review period. Mass merchandisers, especially at older sites, struggled to encourage consumers to make specific trips to their outlets. Instead, consumers increasingly favoured local one-stop shops rather than making a specific journey to a Jusco or Apita store. Mass merchandisers also had to offer big discounts to hold consumer attention in a very competitive channel.

• There was far less new store development over the closing years of the review period. Although Ito-Yokado scored some success with its Areo developments, most players focused on managing older outlets in need of renovation or outright demolition. Consequently, store numbers declined in 2009. Retailers sought to cut their losses on less profitable stores and streamline their networks, particularly in the light of the recession and declining sales.

• Warehouse clubs is a more recent arrival in Japan and offered the only growth in an otherwise declining mixed retailers. Costco is the only operator in warehouse clubs and performed well towards the end of the review period. This was due to the player’s policy of steady expansion in outlet numbers as well as further support of existing stores to keep membership rates high and growing. The success of warehouse clubs is partly due to a value-for-money positioning. However, a novel membership format also proved attractive, with Costco being the only major retailer to use this format.

• Sales of ¥100 shops, included in variety stores, were badly hit by the recession. It was thought that these stores would do well in a recession, due to offering low prices. However, many consumers doubt the quality of the products offered by these outlets and therefore question their value for money. In addition, the wide range of products on offer in these outlets and the fact that many stores sell a large portion of their products for more than ¥100 resulted in many ¥100 shop operators struggling to differentiate themselves from other variety stores.

COMPETITIVE LANDSCAPE

• The overall current value sales of mixed retailers fell in 2010 over the previous year, with department stores particularly badly affected as retailers in this category either closed more stores through 2010 or restructured as best they could following the shock of a sudden descent into recession. As a result, all department stores were badly affected in terms of falling value sales. That said, larger chains did appear to perform better than smaller regional operators, with the value share accounted for by the leading four department store brands rising to 35% from the 32% recorded in 2008.

• In Japan, international mixed retailers do not have a substantial presence. However, NBO The Seiyu Ltd became a wholly owned company of Wal-Mart Stores Inc in 2008, after having had close ties over the previous five years. Wal-Mart sought to revitalise the struggling Seiyu Ltd by introducing its own store operation strategies. However, the chain’s expected recovery had not yet been accomplished over the review period.

• Whilst incorporating Wal-Mart’s marketing strategies, The Seiyu Ltd also adjusted these to suit the needs of local customers. When it incorporated Wal-Mart’s Every Day Low Pricing strategy, The Seiyu Ltd initially stopped printing promotional flyers. However, the company eventually resumed this practice due to strong competition within mass merchandisers and from supermarkets in Japan. Many local consumers make decisions on which store to visit after checking flyers for special offers.

PROSPECTS

• Prospects for mixed retailers appear poor for the forecast period, with consumers unwilling to pay the high prices offered by department stores or to make specific journeys to mass merchandiser outlets. Even ¥100 stores are likely to see sales decline, even during the recession. Many consumers believe that the majority of products on offer in these stores are poor in quality and offer a false economy, with internet-based blogs and comparison sites likely to make this increasingly clear over the forecast period. ¥100 retailers are also likely to lose out due to a shift towards neighbourhood or online shopping. Most notably, older consumers are expected to increasingly stay away from city centre shopping.

• Without any specific upturn in the economy, department store retailers are facing rough times over the forecast period, with more store closures likely. Longer-term problems will be posed for operators in department stores by the amount of new department store space under construction, especially in Osaka. Takashimaya Co and other major department store operators are adding floor space in Osaka. Total department store selling space in the city of Osaka is expected to soar by 70% by 2014. An expanded Takashimaya Osaka store will open March 2010 with a floor space of 78,000 sq m, a 40% increase, whilst Daimaru will also increase selling space at its store in Osaka. Over the early forecast period, this expansion will be problematic for department stores, as outlets are likely to be opening in a recession, in Japan's manufacturing heartland where the recession affected consumers the deepest.

• Mass merchandisers is also unlikely to see any great growth over the forecast period. Consumers are likely to demand the lowest possible prices from these outlets and to show a greater inclination for shopping around for the best bargains. More recent mass merchandiser developments generally offered a more relevant range of accompanying retail outlets as well as entertainment facilities. These are expected to perform better over the forecast period than older mass merchandisers. However, the threat of a revised urban planning law will make the construction of new sites over 10,000 sq m much more difficult in the forecast period.

• The success enjoyed by warehouse club operator Costco in Japan may tempt some mass merchandisers to convert into warehouse clubs. However, the potential consumer base for such stores is likely to be limited in Japan, which will deter most potential new entrants. Japanese retailers might also be tempted to form agreements with US warehouse club operators in a bid to gain product and consumer know-how and thus to become capable of competing with specialist Costco in this channel.

CHANNEL DATA

HEADLINES

• In 2010 vending post a current value decline of 3% to ¥2.7 trillion

• Tobacco products vending recovers slightly as TASPO uptake increases over 2008 levels

• Consumers tend to stay away from what is seen as the expensive vending format

• Coca-Cola Japan leads vending sales with a value share of 17% in 2010

• Vending to see a 3% constant value CAGR over the forecast period to reach ¥2.4 trillion in 2015

TRENDS

• Vending underwent significant changes in 2008 and 2009. These were chiefly as a result of the introduction of TASPO age verification software for tobacco vending machines. With take-up of the card reported to be only 40% of smokers, according to the Japan Tobacco Manufacturers Association (JTMA), sales of tobacco products vending were severely hit. Consumers simply switched from vending machines to convenience stores, many of which are licensed to sell tobacco products around the clock, although increased uptake was seen in 2009 and sales did recover slightly, albeit to nowhere near earlier levels.

• The introduction of TASPO was designed to restrict access to tobacco products for those aged below 20 years of age, with 20 being the legal age for smoking in Japan. However, the low uptake of TASPO cards meant that packaged drinks and other vending formats also suffered a downturn. Many smokers sought to pick up all their purchases in convenience stores rather than visiting vending machines. This was particularly true of canned RTD coffee, which saw sales surge in convenience stores. Convenience stores also capitalised on this trend, introducing special offers such as coffee and cigarette combination packs.

• 2010 proved a better year for vending as the market became fully adjusted to its new (post-TASPO) operating environment. Although sales for key product areas such as tobacco continued on a downward trend as consumers continued to switch to convenience store retailers, which became even more numerous in 2010 as they continued their policy of store expansion as well as by tempting consumers with special tobacco offers such as offering cigarette and lighter promotional packs and even the odd example where ready-to-drink coffee makers such as Coca-Cola teamed up with Phillip Morris to produce a morning coffee and cigarette pack designed to appeal to office workers. Vending continued to struggle to match these offers and with manufacturers largely unable to compete on price, vending continued to lose ground.

• 2010 did see the resurgence of packaged drinks vending, however, a category that had seen sales slide year-on-year for most of the review period. The summer of 2010 was one of the hottest on record with day-time temperatures topping 36 deg C regularly through July and August. The heatwave sent consumers dashing to the nearest vending machine to find a refreshing drink, with demand so high that leading manufacturers struggled to meet demand through July and August, with some popular brands such as Coca-Cola’s Aquarius sports drink selling out in some areas. The high summer temperatures were welcome news for soft drinks vending, which had seen further losses through January to May as consumers, in a bid to cut expenditure during still difficult economic times, looked to more cost-effective alternatives such as making their own RTD beverages at home or looking to bulk buy in chained retail.

• Certainly high summertime temperatures loosened the consumer propensity not to spend in the more expensive vending channel, but the underlying trend still remains for consumers to generally move away from vending, as it is widely considered to be an expensive alternative to other retail channels, particularly supermarkets. In an attempt to counteract this trend, some manufacturers sought to develop discount vending machines. These offer a range of soft drinks at ¥100 rather than the ¥120 and above prices that are typical for other vending machines. Discount machines enabled manufacturers to sell products moving close to their expiry date.

• In spite of normality returning to the market and the long hot summer of 2010, the general trend has been for the number of vending machines operating in Japan to be on a downward trend as operators look to rationalise their operations. In many areas, particularly tobacco, vending machines are becoming unprofitable to maintain and also in the key soft drinks vending channel the increasing focus on environmental matters has seen increased efforts to remove and recycle older less efficient machines.

• With vending under pressure, operators looked to technology in order to improve their competitiveness. Touch-and-pay mobile phone systems were introduced to many machines, in 2008, agreements were made between Coca-Cola Central Japan Co Ltd and bitWallet Inc, which issues electronic money cards under the name Edy. Transport locations see e-money transactions as particularly important with consumers able to use their e-money enabled transport cards for payment; JR East Water Business Co, which manages vending machines at East Japan Railway's train stations, reports that its Suica was used for roughly 40% of these purchases in 2010.

• Next-generation vending arrived in Japan in 2010 as a joint development between JR East Water Business Co, Omron Corp and Fuji Electric Retail Systems Co saw the introduction of an intelligent vending machine at Shinagawa station. The machine is capable of advertising beverages on its LCD screens, coffee in the morning or water when temperatures rise. The machine is also equipped with customer identification software, where the vending machine can identify a customer’s age and sex and make informed product suggestions based on its own sales data.

• Other players introduced mixed vending machines, with these offering a combination of tobacco products and soft drinks. Dydo Drinco, for example, began selling both snacks and soft drinks in its machines in 2009 through a tie-up with Nestlé and the sight of these dual-product machines became more common in 2010 than a year earlier.

• Other interesting developments saw Dole introduce a banana vending machine with a view to expanding its network and retailing more fresh fruit through this novel idea. The new vending machine received a great deal of coverage in the Japanese media.

• Although falling outside the scope of vending research, an interesting development in 2010 saw the arrival of DVD retail vending machines in some convenience stores with leading brands Tsutaya and Gero both trialling new systems with a view to widespread roll-out over the forecast period expected. Rental sales are not counted in the Euromonitor International research, but the development of these services is expected to be a key area in which convenience store chains in particular can team up with other operators to easily widen their offer of products and services.

• The environment was also a growing consideration for the vending industry over the review period with greater consideration given to the power vending machines require to operate, especially drinks vending, which required both refrigeration and heating of products through summer and winter seasons. To this end new low CO2 emission machines have started to develop, fitted with more efficient refrigeration, low power LED lights as well as solar panels in some instances. Coca-Cola began trialling a new machine, which comes complete with a turf and moss roof designed to improve insulation, thus keeping electricity consumption down.

COMPETITIVE LANDSCAPE

• Until the introduction of TASPO, tobacco vending was the biggest are in vending in Japan, encouraged by the high percentage of smoking found in Japan when compared to other nations, especially the West. The migration of sales to convenience stores since TASPO, saw packaged drinks operators take a leading share in vending, with Coca-Cola reporting the largest value sales share in 2010.

• Indeed, Coca-Cola has been able to maintain its position as the leading soft drinks player through its focus on vending as a key retail channel for the company, which accounted for close to 65% of value sales across the company in 2010. A focus on vending, although requiring a large logistical operation in order to keep its network supplied, does allow the company to keep direct control over pricing and promotion of its brands as well as gaining the company access to offices and factories where its vending machines are often found on-site.

• In spite of difficult operating conditions tobacco vending is still a significant force, consequently, three of the six leading operators in Japanese vending remain connected with tobacco products. Japan Tobacco Inc’s TS Network Co Ltd, Philip Morris Japan KK and British American Tobacco Japan Ltd were all represented with significant shares in 2010, which when combined accounted for a 28% share of value sales. This was, however, down from the 33% reported in 2000, illustrating the changes that have taken place over a decade.

• Tobacco products vending offers attractively strong sales, despite TS Network Co Ltd’s undisputed dominance in overall tobacco products. Consequently, foreign competitors placed a stronger emphasis than Japan Tobacco on vending as a means to gain a foothold in Japanese tobacco products. TS Network Co Ltd is a daunting distribution arm for Japan Tobacco, with the company focusing largely on store-based retailing. Consequently, more recent entrants focused more on tobacco products vending as an entry point and therefore shares in this channel are very different from those seen in tobacco products as a whole.

• The bulk of the remainder of vending is again made up of packaged drinks vendors, with Suntory in particular looking to improve its position in vending in the latter part of the review period, introducing an additional 9,000 machines in 2009 alone as it apparently looks to emulate Coca-Cola in terms of its sales split through vending and store retail.

• Behind Suntory, Dydo Drinco Inc continued to be a leading force in packaged drinks vending. Dydo specialises in vending as its chief sales channel, with an estimated 99% of its sales via its impressive fleet of vending machines.

• To counter high distribution costs, Asahi Calpis Beverage Co Ltd installed a new system in October 2008. Its previous distribution system required truck drivers to check the remaining number of drinks in vending machines and then return to their truck for the required quantity of drinks to refill the machines. Under the new system, sales data is transmitted wirelessly from the company’s sales offices to distribution drivers. Drivers thus do not have to load unnecessary products onto their trucks, as each machine’s requirements are known in advance. The new system thus reduced the quantity of drinks loaded onto trucks and the time required for replenishment of machines. The company also restructured – following the establishment of Asahi Beverage Services Co Ltd, the company established Asahi Calpis Beverage Co Ltd through a joint venture with Calpis Co Ltd in 2008.

PROSPECTS

• After a positive year in 2010 due to the long hot summer, the vending industry is likely to return to its long-term trend of year-on-year declines over the course of the forecast period. Even if Japanese summer temperatures remain high it is unlikely that sales would be able to exceed the level set in 2010 as a combination of difficult economic times, competition from convenience stores and a declining population are all set to see the vending industry suffer further losses.

• To say the Japanese vending industry is saturated is something of an understatement and it is the lack of new profitable sites that will really put pressure on sales. True larger players such as Suntory and Coca-Cola could still find themselves able to expand machine numbers based on the strength of their retail brands but smaller operators as well as independents will necessarily struggle in this difficult market environment.

• The position of tobacco vending is likely to see further downward revision with the likelihood that many tobacco products vending machines are likely to be withdrawn. This will be due to these becoming uneconomical to run with an increasing focus on the environmental credentials of an industry that is power hungry to say the least. This could see companies that rely on vending having to make significant investment in new technology and vending stock if they are to avoid some form of legislation or even an additional sales tax.

• The emergence of next generation vending machines certainly made the headlines in 2010 although to what extent these machines can have an impact on the market is open to discussion. Although these expensive machines at least initially could boast impressive sales revenue versus existing standard machines the challenge for the industry is how to increase customer numbers. With value a key consumer requirement in uncertain economic times lower pricing and or larger pack sizes will be a key strategy through which vending machines can reach out to new customers.

• With margins likely to be squeezed as a consequence the forecast period is likely to see many operators merging, selling vending operations to third parties or even going out of business. Although the proposed merger of Suntory and Kirin at the tail end of 2009 ultimately came to nothing the indication that further consolidation in the drinks industry is more than likely, which will have its own ramifications on vending.

CHANNEL INDICATORS

CHANNEL DATA

For each category and subcategory you will receive the following data in Excel format:

From Passport

• Market sizes
• Company shares
• Brand shares
• Employment
• Grocery vs non-grocery

Market size details:

• Retail value retail selling price excl sales tax % growth
• Retail value retail selling price excl sales tax local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price excl sales tax per capita local currency, USD, EUR, GBP, CHF, JPY
• Sites/outlets
• Sites/outlets % growth
• Sites/outlets per capita
• Selling space
• Selling space % growth
• Selling space per capita
• Retail value retail selling price excl sales tax real (constant 2008) prices % growth
• Retail value retail selling price excl sales tax real (constant 2008) prices local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price excl sales tax real (constant 2008) prices per capita local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price incl sales tax real (constant 2008) prices % growth
• Retail value retail selling price incl sales tax real (constant 2008) prices local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price incl sales tax real (constant 2008) prices per capita local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price incl sales tax % growth
• Retail value retail selling price incl sales tax local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price incl sales tax per capita local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price excl sales tax nominal (current) prices % growth
• Retail value retail selling price excl sales tax nominal (current) prices local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price excl sales tax nominal (current) prices per capita local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price incl sales tax nominal (current) prices % growth
• Retail value retail selling price incl sales tax nominal (current) prices local currency, USD, EUR, GBP, CHF, JPY
• Retail value retail selling price incl sales tax nominal (current) prices per capita local currency, USD, EUR, GBP, CHF, JPY

Global insight and local knowledge

With 40 years’ experience of developed and emerging markets, Euromonitor International’s research method is built on a unique combination of specialist industry knowledge and in-country research expertise.

This approach is what enables us to achieve our goal of building a market consensus view of size, shape and trends across the full distribution universe of each category. We factor in whichever channels are relevant, from large-scale grocery to direct sellers, from discount stores to local mom-and-pop outlets.

Industry specialists

Each industry we cover is managed by an Industry Manager and team of Industry Analysts who research and report on their specialist categories all year round.

Our collaborative approach to research means that these industry teams are in constant dialogue with industry players and opinion formers. The planning of our research programmes reflects latest market trends and industry events. In completing each update project, this provides invaluable input to the testing, review and finalisation of our data.

The specialist in-house teams bring together findings from all stages of the annual research process. They work closely with in-country analysts, assess and challenge data and exercise final editorial control over the publication of new data and analysis.

Country and regional analysts

Our in-country analyst network is managed by country and regional analysts in our offices around the world. Working closely with each in-country team, the regional research management team ensures that all country researchers are well schooled in best practices, from the information collected in store checks, to the dialogue we build in trade surveys. Our country analysts ensure that national reports explain the data trends and provide clear insights into the local market’s dynamics.

In-country research network

To deliver fresh insights every year in countries all around the world, we believe the strongest approach is to use analysts on the ground. They bring fluency in local language, physical proximity to the best sources, an ability to engage directly with local industry contacts, and an awareness of how the products and services we study are advertised, sold and consumed. These are essential parts of our ability to report incisively on these markets.

Our research methods

Each Euromonitor International industry report is based on a core set of research techniques:

Desk research

With industry events, corporate activity, trends and new product introductions tracked year round by our industry team, desk research provides a starting point for the in-country research programme. Our in-country researchers will access the following sources:

• National statistics offices governmental and official sources
• National and international trade press
• National and international trade associations
• Industry study groups and other semi-official sources
• Company financials and annual reports
• Broker reports
• Online databases
• The financial, business and mainstream press

Accessing sources is only the first step. The ability to interpret and reconcile often conflicting information across multiple sources is a key aspect of the added value we provide.

Store checks

Store checks are an integral part of our methods for product industries. Carried out on the ground across a relevant mix of channels, the information gained provides first-hand insights into the products we are researching, specifically:

• Place: We track products in all relevant channels, selective and mass, store and non-store
• Product: What are innovations in products, pack sizes and formats?
• Price: What are brand price variations across channels, how do private label’s prices compare to those of branded goods?
• Promotion: What are marketing and merchandising trends, offers, discounts and tie-ins?

Findings are cross-referenced with brand share data analysis. The results, combined with the findings of desk research, provide a strong basis for identifying key areas of questioning to take forward into our trade survey.

Trade survey

Interaction with global players at corporate HQ and regional levels is complemented by unique local data and insights from our in-country trade surveys around the world. Through the high profile of the Euromonitor International brand, we are able to talk directly to a wide range of sources and therefore inform our analysis with the knowledge and opinions of the leading operators in the market.

Trade surveys allow us to:

• Fill gaps in available published data per company
• Generate a consensus view of the size, structure and strategic direction of the category
• Access year-in-progress data where published sources are out of date
• Evaluate the experts’ views on current trends and market developments

In building our composite industry view, we engage with a variety of personnel in key players at all points of the supply chain: materials suppliers, manufacturers, distributors, retailers and service operators. We also interview desk research sources: industry associations; study groups; and third party observers from the trade and financial press.

Our objective is to engage in conversation with trade sources in which we exchange ideas and views on the industry, sharing our work-in-progress findings on supply/demand dynamics and potential. This dialogue enhances both parties’ understanding of the local market. The scope and reach of our trade survey also serves to eliminate bias (intentional and unintentional) from any single source.

Company analysis

At a global level, our company research combines our mix of industry interaction and use of secondary sources such as annual accounts, broker reports, financial press and databases. From a data perspective, the aim is to build “top-down” estimates of major players’ total global and regional sales.

At a country level, in line with local reporting requirements, we access annual accounts, national-specific company databases and local company websites. These are all invaluable sources as we build a view of each domestic player’s size and position within very specific categories of the industry.

Forecasts

Data projections and future performance analysis are key elements of Euromonitor International’s market intelligence. Working with historic trends of 15 years or more, a key aspect of our trade survey is to engage industry insider views of the next five years. Will volumes maintain their historic trend? Will price increases or falls of recent years continue, accelerate or slow down? Will increasing demand for one product cannibalise sales of another?

Forecasts represent many of the essential conclusions we have reached about the current state of the market, how it works and how it behaves under different macro and micro conditions. Our written analysis will state the assumptions and the trade opinion behind whether our predictions are optimistic or pessimistic, so that clients can use our statistical forecasts with confidence.

Data validation

All data is subjected to an exhaustive review process, at country, regional and global levels.

The interpretation and review of sources and data inputs forms a central part of the collaboration between industry teams and country researchers. Numbers are delivered to regional and global offices with an audit trail of sources and calculations to allow for a thorough evaluation of data sense and integrity.

Upon completion of the country review phase, data is then reviewed on a comparative basis at regional and then at a global level. Comparative checks are carried out on per capita consumption and spending levels, growth rates, patterns of category and subcategory breakdowns and distribution of sales by channel. Top-down estimates are reviewed against bottom-up regional and global market and company sales totals.

Where marked differences are seen between proximate country markets or ones at similar developmental levels, supplementary research is conducted in the relevant countries to confirm and/or amend those findings. This process ensures international comparability across the database, that consistent category and subcategory definitions have been used and that all data has been correctly tested. We make sure that possible discrepancies between different published sources have been reconciled and that our interpretation of opinion and expectation from each country’s trade sources has been applied to form a coherent international pattern.

Market analysis

Another integral part of all our research programmes is that all Euromonitor International data is accompanied by clear written analysis. From a research perspective, this explains and substantiates data findings. From a client perspective, this offers unique insights into local consumption trends, routes to market, brand preferences, channel dynamics and future trends.

Our country level analysis also provides invaluable input into the ability of our central industry specialist teams to marry local insights with strategic conclusions on the direction of the market regionally and globally.