Japan's Retail Revolution
– why Wal-Mart isn't closing down Main Street there –
most PHOTOS DELETED
Michael Smitka
Washington and Lee University
–––
Virginia Association of Economists
March 27, 2008
Lexington, Virginia
© 2008 Michael Smitka
Fulbright Project
• Book on modern Japanese economy
• Target audience undergraduate Japan classes
• Context: “lost decade”
• avg growth 0.9% during 12 years 1992-2003
• Two underlying themes
• Lots of change despite slow growth
• Demographics and its impact
• Issues
• Finding examples interesting to non-economists!
• Teaching economics in the process
© 2008 Michael Smitka
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Retail Change
• Post-WWII
• Poverty
• High density residences
• Poor transportation
• Retail sector
• Department stores from prewar era
• Lots of very small mom-and-pop stores
– Grew organically around town centers, train stations
– Shotengai “shopping streets” (商店街)
– Supported by host of wholesalers
© 2008 Michael Smitka
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Rise of GMS (Daiei)
• Growth of general merchandise stores
• Daiei, known for discounts
– In early stores, cheap goods piled on tables
• Large Retail Store Law
– Earlier 1937 law aimed at dept stores
– Strengthened 1972
– Amended 1979, 1982 to plug loopholes
– Severely restricted new large-format stores
– No new “supermarkets” in entire Kyoto Prefecture
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Rise of suburbs
• Influx from countryside, esp. late 1960s
– Land reform plus rent control (借地法、借家
法） made redeveloping urban areas hard
– Planning process for realigning roads etc
around outlying stations slow, rigid
– Suburbs thus tended to “leapfrog” to
outlying areas without infrastructure
• People moved from station to bus
– Little foot traffic for shopping streets
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Increased mobility
• Car ownership widespread in rural
areas by 1980
– Cf. US where in 1930 some 30% of
farmers already owned vehicles
• Expansion of suburban car ownership
was 1980s and 1990s
– Full-sized cars & “kei” minicars (軽自動車)
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End of Large Store Law
• 1992 revision streamlined approvals
– Maximum time for each step specified
• Bursting of bubble freed real estate, esp in
suburban areas
– Abandoned factories, warehouses
• Rise of roadside retailers
– Exemplar: Yamada Denki
• Cf. Best Buy or Circuit City
• No stores at stations, largest specialty retailer in 10 yrs!
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Demographics
• 20% of population over age 65
• Single-member households largest
category
– Different food and consumption needs
– Different time constraints
• Example: bread!
– young now spend more on it than on
noodles – and noodles than rice
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Other innovations
• Convenience stores
– 7-Eleven franchise chain
• Hugely profitable
– bought out US Southland Corp
• Innovative logistics, IT
– Early adopter of POS systems
– Careful tracking sales by time of day, weather, etc
» Take-out food changed at least 3x daily!
– Now 4 huge chains
• And new entry continues: ¥99 Shops that specialize in
single-person food quantities all at a fixed price
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Large-format retailers
• Aeon
– Jusco GMS, others through M&A
– Food supermarkets
– Ministop convenience stores
• Seven & I
– Ito Yokado GMS
– 7-Eleven convenience stores
– 2 department store chains (M&A)
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Specialty retailers
• Lots of categories, some different mixes from
US
– Mens clothing
• Severely hurt dept store profitability
–
–
–
–
Home centers
Shoes
Drugstores
Electronics
• Some through franchises, some only
roadside
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Shopping malls
• Post-bubble phenomenon
– Needed cheaper land
– Several early ones in rural areas
• Go to a small town where local retailers view as
drawing customers / won’t use Large Store Law
– Near large town and crossroads, of course
• Others in new areas (landfill around Tokyo Bay)
– Now everywhere
• But parking on the roof to save on land!!
© 2008 Michael Smitka
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What of Wal-Mart?
• Late in the game
– Others had picked locations outside city
centers
– IT very well developed
• 7-Eleven most sophisticated system anywhere?
– Wholesalers reorganized
• Food wholesalers aiding and abetting growth of
large food supermarket chains
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The Big 5
• Wal-Mart
– Bought failing Seiyu chain
• Small, old stores adjacent to train stations
• Poor road access, and poor reputation
• Has invested $6 billion and still losing money
•
•
•
•
Carrefour - exited
Tesco - a few small-format food stores
Metro - 2 stores, strategy unclear
Costco - a handful of stores, carefully located,
same format as elsewhere. Seems to be OK
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Foreign successes
• Denny’s established the roadside family
restaurant genre
• McDonald’s….!
• Ikea draws from wide area…
• Lots of luxury good stores
– Now setting up stand-alone, further
undermining department stores
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Mom-and-pop?
• Going, going … gone!?
• Small and Medium Enterprise Agency has
many projects
– But very little success
• Patterns of movement now different
• Hours of shopping are now different
• Rural population in rapid absolute decline
• Shutter-gai: streets with all stores are closed
– But a few with a good location, or theme, or…
• Not amenable to replication
• And overall market in decline
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Passenger Car Ownership, Chiba City
400,000
Total up 80%
350,000
300,000
250,000
Small cars -2%
200,000
150,000
Full-sized cars up 16x!!
Trucks -22%
100,000
50,000
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Total
© 2008 Michael Smitka
Regular
Small
Kei
Commercial (cargo) vehicles
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Shopping Centers by Year of Opening
Central city
Suburbs
Surrounding areas
Rural
700
600
500
400
300
200
100
© 2008 Michael Smitka
19
200
6
200
5
200
4
200
3
200
2
200
1
200
0
199
9
199
8
199
7
199
6
199
5
199
4
199
3
199
2
199
1
199
0
6
9
0-20
0
200
0-19
9
199
0-19
89
198
9
197
0-19
7
pre196
9
0
Announced
2007 store
openings
2006.01
2006.02
2006.04
2006.05
2006.06
2006.07
2006.08
2006.09
2006.10
2006.12
2007.01
2007.02
2007.03
© 2008 Michael Smitka
none
none
6
43
46
46
65
49
47
62
59
68
88
579
floor space
88,395
349,706
293,098
259,691
283,641
293,001
356,863
282,651
340,085
297,825
458,101
3,303,057
large store law
registrations
2
8
7
10
2
2
10
7
7
8
13
76
22
over 10,000 over 30,000
sq meters
sq meters
20
Traditional Large Store Sales
General Merchandise Stores
Department Stores
14,000,000
13,000,000
12,000,000
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
© 2008 Michael Smitka
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
5,000,000
19
Yen million
11,000,000
21
Floor size distribution
•,000 part of 1,000-3,000 category before
3
160.0
140.0
120.0
100.0
3,000 ÜF
•
1,000ÜF-3,000ÜF
80.0
500ÜF - 1,000ÜF
< 500ÜF
60.0
40.0
20.0
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04
20
02
20
99
97
94
91
88
85
82
79
76
74
72
70
68
66
64
19
62
0.0
22
Retail Size Distribution: Establishment
Retail Size Distribution
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Retail Size Distribution: Employment
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Retail Size Distribution: Sales
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