After 18 years of trying to succeed in the Japanese market, Walmart has become the latest big foreign brand to tacitly signal that this is a market it could not crack.
The world’s largest bricks-and-mortar retailer has now sold its majority stake in Japanese supermarket chain Seiyu, reports the FT, which sees this as a measure of Walmart’s frustration with a market in which, aside from Amazon and Costco, no foreign retail brand has properly succeeded.
French retailer Carrefour quit the market 15 years ago with its CEO describing the experience as a “short, expensive adventure”. UK supermarket giant Tesco admitted defeat in 2011, after spending more than £250 million over eight years trying to establish a business at scale in the country.
Walmart’s decision to enter the market via a tie-up with an existing, well-established brand in the country was generally seen as a canny move.
But the challenge faced in particular by foreign brands is one they have all failed to fully appreciate, according to Michael Causton, the head of Tokyo-based research group JapanConsuming. They have underestimated the tight grip suppliers have on the market in Japan, he told the FT.
“These retailers hit a brick wall on distribution when they come to Japan,” Causton said.
“In other markets, the big retailers have wrested power from wholesale. In Japan that is still not the case . . . it means that they just cannot manoeuvre as they would wish on discounting and other strategies. Even local Japanese retailers have tried to take on suppliers and lost,” he added.
One of the core reasons for the power of suppliers is the fragmented nature of the market. And even though Walmart tried its “everyday low price” formula, so successful in the US, it discovered that in Japan this was not enough. Price by itself could not win over local consumers looking for a marriage of the freshest food, along with high-quality service.
Japanese consumers’ preferences are also very varied, with tastes for staples such as soy sauce varying from region to region. This can allow smaller, regional retail rivals to compete on price.
“It often turns into local battles, and national chains and mega-players like Walmart cannot leverage their bargaining power,” Taketo Yamate, MD of consulting firm Frontier Management, told the FT.
Costco, however, which entered the Japanese market in 1999, is one brand that stands out among foreign retailers. Analysts, reports the FT, put its success in the market down to the fact that it offers something very different to Japanese retailers – the strength of its private labels, the novel store experience in suburban areas, with big portions and huge store space.
“Whether it’s Tesco or Walmart, ultimately they failed to set themselves apart from highly competitive Japanese retailers,” Credit Suisse analyst Takahiro Kazahaya told the FT. “The few that succeeded won consumers over by offering value that was not provided by Japanese companies.”
Sourced from the Financial Times, The Guardian