Summary
WMT has been singularly unsuccessful in many of the markets it tried to enter. The "why" is my focus below.
Pre-modern" retail in Japan - and in Germany and France and the UK - was populated by a lot of entrepreneurial players.
They're sufficiently strong and cover enough of their domestic markets to close off cross-border entry to the likes of Wal-Mart.
By Mike Smitka
Let me follow up on my previous post on Wal-Mart's (NYSE:WMT) strategic challenges. There I noted that Wal-Mart has been singularly unsuccessful in many of the markets it tried to enter. The "why" is my focus below.
Within economics and management there's a strand of research called "population ecology," spearheaded by the work of Glenn Carroll and Michael Hannan. They begin with a simple model: that early in its history an industry is populated by numerous firms with varying business strategies and management structures and operational setups. Some of these are ill suited to the competitive environment and disappear; others are a better fit and grow. These don't always scale. In my region of the US barbecue restaurants take a standardized form, a standard business model has evolved, but franchising doesn't seem to work.
I contend that the same is true for retail. In Japan at least 4 different national firms tried variations of the large-format, low-margin, high-volume retail store, and there are likely others that did so but failed before reaching a scale where I learned of them. (I know of a couple that appear to fit the mold but are limited to one or another region.) For example, while it claims a century-plus history, today's Jusco chain began in rural Japan, and expanded based on rural stores at the intersection of major roads. Even better, they were often able to do so outside of then-existing city boundaries, and so either were not regulated under the [now defunct] Large Store Law, or had only a small number of retailers on a town's main street who had to acquiesce to their setting up shop. I lived briefly in rural Niigata Prefecture, where there was a store as part of a mall outside of Muikamachi, at the intersection of two main roads and just off an expressway exit. The flower shop, the fruit shop, a local liquor store and others either found space inside the main Jusco building, or in a row of shops just across the parking lot. All of this was tied to regional logistics centers and the growth of national and not just regional wholesalers. They could also direct source clothing from overseas; most of what was on their racks carried labels of origin from elsewhere in Asia. Having previously lived in urban Japan in a house situated on a street of mom-and-pop retailers [that on one side was run by a mom, on the other by a dad], I was used to shopping daily for small quantities, and of facing that day's selection of fish and vegetables, a function of what the owner chose on their last trip to a local wholesale market or the current sale from distributor from whom they bought most of their clothing. These stores were friendly, but not inexpensive, and they kept short hours; they were often long closed by the time I got home. The alternative was the department store at a major train nexus, a possible stop on the way home. But there was no way to take a full shopping bag on a train during the Tokyo rush hour... So it was mind-blowing to drive to a mall in Japan, park my rental car and get out to find a huge store with copious variety and low prices.
Jusco and its rival Ito-Yokado chain filled the Wal-Mart niche. They were intimately linked to the rise of new wholesale channels, they focused on markets where they faced no competition and lower capital costs, and from the beginning they built their businesses around modern inventory control systems and an ability to manage part-time workers to offer longer hours of operation. A third chain, Daiei, originated in urban areas. While it was for a while wildly successful, its focus on prime commuter-rail-based shopping areas left it with stores smaller in size and irregular in format - their layout and location were subject to the availability of a tract of land or an empty building of suitable size. In the process of expanding they accumulated a lot of debt, and ultimately went through a forced restructuring that left them under the control of the holding company of the Aeon chain, the parent to Jusco.
In short, by the time Wal-Mart turned its attention to Japan, incumbent Japanese firms already occupied their strategic space: large-format rural "hypermarkets" open long hours that were in locations convenient for car-based shopping, buttressed by a strong position at the wholesale end, supported by management information systems and dedicated warehousing and logistics that gave them greater control over their sourcing and control of their inventory. While Wal-Mart had a far bigger purchasing budget on a global basis, only some of what they'd order for US customers was appropriate to Japan, and they didn't have dedicated channels from their sources in China and elsewhere to store shelves in Osaka or Tokyo. Nor did they have sourcing for vegetables and other goods with short shelf lives. So while they did purchase the Seiyu retail chain, it was an older one with urban origins and a weak presence in the new car-based suburbs of Tokyo, and virtually no rural footprint. The store local to me in Inage, Chiba was a train stop (or 7 minute bike ride) away, but was small, and on a side street adjacent to a train station with room for only 4 cars to park. Yes, its price for peanut butter was great, but its vegetables were not, and the layout was impossible, I had to negotiate narrow stairs into a dingy basement. In contrast I could ride my bike in a different direction to an Aeon store that was bright, airy and had an adjacent food court and several other restaurants. It was also open both earlier and later, and off of two major roads with an attached multistory parking deck. And in another direction was a full shopping mall, a full kilometer in length on a major road, with parking for 2,000 cars and two hypermarkets facing each other. [Apparently when the developer told these stores they'd be "an anchor store" they heard they'd be "the anchor store" - great for shoppers, not so good for the stores!]
A final point: it wasn't just Wal-Mart that tried and failed, but also the French giant Carrefour (OTCPK:CRRFY) (OTCPK:CRERF). They were more careful than Wal-Mart, with better locations and larger footprints and parking garages for their stores. They still faced an uphill battle. Unfortunately they chose to advertise themselves as a French retailer. Japanese shoppers went in expecting fashionable clothes and accessories, unusual foods and a good selection of wine. What they found was a Wal-Mart-like experience. By the time Carrefour realized its branding disconnect, it was too late.
To sum, 30 years ago "pre-modern" retail in Japan - and in Germany and France and the UK - was populated by a lot of entrepreneurial players. A few of them hit on the Wal-Mart strategy, and of those some were analytic enough to realize why they were doing well, and grow. Carrefour and Tesco and Ito-Yokado and Metro and their peers have their strengths and weaknesses relative to Wal-Mart. In the end, though, they're sufficiently strong and cover enough of their domestic markets to close off cross-border entry to the likes of Wal-Mart. Unlike in their formative years, international expansion offers no low-hanging fruit ripe for outsiders to pick, be they aWal-Mart or a Kaufmarkt.
No comments:
Post a Comment