Wal-Mart Struggles in Japan

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Case Details:

Case Code : BSTR186
Case Length : 20 Pages
Period : -
Organization : -
Pub Date : 2005
Teaching Note : Not Available
Countries : -
Industry : -

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"It will be a long-term story to see if Wal-Mart can take advantage of the merits of the Japanese market." ¹

-Yasuyuki Sasaki, Retail Analyst, Credit Suisse First Boston in 2002.

"Japan is a challenging market, but it is also a very significant growth opportunity." ²

- Greg Penner, Chief Financial Officer, Wal-Mart Japan in 2004.

"For Wal-Mart, success in Japan is important, since a solid foothold in the world's No. 2 retail market could someday be a key to future growth." ³

-Business Week Magazine in 2005.

Introduction

Wal-Mart Stores Inc. (Wal-Mart) entered Japan in March 2002, through an alliance with Seiyu Limited (Seiyu), Japan's fifth largest retailer in 2002. There were mixed reactions from analysts.

Some cited macro-economic factors like the low rate of growth⁴ and an aging population that made Japan's retail market less than attractive. However, others felt that despite these factors, Japan's $451 billion retail industry was sufficiently large to justify Wal-Mart's interest.

As soon as it entered Japan, Wal-Mart brought in its best practices in retailing like Every Day Low Prices⁵ (EDLP) and Rollback,⁶ for which the firm was renowned. It also attempted to introduce substantial changes to the management of Seiyu stores by revamping its store layouts, and implementing Retail Link,⁷ its widely appreciated supply chain management software. Despite these efforts, Seiyu registered consecutive losses in 2003 and 2004.

Some experts commented that Wal-Mart's retailing model was not suitable for Japan. They pointed out that Japanese consumers preferred conveniently located stores within the city and were not visibly price-conscious. They added that foreign retailers had trouble with procurements due to the multi layered network of suppliers and retailers in the Japanese retail sector.

Experts began to compare Wal-Mart's experiences in Japan with its experiences in other countries such as Mexico and Germany. While Wal-Mart had a shaky start in Mexico, it later emerged as a market leader in the country. In Germany, however, it could not overcome initial setbacks and was still struggling. Experts wondered whether the Japanese venture would replicate the Mexican success story or the German misadventure. In August 2005, Wal-Mart announced that it was contemplating launching stores with its own brand name in Japan. This seemed like a bold move by Wal-Mart, especially since another big foreign retailer - Carrefour⁸ - had exited the Japanese market just a few months earlier in March of the same year, after struggling to establish itself for six years.

Despite its troubles with Seiyu, Wal-Mart also made a bid to acquire Japan's fourth largest retailer Daeiei in 2004, when it was being restructured through a bailout. However, Wal-Mart's bid for Daeiei was rejected in September 2005, dealing a big blow to its expansion plans in Japan. Had the bid been successful, Wal-Mart could have emerged as the second largest retailer in Japan after Ito Yokado.

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1] "Wal-Mart Takes on Japan," http://news.bbc.co.uk, March 14, 2002.

2] Ian Rowley, "Can Wal-Mart Woo Japan?" www.businessweek.com, May 10, 2004.

3] Ian Rowley, "Japan Isn't Buying the Wal-Mart Idea," www.businessweek.com, February 28, 2005.

4] Japan's per capita average GDP growth from 1990 to 2001 was a mere 1% p.a.

5] EDLP was a pricing strategy adopted by Wal-Mart to ensure lowest prices among all retail chains on its products.

6] Rollback refers to Wal-Mart's strategy of passing greater savings to its customers by lowering even its Every Day Low Prices as and when possible.

7] The system can instantly transmit details of each purchase to a central database on a real- time basis as it receives payment from customers. This enables managers to track inventory and suppliers can also know the products that are selling well.

8] Carrefour, France's biggest retailer said that it withdrew from any market where it felt it had no chance of reaching the top three.