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Japan's Retail Revolution – why Wal-Mart isn't closing down Main Street there – most PHOTOS DELETED Michael Smitka Washington and Lee University ––– Virginia.

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Presentation on theme: "Japan's Retail Revolution – why Wal-Mart isn't closing down Main Street there – most PHOTOS DELETED Michael Smitka Washington and Lee University ––– Virginia."— Presentation transcript:

1 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

2 2 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

3 © 2008 Michael Smitka 3

4 4 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

5 © 2008 Michael Smitka 5 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

6 © 2008 Michael Smitka 6 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

7 © 2008 Michael Smitka 7 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 )

8 © 2008 Michael Smitka 8 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!

9 © 2008 Michael Smitka 9 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

10 © 2008 Michael Smitka 10 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

11 © 2008 Michael Smitka 11 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)

12 © 2008 Michael Smitka 12 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

13 © 2008 Michael Smitka 13 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!!

14 © 2008 Michael Smitka 14 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

15 © 2008 Michael Smitka 15 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

16 © 2008 Michael Smitka 16 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

17 © 2008 Michael Smitka 17 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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23 © 2008 Michael Smitka 23 Retail Size Distribution Retail Size Distribution: Establishment

24 © 2008 Michael Smitka 24 Retail Size Distribution: Employment

25 © 2008 Michael Smitka 25 Retail Size Distribution: Sales

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