The Case Study of “Bookoff, Amazon Japan, and the Japanese Retail Bookselling Industry”
1 Why is the profitability of large Japanese retail booksellers relatively poor and their scale relatively small?
According to the case, ‘stagnation in sales along with the steady increase of costs over time has reduced the profitability of both large chains and small stores’ (Peng 2009, p. 391). There are several reasons that results in the relatively poor profitability of large Japanese retail booksellers and their small scale.
Firstly, the Saihan system, i.e. Resale Price Maintenance, is the most important factor. The system’s price-fixing policy rules out the price competition (Peng 2009, p. 390), which would be a normal competitive…show more content… 387-395). The large number of bookstores is competing with each other for similar products with similar price. In addition, the Japanese retail bookselling industry has already become an oversaturated market nowadays (Peng 2009, p. 391). Therefore, the rivalry among retail bookstores becomes fairly intense under this circumstance.
Also, it is almost certain that potential new entrants can be threatening, owing to the weak competitive power of existing bookstores, to be more specific, their small scale (Peng 2009, pp. 387), i.e. little economies of scale (Peng 2009, p. 37), the lack of uniqueness in their products with similar price (Peng 2009, pp. 390), i.e. shortage of non-scale-based advantages (Peng 2009, p. 37). In addition, the scarcity of entry barriers set by the Japanese government is another factor (Higuchi 2007). ‘Entry barriers are advantages that incumbents have relative to new entrants.’ (Porter 2008)
Additionally, the number of publishers and wholesalers is relatively small compared with the bookstores. Therefore, these distributors have high bargaining power, i.e. they have the choice to favor larger book retailers over small ones because of the Consignment Sale System, i.e. they can obtain higher profit due to larger retailer’s lower return rate (Peng 2009, pp. 388-389).