Wal-Mart's Japan Strategy

1773 Words May 11th, 2008 8 Pages
In-Depth Integrative Case: Wal-Mart’s Japan Strategy

1. Question: Do you believe Wal-Mart can be successful by circumventing the current Japanese distribution system?

The Japanese distribution system has two distinct characteristics: too many very small retailers and multiple layers of wholesalers. Japanese consumers prefer to buy fresh, high quality food and have the tendency to purchase goods in small amounts and at frequent intervals. Since real estate is very expensive in Japan, people live in very small apartments and they are not used to doing big shopping, because there is not much space to store things. The majority of small-sized retail stores are run as family businesses, and there are preferential tax treatments granted
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Carrefour, the world’s second largest retail chain, entered the Japanese market a month earlier than Wal-Mart with the goal to take away market share before Wal-Mart had a chance to streamline with Seiyu. However, growth of Carrefour 's Japanese business has been slower than expected. In 2005, Carrefour sold its 8 hypermarkets to AEON group. But stores still use the Carrefour name and brand. Most recently, on March 9, 2007, AEON made a $535M deal to take 15% wedge of supermarket chain Daiei to become the No. 1 retailer in Japan. This move makes both companies more competitive by increasing their economies of scale.
Slow sales indicate Wal-Mart’s style isn’t catching on with local consumers yet. Since taking a stake in Seiyu in 2002, the chain’s struggling Japanese operations have lost well over $1 billion. A stake in the Daiei chain might have changed Wal-Mart’s fortunes. Daiei was very important for Wal-Mart from a strategic point of view. It would have given Wal-Mart a huge footprint in Japanese retailing. Economies of scale from the deal would have enabled Wal-Mart to get closer to achieving its “everyday low pricing (EDLP)” model. In 2005, Wal-Mart missed already once the opportunity to make a deal with Daiei. At that time, Daiei was under the control of Industrial Revitalization Corp. of Japan (IRCJ), a government-backed body charged with acquiring, turning around, and selling distressed companies.