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Wal-Mart Japan Case Analysis

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How Walmart flopped in Japan, and elsewhere overseas

New majority holders KKR and Rakuten race to revive battered Seiyu brand

TOKYO -- The overseas outlets of U.S. retail giant Walmart have been burdened by a jinx, the severity of which seems inversely proportional to their distance from the American mainland. In other words, the further away, the weaker their earnings.

This jinx was often mentioned by Walmart employees about 15 years ago when the world's biggest retailer retreated from Germany and South Korea. Whispers of the "jinx" resurfaced again after Walmart pulled out of Brazil in 2018 and Britain in 2020.

Walmart finds US-style retail a tough sell in Japan

Walmart's exit would not spell doom for japan's bricks-and-mortar retail, kkr and rakuten to buy 85% of seiyu from walmart, walmart unit seiyu streamlines deliveries for online shoppers, muji to sell at lawson as consumers flock to convenience stores, latest on comment, australia shifts focus from asean to individual southeast asian nations, japan's 2024 playbook beefs up diplomatic ties with u.s. states, the ghost of soviet union returns to haunt central asia, caucasus, sponsored content, about sponsored content this content was commissioned by nikkei's global business bureau..

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

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Failure to Differentiate Your Customers (Case Study: Walmart in Japan)

Thursday, july 22, 2021 author: business consultants, inc..

In 2018, Walmart’s global sales exceeded 500 billion U.S. dollars. Walmart brought in more than $500 billion in sales globally. Not surprisingly, three-quarters of those sales came from the U.S. While overseas — particularly in Japan — things are not going so well for the American retail giant.

Recent reports have shown that Walmart may be looking to exit Japan nearly 17 years after its initial entry into the Japanese market. This expansion is related to the 2002 acquisition of a minority stake in Japanese grocery store Seiyu, which became a wholly-owned subsidiary in 2008. Like Walmart, Seiyu uses the “Everyday Low Prices” mantra to market to their consumers. 2

Since then, until now, Wal-Mart has not performed well in Japan. Aeon, Japan's largest supermarket, controls 45 percent of the market. Walmart's Seiyu, on the other hand, has a 12% market share.

That may not sound bad, but to put it in perspective, let’s consider a popular American store that has expanded into Japan with great success — Costco. Costco has only 26 stores in Japan, but in 2017 they brought in just over $3 billion in revenue. Seiyu, on the other hand, has 331 locations and brought in $7.1 billion in revenue.

1 MediaBeacon Inc, Case Study - Companies That Failed Internationally From a Lack of Social Understanding, Dec 23rd, 2019, Accessed 1 June, 2021, https://www.mediabeacon.com/en/blog/case-study-social-understanding 2 Reuters, July 12, 2018, Accessed 1 June, 2021, https://www.reuters.com/article/idCAKBN1K137B-OCABS?edition-redirect=ca

For more about this topic, download our latest book "Get to Know Your Customers Day " for FREE:

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Wal-Mart in Japan Case Study

February 12, 2006

Wal-Mart in Japan

The focus of this case study is the hurdles faced by retailing giant Wal-Mart in the Japanese market. In the early 90’s, Wal-Mart’s decision to globalize is a major focus area.

Issues covered in the case study include: Download Case Study (in PDF format)

• Wal-Mart’s entry strategy in Japan
• WalMart’s best practices in retailing like Every Day Low Prices (EDLP) and Rollback to the Japanese market through its joint venture with Seiyu.
• Wal-Mart’s problems faced in Japan because of the differences between the operational and cultural environment in its home market and the Japanese market.
• Walmarts future prospects and business strategies in Japanese Market.

Other management issues covered include:

• The Japanese retailing industry : It’s nature and structure and its market size, market scope, and market characteristics.
• How to frame an entry strateg y for a global and culturally diverse market.

Business Case study terms :

Wal-Mart Stores Inc ., Green Field Operations, Costco Wholesale, Metro, Tesco, Japanese Retail Industry, Ito Yokado , Large Store Law, Every Day Low Prices, Carrefour, Daeiei, America Online Inc., Sam’s Clubs

Related Case Study Reading :

• Can Wal-Mart Woo Japan? , Business Week Online
• Japan Isn’t Buying The Wal-Mart Idea, Business Week Online
• How Wal-Mart Is Reshaping Packaging?
• A New Era in Japan’s Retailing Market
• Tesco Enters The Japanese Market
• Japanese Retail Market Overview
• Japan Market Research
• Japan Retail Sector Overview: companies Walmart

Will Wal-Mart be able to sustain its supply chain advantage : Download Case Study on Wal-Mart’s Supply Chain Practices in PDF format.

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Why Walmart’s might couldn’t crack Japan

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Kana Inagaki and Leo Lewis in Tokyo

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

In 2005, after several years of failing to win the hearts of the world’s most exacting shoppers, French hypermarket Carrefour quit Japan. The experience, according to the then chief executive José Luis Duran, had been a “short, expensive adventure”.

On Monday, after an often gruelling 18 years, Walmart became the latest foreign titan to retreat. The US chain’s sale of its majority stake in supermarket group Seiyu is a tacit admission of its frustration with a market that, with the exceptions of Amazon and Costco, no foreign retailer of fast-moving consumer goods (FMCG) has properly cracked. 

In 2002, Walmart’s decision to enter the market through an existing domestic supermarket brand was seen as savvy even if some had hesitations over the choice of Seiyu.

It was no surprise that Japan stirred Walmart’s ambitions — just as it had the likes of Tesco and Boots from the UK and Sweden’s Ikea. The country’s retail market remains one of the world’s most valuable and vibrant — an environment that, on the face of it, seems supported by a critical mass of experimental, comfortably-off consumers with a nose for both quality and value. For retailers that get it right, it is highly profitable.

The problem faced, in particular, by the foreign FMCG giants, said Michael Causton, head of the Tokyo-based research group JapanConsuming, is that they have universally underestimated the lock that suppliers have in the Japanese market.

“These retailers hit a brick wall on distribution when they come to Japan. In other markets, the big retailers have wrested power from wholesale. In Japan that is still not the case . . . it means that they just cannot manoeuvre as they would wish on discounting and other strategies. Even local Japanese retailers have tried to take on suppliers and lost,” said Mr Causton.

One of the main reasons for suppliers’ continued grip over pricing is that Japan’s food retail scene is extremely fragmented: historically, even the biggest domestic participants have not had the clout to establish an upper hand. 

To some extent, Walmart was able to use its firepower after it first acquired a minority stake in Seiyu in 2002, and immediately attempted to export an “everyday low price” strategy first developed in Arkansas. What it found, however, was that price alone was not enough to draw local consumers seeking the freshest food in addition to quality service. Competition was fierce in a market where a tiny local supermarket posed as big a challenge as national brands such as Aeon and Seven & I’s Ito-Yokado stores. 

Despite being one of the most ethnically homogenous societies, Japanese consumer tastes are also highly varied. Preferences for everything from soy sauce, vegetables and beef vary from region to region, making smaller, regional participants more competitive in pricing for local products.

“It often turns into local battles, and national chains and mega-players like Walmart cannot leverage their bargaining power,” said Taketo Yamate, a former retail analyst at UBS who now works at consulting firm Frontier Management.

For Walmart, Seiyu also posed its own challenge. When the US group struck the initial tie-up, Seiyu had suffered years of under-investment. By the time Walmart assumed control, the global financial crisis struck. 

Traditionally, Seiyu’s growth was driven by the location of its stores near railway stations, making accessibility a selling point. But that also made it difficult for Seiyu to open stores outside of big cities in suburban areas, which became a new battleground for other retail groups. “At the very beginning, Walmart chose the wrong company to invest in,” said Akihito Nakai, an independent retail analyst. 

Not every foreign retailer has failed: Costco, which opened its first warehouse in Fukuoka in 1999, is a notable exception. Analysts put the US group’s success down to the strength of its private brands as well as its exotic store experience in suburban areas — such as large portions and gigantic store space.

“Whether it’s Tesco or Walmart, ultimately they failed to set themselves apart from highly competitive Japanese retailers,” said Credit Suisse analyst Takahiro Kazahaya. “The few that succeeded won consumers over by offering value that was not provided by Japanese companies.” 

After trialling various strategies under Walmart, Seiyu is now generating an operating profit and cash flow, with an estimated annual revenue of $6.7bn, according to analysts and a person familiar with the matter.

But Walmart struggled to find a buyer, according to people familiar with the matter. In the end after almost a year of negotiations, it struck a deal with US private equity firm KKR and the Japanese ecommerce group Rakuten for a $1.6bn sale. How that valuation breaks down between debt and equity has not been disclosed. Walmart declined to comment.

Seiyu’s new owners have one tailwind that Walmart had mostly missed: a nascent but fast-growing $17bn online grocery market . 

“It’s true that the retail industry as a whole may be struggling,” said Eiji Yatagawa, a Tokyo-based partner at KKR. “But with Rakuten as a partner, there is also an unprecedented investment opportunity to become a pioneer in a space that has so far lagged in ecommerce.”

Japan recently passed a critical threshold as online sales of goods rose to more than ¥10tn ($96bn) for the first time, according to the Ministry of Trade, Economy and Industry (METI). Even after that rise, however, Japan’s ratio of ecommerce penetration, at 6.2 per cent, is lower than in the US or UK.

Yet many believe the coronavirus pandemic means ecommerce penetration of merchandise sales will break 10 per cent sooner than expected. Amazon, which began selling food about a year ago in Japan, is likely to be an important driver of that.

The world’s largest online retailer appears to have learnt some of the lessons of the unhappy experience of Walmart, the largest brick and mortar retailer, say analysts. It has partnered one of Japan’s largest supermarket chains, Life Corp, which is in turn largely owned by Mitsubishi Corp, the owner of the country’s largest food wholesaler. Online supermarket Ocado has also signed a deal with Aeon. 

Seiyu has a chance to crack into this ecommerce market with the two-year partnership between Rakuten and Walmart in online groceries that has largely been successful so far. Noriaki Komori, a Rakuten executive who heads the joint venture, says the business has room to grow with more effective marketing using online consumer data. 

“We can offer a new customer experience by integrating the online and offline stores. We can address where the industry is struggling now by really changing the marketing,” Mr Komori said.

Walmart is retaining a 15 per cent stake in Seiyu, which is probably destined for an initial public offering as soon as next year. The US giant can only hope there is a silver lining to its Japanese adventure.  

Additional reporting by Alistair Gray

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Why Walmart is failing in Japan

• Post author By James Bond
• Post date February 21, 2022

Walmart is the largest retailer in the world, with revenues reaching 523.96 billion in 2019. They have been able to succeed in multiple countries, but have not had success in all. One of these failures for Walmart was in Japan.

Walmart’s presence in Japan was created by purchasing a stake in Seiyu, which was a Japanese grocery store, in 2002. By 2008 they fully owned this company. Seiyu’s model was based on “Everyday Low Prices” similar to Walmarts model. Even with Walmarts brand recognition, they have not been able to get a good market share in Japan. Currently, Aeon owns 45% of the market share while Seiyu is only 12%.

The main reason for this is that Japanese consumers are not as interested in the low price strategy as Americans are. Japanese customers enjoy hunting for good deals, and will go to multiple stores trying to find a good deal. Another reason for the lack of success is that Japan’s market was already very congested with many supermarkets as well as mom-and-pop shops. Lastly, Japanese consumers enjoy fresh and locally sourced food, and Seiyu does not offer much of that.

This shows that many different countries have different preferences when shopping. While people in the U.S. like to bargain shop all in one place, this does not work everywhere.

Works cited: https://www.mediabeacon.com/en/blog/case-study-social-understanding