Why Japan's brick-and-mortar retail industry is stronger

Since the 90s of the 20th century, the key word for the development of Japan's physical business has been "value for money", that is, to provide high-quality and low-cost products and experiences that exceed customers' psychological expectations

Text: Li Haiyan

In recent years, there have been many reports of difficulties in the operation of physical stores in China. Going back 30 years, Japan in the early 90s of the 20th century is similar to our current situation.

Such an external environment is certainly not good for retail enterprises, and after 1997, Japan's Internet e-commerce has also begun to rise. But even so, there have been many high-quality brick-and-mortar commercial enterprises in Japan over the past 30 years, and some of them have maintained growth for nearly 30 years.

It is a variety of new chain retail enterprises that have achieved relatively great development. The first category is the 24-hour convenience store industry, with 7/11, Lawson (Lawson), FamilyMart (FamilyMart), etc.; The second category is the Speciality Store Retailer of Private Label Apparel (SPA), which is represented by Uniqlo; The third category is a variety of chain stores that take the cheap route, focusing on different subdivisions, representing companies such as Daiiso, BigCamera, Yamada Electric, Optical Supermarket, Don Quixote, etc.; The fourth category is the drugstore industry, with representative companies such as Welcia and Matsumoto Kiyoshi; The fifth category is the second-hand market, which represents companies such as Bookoff, 2nd Street, etc.; The sixth category is the characteristic supermarket, and the representative enterprises are the business supermarket and the eight hundred luck. In addition, there are many chain enterprises in the catering industry that have maintained stable expansion.

Overall, Japan has achieved a balanced development of brick-and-mortar commerce and e-commerce over the past 30 years, rather than the situation we have been in for years: e-commerce has grown steadily and brick-and-mortar commerce has been declining.

Since the 90s of the 20th century, the key word for the development of Japan's physical business has been "value for money", that is, to provide high-quality and low-cost products and experiences that exceed customers' psychological expectations.

The virtual manufacturing of retail enterprises and the establishment of industrial chain dominance

Before the 70s of the last century, Japan's material is relatively insufficient, manufacturing enterprises occupy a dominant position in the field of commercial circulation, and the price tags of household appliance retail stores are often written with "manufacturer's guide price", this price is very recognized by consumers, and manufacturers have strong control over retail enterprises.

After the 80s of the 20th century, Japanese society has changed from a shortage to a surplus, and the voice of retail enterprises has gradually increased, and the retail industry has begun to enter the chain, which means that the negotiation ability of retail enterprises in procurement has increased.

After the 90s of the 20th century, with the bursting of the bubble economy, consumption fell into a downturn, and the balance was more tilted in favor of retail enterprises. Not only large chain enterprises, but also individual stores are also the objects of attention of manufacturers. For example, for sake breweries (small-scale breweries) in various regions, individually owned sake breweries are also important customers. For the four major breweries in Japan (Kirin, Asahi, Sapporo, and Suntory) that compete fiercely, each restaurant is a must for them.

There are many measures that retail companies can take to cope with the downturn in consumption, and the most important measure is the virtual manufacturing of the retail industry.

Before the 80s of the 20th century, the circulation process was like this: manufacturing manufacturers R & D and design - procurement of raw materials processing and production - wholesale to large wholesalers - retail enterprises from wholesalers - after-sales service to manufacturers as the mainstay, retail enterprises as a supplement. Throughout the process, the brand of consumer goods is always owned by the manufacturer.

After the 90s of the 20th century, new models gradually emerged: retail enterprises analyze consumption trends and consumer needs - retail enterprises design with their own brands - entrust production to Japanese or foreign manufacturers - Japanese retail enterprises are responsible for quality control - sales in the channels of retail enterprises - improve products according to sales volume or consumer feedback - after-sales service.

7/11 cooperated with manufacturers to develop a large number of so-called PB (private brand) products, which were sold together with manufacturers' brand products. But in the development and marketing of some important products, 7/11 played a leading role.

Taking Japanese onigiri as an example, it appeared in convenience stores in the 80s of the 20th century, and every five years or so, there will be major updates and progress in Japanese onigiri, behind which is the leading role of 7/11, which has a special product development department and regularly organizes outsourcing manufacturers to improve existing products and develop new products.

UNIQLO is the most successful Japanese clothing chain developed after the 90s of the 20th century, and is a representative of Japan's new retail. UNIQLO is responsible for the brand, store opening and operation management, clothing design and after-sales service. More than 80% of the processing and production of clothing are in China. The quality of clothing depends on the style design, and the second is the quality of the fabric. In terms of fabrics, UNIQLO has a long-term cooperation with Toray, Japan's most well-known chemical fiber company.

Another typical case is the business supermarket, which is a Japanese-style low-cost supermarket chain that has attracted attention for more than a decade, and the company that operates the supermarket chain is called Kobe Bussan.

In Japanese, "business use" refers to the large package products used by merchants, and the corresponding concept is "household use" in small packages. Kobe & Co. has even directly acquired several struggling food processing companies to supply its supermarkets. Kobe & Co.'s own agricultural production and food production companies have created a business model that integrates production and sales.

Build a transnational industrial chain

Before the 80s of the 20th century, Japan's internationalization was the import of energy and resources and the export of various industrial products, after which Japan's internationalization gradually deepened. After the bursting of the bubble economy, Japan's domestic consumption power declined, and high quality and low prices became the prerequisite for the survival of physical commerce. In the 90s of the 20th century, China's reform and opening up accelerated, and Japanese enterprises quickly built a transnational industrial chain division between China and Japan. Since 2000, the product chain has become more global and refined.

In the 90s of the 20th century, the economic gap between China and Japan was huge, and the division of labor between China and Japan was simple and clear, with Japanese companies responsible for branding, research and development, store operation management, quality control, and after-sales service, and Chinese companies responsible for the production and processing of agricultural or industrial products.

Quality control has always been strictly controlled by Japanese companies. Quality management is a system, not a simple measure. This includes the selection of Chinese processing plants, the determination of quality systems and the formulation of manuals, the dispatch of technical personnel from Japan to guide and supervise, the provision of core raw materials and core equipment by Japan, and the organization of relevant Chinese personnel to study and study in Japan.

When I went to Japan in 1995 to study, I saw garlic and green onions in the supermarket that most of them came from China. To this day, in terms of the uniformity of garlic and green onions, Chinese supermarkets have not reached the level of Japanese supermarkets in 1995.

Another point is the existence of Japanese trading companies, especially general trading companies. General trading companies in Japan generally refer to Mitsui & Co., Mitsubishi Corporation, Itochu Corporation, Sumitomo Corporation, and Marubeni. There are also many specialized trading companies that work in subdivided fields. The business of these general trading companies often covers more than 100 countries and regions, and has a wide range of industrial chains.

Japan's three largest convenience store chains are all backed by a general trading company.

Behind 7/11 was Mitsui & Co., FamilyMart's parent company was ITOCHU Corporation, and Lawson was acquired by Mitsubishi Corporation as its subsidiary. These general trading companies are able to provide a stable supply of products to retail chains in Japan through their global supply chains. For example, the largest wholesale company in the Japanese food industry is a wholly-owned subsidiary of Mitsubishi Corporation, which in 2014 acquired Cermaq, a Norwegian salmon farming company that was the third largest in the world at the time. In 2023, Mitsui & Co. invested in PinhPhu, the largest shrimp farming company in Ecuador, and in 2019, it invested 35.1% of Vietnam's largest shrimp farming and processing company.

The Japanese coffee industry has reached a high level since the 90s of the 20th century, and there is also a shadow of general business behind it. Marubeni, which accounts for about one-third of Japan's coffee imports, acquired a 35% stake in Brazilian instant coffee company Iguacu in 1975 and the entire stake in 2014. The stable supply of high-quality raw materials and products around the world is one of the important reasons for the steady development of Japan's physical business.

For many commercial retail companies, internationalization is not the icing on the cake, but a matter of life and death.

The rapid development of the 100-yen shop industry in Japan after the 90s of the 20th century would not have been possible without a stable supply from developing countries such as China. Since the 90s of the 20th century, Japan's beef rice bowl chains (such as Yoshinoya) have grown rapidly, and without a stable supply of low-cost American and Australian beef, it is impossible to achieve rapid expansion. Optical store chains such as Fuji Eyewear and JINS source most of their lenses and frames from China and South Korea.

High level of creative design skills

The strength of Japan's brick-and-mortar business is directly related to its creative design capabilities, which are often not well understood.

Since 2000, more than 20 Japanese scientists have won the Nobel Prize, which has attracted domestic attention. In fact, Japan has won a lot of international awards. For example, the Pritzker Prize, the highest award in the architectural design industry, has been awarded by nine Japanese architects, the most of any country, which is the result of Japan's growing originality.

Cainz is a classic example. The company's business format is home center, and the market size of this segment has not increased since 2000, but Jiayingzhi has maintained stable growth in the past 30 years, and the biggest reason is its strong creative design capabilities. There are 90,000 kinds of products in the store, of which about 10,000 are designed and developed by the company itself. Some of our products have won the Red Dot Award, the iF Award, and the Good Design Award, which is Japan's most influential industrial design award.

"Muji" is also a typical case, creating a product line for minimalist living, and its products are also an initiative for a new lifestyle.

The high level of creative design ability is also reflected in the Japanese food and beverage industry, mainly in the development of various business formats. At present, large restaurant chains in Japan often have multiple store formats, achieving different business positioning and meeting the needs of different consumer groups.

Material consumption + experiential consumption

After the bursting of the bubble economy, conspicuous consumption and luxury consumption have decreased, and normal consumption has not changed much.

Since 2000, "from the consumption of goods to the consumption of experiences" has been a frequent topic of discussion in the Japanese media. This transformation has been very important for physical business in Japan over the past 30 years.

Before the 90s of the 20th century, Japan's expressway service areas (Japanese for "道の駅") were the same places as China's current expressway service areas, which provided refueling, toilets, and simple meals. Today, however, expressway service areas in many parts of Japan have become commercial complexes for consumption + entertainment + shopping + rest. Some well-run highway service areas even attract some people to come there specifically to spend.

Another example is Disneyland in Japan. Disneyland Japan has been very profitable since its opening, and many people think that Disney makes money for granted, but they don't know that Disney Japan has a lot of innovation and improvement in addition to the main IP of Disney in the United States, and it can be said that 70% of Disney's original IP and 30% are integrated into Japanese factors.

Brick-and-mortar commerce in Japan is characterized by the manufacturing of commerce, which is also reflected in amusement parks and other similar experience-based commercial facilities. After World War II, some things with Japanese characteristics have gradually formed in Japan's manufacturing industry, such as 5S and "on-the-spot", which have become the consensus of the whole society.

In the 20 years after the 90s of the 20th century, Japan was basically in an era of deflation, that is, prices have been falling, and the people's spending power is also declining.

After 1990, there was a supermarket called "Yabaiko" that grew for 30 years. Yabaiko has two characteristics: first, the supermarket only has stores in the surrounding areas of Tokyo, and second, it is a "proposal-type supermarket" that conducts various demonstrations every day to show how to cook with supermarket products.

Eight hundred luck embodies the way of breaking the involution of Japanese physical business - taking the "differentiated" route and striving for different customer groups, which requires enterprises to have a clear strategic positioning.

Yabaiko also demonstrates the cost control capabilities of Japanese brick-and-mortar businesses. There are three successful experiences for Japanese companies in the real industry to learn from: First, the operation manual of store operation. In the case of chain stores, front-line sales staff are often informal employees, the quality of personnel is uneven, and the mobility of employees is relatively large, so it is indispensable to have a visual operation manual; The second is to introduce the IT system, if the huge operation system wants to operate efficiently, it must be supported by a strong IT system; The third is the centralized store opening model. If the stores are too scattered, the logistics cost will be high, and the centralized opening of the store will help control the cost.

The spirit of craftsmanship is admired in Japanese society

The "craftsman spirit" is specific to the physical commercial enterprises, that is, "earnestly make products and services" and "do not blindly expand". For example, Jiro Ono, the god of sushi, had difficulty making reservations for his sushi restaurant in the 90s of the 20th century, but Ono never expanded or franchised. Until today, he just let his second son open a branch. Of course, this is a more extreme case, but in general, the well-known stores in Japan are more cautious about expansion.

Respect for craftsmen is a tradition in Japanese society, where a social atmosphere has developed in which consumers are expected to pay relatively high for those who work hard to improve their skills.

Japan's NHK TV has a 20-year-old popular program, which literally translates as "the flow of professionals" and paraphrased as "connoisseur's true colors". "Liuyi" means "more elaborate practice". The program "Connoisseur True Colors" reports on many people who work hard in ordinary jobs, and they are deeply respected by society.

The spirit of craftsmanship plays a supporting role in Japan's brick-and-mortar business in many ways. For example, the intensive cultivation of Japanese agriculture has provided high-quality fruit and beef to physical retail stores in Japan, and the Japanese beef cattle breed "Wagyu" is of high quality and has long been a high-quality ingredient in the world.

The essence of respecting the spirit of craftsmanship is to respect intellectual property rights and people's personalities, and to protect and respect the rights of ordinary people.

Brick-and-mortar commerce and e-commerce are not zero-sum games

Thinking about the relationship between brick-and-mortar business and Internet e-commerce in Japan is also a very interesting topic. In 1997, e-commerce appeared in Japan, and since then, both local and foreign-funded Internet e-commerce have been developing steadily. The scale of Japanese e-commerce has always been relatively small, mainly because the domestic market is relatively small, but after 1997, Japanese e-commerce has also grown steadily for 20 years, and many brick-and-mortar businesses in Japan are also actively embracing e-commerce.

From the consumer's point of view, Japan's current state is actually a relatively ideal state: both physical commerce and e-commerce are developing well, and can fully meet the needs of all levels of society.

E-commerce has a characteristic, "winner takes all", that is, the winner takes all, and wealth is easy to gather to industry giants. And brick-and-mortar business is a store no matter how small, as long as you work hard, you can also have food.

The employment rate of both Japanese college and high school students in the class of 2024 is over 98%. The author believes that an important reason for the very high employment rate of high school students in Japan is that Japan's physical business is strong, and commercial enterprises and the catering industry do not need a high degree of education.

Vocational education is not highly valued in Chinese society, but there is not so much discrimination in Japan against graduates of vocational high schools and vocational schools, because even if they do not have a high degree of education, they can live a decent life in society by mastering a certain craft. There are many people in the show who are engaged in ordinary jobs, including chefs in restaurants, bartenders, airport cleaners, bus drivers, shoemakers, etc.

After three years of the pandemic, the number of foreigners visiting Japan has been increasing in the last decade, and the number of foreign tourists is expected to exceed 35 million in 2024. The average consumption expenditure of foreign customers is about 200,000 yen. An important reason for the steady growth of foreign tourists is also the strong physical business in Japan, which makes it convenient to live while visiting Japan.

(The author is the chief researcher of Beijing Chengshi Technology Co., Ltd.; Editor: Mark)