TOYS “R” US JAPANCASE PRESENTATION

ByD PRADEEP (10AC21)

SNV PRAVIN (10AC22)

R RAJA SUGIRTHA (10AC23)

K RAJESHWARAN (10AC24)

SURESH KUMAR (10AC38)

A VIVEK (10AC44)

INTRODUCTION

Documents the American retailer´s process of entry into the Japanese toy market.

Discusses the history of Toys “R” Us in the US as well as the history of the Japanese toy market, distribution, wholesaling, and retailing systems.

Setbacks due to Japanese store-size regulation, application procedures, and a long-standing multi-layered distribution system.

Continued effort and the acceptance of a Japanese partner enabled the company to open a Toys “R” Us outlet in 1991.

TOYS “R” US JAPAN 1991 – Toys “R” Us entered the second largest toy

market. Category Killer – great success in US and Europe. Japanese Media – Black ship of Kawasaki Nintendo refused to deal directly with US retailer. But with local partner Den Fujita- Toys “R” Us

succeeded- won the approval of Ministry of International Trade and Industry.

TOYS “R” US COMPANY

Toys “R ” Us was started by Charles Lazarus in 1957.

Lazarus father was doing cycle business After war they got into post war baby boom. And children's furniture were not so

successful . Recommendations came for toy shops .

DEVELOPMENT

Then they started self service children's supermarket .

Soon they developed the store in 4 chains . Was sold to interstate store in 1966 for $7.5

million . 1978 Lazarus get back the company . Next decade each year it developed about

26%.

EXPANSION

In 1988 it captured around 20% of the us market

Sourcing directly from manufacturers. In 1984 it started its first foreign outlet in

Canada. Then it moved to Europe,Hongkong and

Singapore. It followed a good discounting schemes.

GLOBALIZING TOYS “R” US Whenever it expanded it took the ire of local

retailers . In 1987 German refused to sell toys r us where it

may break the relations with local retailers . Later united kingdom refused as there was decline

in British toy stores from 3500 to 2000. But toys r us overcame the foreign problems . By 1991 it operated 97 countries abroad

THE JAPANESE MARKET…

Extremely attractive Market for Toys. 2nd Largest Market in the world. Isetan - Dr. Kids Town Seibu’s – Kids Farm As of chain’s management Japan’s retail

industry was difficult for Retailers. Locally Focused Market.

JAPAN’S LOCAL MARKET….

Domestically Owned. They can return the unsold goods. Chiyoda – through Hello Mac and Ace. Ban Ban through Discount Format. Fragmentation and Long standing Relation

ships.

STRUCTURE OF JAPANESE RETAIL..

Nation of small shop keepers. 50 % of outlets – one or two people. 15 % of outlets – more than 5 people. Sold the products through Complex

Distribution System. Japanese are sentimental about their Tiny

shops.

COMMERCIAL FUNCTIONS…

Safety net for retirements. Retail sector was filled with lower skilled

labours. Prefers for small quantities of fresh goods. Small Stores were Protected from efficient

Competitors by law restricting the construction of large stores.

KEIRETSU STORES….

Retail goods in some sectors was strictly restricted by the activities of some companies.

Some giant companies supported thousands of stores to stock its product and selling it at the company’s specified price.

Japanese preferred attention and service from the shop owner.

Store operator gets financial and marketing advises from the manufacturers.

KEIRETSU STORES

Storekeepers were forced to sell the products at the company specified price.

In 1991 over 20,000 keiretsu stores still existed .

The principle of loyalty to manufacturers remained strong in retailing and wholesaling.

THE ROLE OF REGULATION….. Japan’s retail structure restricted the entry of

large retail stores. Japan’s shopkeeper’s association has more than

1.4 million store owners with them. They can get concessions and protection with this strength.

There is one departmental store for every 75000 people.

Then developments came through the super markets.

THE ROLE OF REGULATION….. But in 1973 Ministry of International Trade and

Industry (MITI) tightened its rules for the big retailers due to the demand from small retailers.

Then in 1982 MITI asks large retailers to explain their plan to small retailers and get their suggestions.

These rules has made the powerful supermarket chains also to find it difficult to enter in Japan's market.

RISE OF CONVENIENCE STORES

Major change – Convenience Stores 1982 – 2.3% of total sales 1992 – 8% of total sales

Small enough to slip past laws and establish in neighbourhood

Most successful – 7-Eleven Chain It was licensed from US parent Southland in 1974

by Ito-Yokado

7-ELEVEN CHAIN

At first glance – small, locally-focused, “open all hours” shop

Information Oriented Strategy Close inventory control

Cut its whole salers from 80 to 40 Point of sales tracking Shopper specific information – shopping habits

Refine the product offering and inventory replacement.

THE CHANGE

7-Eleven management to bargain with manufactures to deliver according to their precise requirement

Chain’s own elaborate regional distribution system

A series of imitators sprawled after the success of the 7-Eleven chain

MITI’S VISION FOR 1990S

Following the convenience stores, all formats placed under pressure

Young Japanese wanted to take bold ventures Great international exposure

Realized the high inflationary cost for many consumer goods.

Demands influenced the political process.

MITI’S STATEMENT - 1989

It defended the existing distribution system while stressing that nevertheless the reforms were essential

Proposed significant changes to Large scale retail stores laws

Amend the system to reflect the socio-economic changes Reduce the time between the pre-notification

and approval as 18 months Re-examine the opening hours.

THE STRUCTURAL IMPEDIMENTS INITIATIVE

Revaluation of Retail System by MITI Japan opened their markets to Foreign Investors

due to demand. But also Foreign Direct Investments were low. In 1988, Foreign companies accounted for

Total Capitalization

Sales

Japan 2.1% 2.3%

US 14.7% 12.2%

THE STRUCTURAL IMPEDIMENTS INITIATIVE

Imbalance in investment levels – Japanese markets remained closed to US investors.

1989 – Negotiation to reduce imbalance.

Consumer price in Japan remained high –Japan’s distribution system to remained impediment to US export sales.

TOYS “R” US: MOVE INTO JAPAN

Domestic development in Retail Sector – large barrier for chain’s entry.

Changes in distribution sector & legal restrictions made Toys “R” Us confident to succeed in Japan market.

Entry by alliance with a strong local partner.

Two ideas by executives1. Using wholesalers2. Alliance

DEN FUJITA

1950 – started Fujita & company – to import items.

1971 – McDonalds approached Fujita – to introduce US style fast food in Japan.

By Fujita’s efficient marketing, McDonalds reached Y50 billion in 1980 & Y208 billion ($1.6 billion) in 1991.

DEN FUJITA 1989 – Joseph Baczko, Head- Toys “R” Us – met –

Den Fujita – President of McDonalds, Japan.

Toys “R” Us & Fujita became partners.

1989 – Toys “R” Us called Fujita for a Japanese Joint venture .

McDonalds – 20% stake in the new subsidiary.

CRITICISM AND OPPOSITION

Manufacturers claim -Japanese consumers would not like warehouse stores and unrealistic to consider bypassing wholesalers

Niigata warned - “if toy r us comes in, Japanese toy shops will be wiped out”

Fukuoka Toy retailers ‘s petition –one year to the opening of toys r us

Japan association of Specialty toy shops emerged

Effect of toys r us on long standing ties between manufacturer and retailers in Japan

CRITICISM AND OPPOSITION

Faced the problem of obtaining suitable real estate

Hard to find labor and competition for top male graduates was intense

Also had problem with the company’s choice of partners : Maverick Fujita

Criticized Fujita’s well known claim: Osaka born Japanese are more business oriented than Tokyo cousins

As a result of these resistances, schedule of opening six stores slip steadily with a notable delay.

COMMENT

Financial statements helps to understand the performance of the company.

Statistical data gives an overall idea about the following Global presence of Toys “R” Us Land Price and monthly living expenditure in Japan Total sales in World Outlets in Japan Foreign Retailers and FDI in Japan

QUESTIONS

1. Why specifically Japan Market was chosen?2. What are the entry barriers Toys “R” Us

faced?3. How were the barriers resolved?4. Is Den Fujita the right partner?5. What were the alternate modes of entry

available for Toys “R” Us?

WHY SPECIFICALLY JAPAN MARKET WAS CHOSEN? Along with the US and Europe, is one of the 3

largest and wealthiest markets in the world for leisure goods.

Second largest Toy Market in the world next to US.

94% retail sales growth and 7% GDP Falling birth rate.

WHAT ARE THE ENTRY BARRIERS TOYS “R” US FACED?

Japanese toy retail dominated by small specialty stores and general retailers

Wholesalers deal almost exclusively in Japanese-made products

Loyalty of suppliers Developed/Industrialized country Behaviour of customers

HOW WERE THE BARRIERS RESOLVED?

Revaluation of the Retail systems. Market opened to foreign investments. Changes in distribution sector & legal

restrictions. Alliance with local partner- Resolved the

cultural differences.

IS DEN FUJITA THE RIGHT PARTNER?

Yes Experience – McDonald’s Japan Fujita has build one of Japan’s strongest

Import business. Marketing Strategy – US style fast food

introduced in Japan Since target market is the same for both

companies, Fujita was chosen

WHAT WERE THE ALTERNATE MODES OF ENTRY AVAILABLE FOR TOYS “R” US?

Exporting : High Shipping Cost

Foreign Direct Investment: Culture Difference

Licensing : Wage policy and working condition

Thank You