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SCM STRATEGY CASE: “TOYS ‘R US JAPAN” Edited version of a case study originally prepared by Mark J. Kay, Assistant Professor, Montclair State University, United States. 1. Entry into the Japanese Market Japan was a particularly attractive target market for Toys ‘R Us (TRU) for several reasons. Japan was the second largest toy market in the world. The ‘Statistics of Toys’ of the Japan Toy Association estimated the size of the overall Japanese toy market on a retail price basis at ¥932 to ¥950 billion in 1991. By the 1980s, Japan had developed a particularly high per capita income and toys sales had been growing despite the low birth rate. Spending on children was particularly high, particularly in the early years of childhood, yet toy shops in Japan tended to have small selections and high prices. As TRU formulated plans to enter the Japanese market, it first had to deal with the barrier posed by local laws and politics. The biggest impediment was the Daitenho or ‘Big Store law,’ which was introduced in 1974. The law stated that local store owners must give their consent before a retail outlet with floor space larger than roughly 5,400 square feet can be opened in their local area. Under the guise of protecting the community, the law granted small local businesses the authority to force new competitors into a review process which could last more than ten years. The Daitenho effectively enabled local shopkeepers to block the establishment of TRU stores in Japan. Although originally intended to protect the small shops, the Daitenho effectively made the retail network of stores rather rigid, benefiting the large stores established before the law was created. Foreign retail chains have also found it very difficult to penetrate the Japanese market for other reasons: 1. High real-estate prices: With 124 million people residing in a mountainous country, 70% of Japan’s population are concentrated in coastal areas constituting about 20% of the country. Densely populated Japanese cities have high real estate prices. As a consequence, homes and stores are small. The average Japanese retail store has only about 3,200 square feet of floor space and limited storage capacity. Distributors make small deliveries of less than full case quantities. Japanese consumers tend to make frequent small purchases from shop owners who they know within their neighbourhood setting, particularly in the food sector. Small shops account for 56% of retail sales in Japan as compared with 3% for the U.S. and 5% for Europe. 2. The country’s multi-layered distribution network, comprising many different levels of wholesaling. Cultural values can serve to reinforce this complex network of wholesalers. Small stores may not be able to secure credit by themselves and often are tied into financial or other exclusive arrangements with major Japanese manufacturers, industrial groups, or trading companies. Japanese wholesalers have become powerful through their capacity to provide financial
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This note was uploaded on 10/01/2010 for the course BAFT mba12ehtp taught by Professor Angwi during the Spring '10 term at Télécom Paris.

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