Case 4: Ito-Yokado - The Challenge of Apparel

After the Second World War, Japans economy faced a vigorous reconstruction campaign at the
hands of the Japanese government. The aim was to push the economy to once again regain the economic
levels that were present before the war as well as foster future growth. By utilizing the resource and labor
power of the returning war veterans, Japan instituted a priority production system, favoring coal mining
and steel manufacturing. By focusing on the materials needed for transportation infrastructure and new
industries Japan was finally able to start seeing the results of these changes. Growth soon occurred within
the economy after such a revolutionary and new approach to economic growth, Japan started realizing
about an 11% annual growth in economy during the 1960s. However Japan had adopted a loose monetary
policy to stimulate growth as well as a heavy dependence on the US dollar and Middle Eastern Oil
imports. It seemed like Japans reliance and deep connection and ties with the economies and monetary
systems of other countries resulted in its downfall. Japan was heavily relied on the U.S and other
countries in order to grow its economy, that when the U.S decided to terminate its international money
system, Japan was hit extremely hard. In order to recover, the Japanese government had to resort to deficit
budgeting which weakened the strength of the Japanese yen abroad. However, this opened the door for an
exporting business between the US and Japan, which helped carry the Japanese economy in the 1980s. In
the 1990s the growth was once again halted when the Japanese economic bubble burst resulting in the
plummeting of overleveraged land and high stock prices which wiped out the assets at businesses and
created huge debts at banks. Real income also fell within the decade and soon Japan would depend on
many ways to grow the economy, specifically the retail market.
With the growth of the retail market, Japan started to develop a distribution system that was
unique. Within the retail market, the concept of superstores started to become popular and Japan
experienced a growth in superstore development. However, smaller mom-and-pop stores pushed for
large restrictions against these huge stores in order to preserve their own competitiveness in the market.
The Japanese government complied and enacted a law that limited the growth of these large superstores,
department stores and large specialty stores. However, after heavy pressure from U.S trade requests, the
law was phased out opening the Japanese market to large foreign retail companies like Toys R US. The

Japanese governments historical tendencies to support smaller retailers and stores had given rise to a
distribution network of wholesalers that were no bigger than the small retail stores that they supplied.
There were a large amount of small wholesalers that equally distributed and supplied to stores, providing
each wholesaler with the power to control the merchandising and delivery. Both large superstores and
smaller family owned stores utilized this wholesaler structure due to the Japanese arrangement of
consignment and consumption sourcing. Wholesalers would retain ownership of goods until sold and
would took back any unsold goods, also the retailer and wholesaler would share the risk of any damaged
or missing items. With the Japanese yen continuing to strengthen and grow, this structure grew and
expanded internationally, soon involving international wholesalers as well.
Being a large contributor within the Japanese Retail Market IY maintained a simple business
model and utilized an ingenious strategy to cope with the Japanese distribution system. Under the
guidance of Suzuki, IY took a stranglehold and control of their own distribution system. They began by
specifying to wholesalers the modes of transport that should be used to deliver goods from Manufacturers
to IY stores. IY then moved on to implement strict policy of on time delivery and no stock outs. Any
wholesalers that could no comply would be cut out of their distribution system. In order to increase
efficiencies in the supply chain and yield lower prices, IY would move to cut out any wholesaler who
could not comply with their demands and attempt to develop relationships directly with manufacturers, or
original sources. They cut out intermediaries and in the process lowering cost and increasing profit. They
also gained more control over their own product mix, distribution system and supply chain. This was a
very ingenious and risky tactic, as it involved going against the Japanese distribution system and
developing a way for themselves. They transcended the normal bounds and pushed for efficiency and
improvement and in the process reached a point where they could stand apart in the retail industry.
Many foreign superstore companies have seen IYs great success in the Japanese market and have
attempted to enter the market but failed. Two of these companies Walmart and Carrefour both failed by
making the same mistakes. Both of these companies focus on the cost-centric models that were successful
within their own country and attempt to implement the model in Japans unique economy and are failing.
They are not adapting and making creating changes like IY has in order to stay successful within the retail

market. According to Suzuki, they should focus more on quality rather than price. Suzuki was also the
brains behind the two new strategic implementations in order to reform apparel distribution at IY. Within
apparel distribution Suzuki implemented team merchandising and risk management looking to develop
and cultivate a continuous flow of fashionable and original apparel onto the IY floors. He felt that instead
of focusing on the normal low price, they should focus more on fashion innovation. IY was very
successful under Suzukis expert guidance and its own skill to adapt to the Japanese market, and it
rightfully stands as one of the elite and very successful superstore companies in both Japanese history as
well as currently.