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1956
1957
1966
1971
1973
1974
1978
1980s

1982
1984
1985
1987
1987-present
1988
1989

Early 1990s
1990

1991
Up until
1991
1991

Department Store Law in Japan required that a permit be obtained for each new
department store.
Charles Lazarus started Childrens Supermarket in the US. It was later renamed as
Toys R Us.
Toys R Us was sold to Interstate Stores.
McDonalds introduced fast-food in Japan by entering the market with a joint venture
with Fujita & Company.
Japan introduced the Large Scale Retail Law subjecting large retailors to a rigorous
screening process-Submit detailed plans to MITI and local review board.
7-Eleven was licensed in Japan.
Lazarus recued the folded Interstate company and started to focus on building a
nationwide chain.
Japans economy and consumer spending grew.
Japans toy industry and wholesalers were fragmented and locally focused.
Rarely employed more than 5 people
Safety net for retirement.
Large Scale Retail Law in Japan became more stringent with retailors having to explain
their plans to local retailors before approaching MITI.
Toys R Us opened first international store in Canada.
7-Eleven Japan used point of sales tracking to manage inventory.
Toys R Us expanded to Europe, Hong Kong, and Singapore.
Toys R Us strategy is to build large-scale stores and leverage the economies of scale
and their buying power to reduce prices.
Toys R Us captured 20% of the US toy market.
Japans MITIs Vision for 1990s advocated reform of Japans retailing sector.
Structural Impediments Initiative Discussion of perceived trade barriers to US
imports and investment in Japan.
Toys R Us connects with Fujita for a joint venture in Japan.
Japans toy market was the second largest.
Stores began to cater specifically for children in Japan.
Toy R Us applies to municipal governments to open stores in ten locations.
7-Eleven Japan stocked 85% of its goods through its own regional distribution system.
National Shopkeepers Promotion Association in Japan described that, The big stores
stuff politicians with money, but we have the voting power.
97 global stores accounted for Toys R Us 14% sales.
Japanese consumers would accept lower price for lesser service but were rarely
offered the choice.
Toys R Us entered Japan with partnership with Fujita & Company opening one store.

Context
This is a case about the difficulties and opportunities Toys R Us faces as it expands internationally into
Japans traditionally stringent, but steadily evolving, retail industry.
Synopsis

Japans toy industry, second largest in the world, was an attractive market for Toys R Us.
Unfortunately, many barriers, including social, cultural, legal, and political differences, proved to be
challenging for the American retail giant. From a social standpoint, Japans fragmented toy stores work
with a complex hierarchy of distributors and manufacturers. From a cultural perspective, Japans small,
local mom and pop stores represent the Japanese way of life, and serve as the centers of village
neighborhoods in big cities. From a legal point of view, rigorous regulations support the current retail
structure, hindering large retail chains from establishing footholds. Vast political differences, including
fundamental business differences and store owners colossal influence during elections, factor as
another set of obstacles for Toys R Us. But as the Japanese economy expanded in the late 1980s, the
retail landscape began to change. The rise of convenient stores as a working business model, MITIs
quiet backing for retail infrastructural reform, and the collaborative discussions from the Structural
Impediments Initiative were all signs that Toys R Us had a legitimate chance at overcoming the many
expansion related hurdles. With Den Fujita as a visionary and partner, Toys R Us set into motion plans
to open up its first store in Japan.
Who
Charles Lazarus

What
Founder of the Toys
R Us chain

Larry Bouts

President of the
chains international
division
Very attractive market
for toys and
eventually a market
for Toys R Us

Japan

Giants such as
Nintendo, the
Kyoto-based
maker of
Gameboy and
other popular
electronic
games
Liberal
Democratic
Party
(LDP)

Giants that distributed

products through a
network of 70
affiliated.

Japan's Ministry
of International
Trade and
Investment
(MITI)

Japan's Ministry of
International Trade
and Investment

Japan's reigning
political party

How
He learned the retail business from his father. His father told him that
big chains could sell new items much cheaper than small stores.
Lazarus experimented with the self-service, supermarket-style format
with the Childrens Supermarket and introduced discounting into the
toy business. The store was renamed Toys R Us and sold shortly
after that. When the parent company, Interstate, folded, Lazarus
rescued the store in an attempt to build a national chain.
Suggested that the expansion of Toys "R" Us actually benefited
foreign retailers as well as consumers.
In the 1980s, the entire retail market in Japan had expanded
dramatically, propelled by the economy's continued strength and a
long-awaited increase in consumer spending. Japans toy market
became the second largest in the world with the United States as the
first.
These distributors served as the key link between manufacturers and
retailers, cementing long-term relationships based on personal
commitments rather than competitive terms. They also served as a
barrier to foreign firms, making it difficult for foreigners to achieve
sufficient scale in either manufacturing or retailing to cover the costs
of their investment.

For decades, big stores had used power to extract concessions and
explicit protection from LDP. The small store owners won their first
victory, and the Department Store Law required that a permit had to
be obtained for a new department store. This allowed construction to
be blocked by small retail stores.
The MITI responded to the small retailers' demands by introducing
the Large Scale Retail Law, legislation that subjected all would-be
large retailers to a rigorous screening process. retailers had to submit
detailed plans to MITI and then allow these plans to be passed on to a
local review board composed of consumers and retailers
In 1989, they advocated reform of Japan's retailing sector by
defending the existing retail structure, arguing that the distribution
system is not inefficient, but there is room for rationalization as

7-Eleven

Competitor Store

Den Fujita

President of
McDonald's Japan.

respect costs and that though our country's distribution system is as a

whole highly competitive, there are some factors which mitigate
competition. They also argue that because of unfamiliarity with
commercial customs in Japan, foreign firms may feel difficulty
attempting to gain access to the Japanese distribution sector;
however, this system does not fundamentally discriminate against
either domestic or foreign firms, and there are a large variety of
distribution channels available to importing firms. There are a variety
of reasons for the gap in domestic and foreign prices, and some of
them lie in the nature of the distribution system.
MITI also proposed significant changes to the Large Scale Retail
Stores Law, including limits on the amount of time each stage in the
notification process could take. This reduced the permissible time
between pre-notification and approval to as little as 18 months. It
even promised to re-examine restrictions on opening hours, which
required large stores to close at 6 pm and for at least one full day per
month. If MITI succeeded in implementing these proposed changes,
small store owners would at last lose their power to hold back a tidal
wave of space-hungry domestic retailers.
As it grew it also spawned a series of imitators, stores hoping to
make similar use of information technologies and catering to the
demands of Japan's aging population and increasing numbers of
women in the workforce.
In 1971, McDonald's approached Fujita and asked him to join them
in introducing U.S.-style fast food to Japan. Fujita agreed and
brought a retail experience, political influence, vision, and a unique
understanding of both Japanese and American
Cultures to McDonalds, and this was attractive to Toys "R" Us.
Fujita also had knowledge of real estate in Japan.