TOYS R US JAPAN CASE PRESENTATION

By
D PRADEEP (10AC21) SNV PRAVIN (10AC22) R RAJA SUGIRTHA (10AC23) K RAJESHWARAN (10AC24) SURESH KUMAR (10AC38) A VIVEK (10AC44)

INTRODUCTION

Documents the American retailers 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 multilayered 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 Seibus Kids Farm As of chains management Japans retail industry was difficult for Retailers. Locally Focused Market.

JAPANS 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 companys 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..

Japans retail structure restricted the entry of large retail stores. Japans shopkeepers 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 y 1992 8% of total sales
y

Small enough to slip past laws and establish in neighbourhood Most successful 7-Eleven Chain
y

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

y

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 Chains own elaborate regional distribution system A series of imitators sprawled after the success of the 7-Eleven chain

MITIS VISION FOR 1990S

Following the convenience stores, all formats placed under pressure Young Japanese wanted to take bold ventures Great international exposure

y

Realized the high inflationary cost for many consumer goods.

Demands influenced the political process.

MITIS 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 y Re-examine the opening hours.
y

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

Japan US

Total Capitalization 2.1% 14.7%

Sales 2.3% 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 Japans distribution system to remained impediment to US export sales.

TOYS R US: MOVE INTO JAPAN

Domestic

development in Retail Sector large barrier for chains 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 executives
1. 2.

Using wholesalers Alliance

DEN FUJITA
1950

started Fujita & company to import items. McDonalds approached Fujita to introduce US style fast food in Japan. Fujitas efficient marketing, McDonalds reached Y50 billion in 1980 & Y208 billion ($1.6 billion) in 1991.

1971

By

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 companys choice of partners : Maverick Fujita Criticized Fujitas 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

y y y y y

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. 2. 3. 4. 5.

Why specifically Japan Market was chosen? What are the entry barriers Toys R Us faced? How were the barriers resolved? Is Den Fujita the right partner? 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 McDonalds Japan Fujita has build one of Japans 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 :
y

High Shipping Cost

Foreign Direct Investment:

y

Culture Difference

Licensing :
y

Wage policy and working condition