Digital transformation is also changing Japan's retail business
Japan, with its nearly 130 million inhabitants is the world’s third largest national economy after USA and China. Although Japan has struggled with major economic challenges for a long time and the national debt has increased to enormous proportions, Japanese households are among the richest in the world when measured in net assets. Japanese households also spend the third most in the world on consumption.
Through consumption-oriented lifestyles, Japan's retail business has grown to enormous proportions. In 2016, retail sales in Japan were YEN 140.2 trillion, which equates to EUR 1,200 billion. The size of the market is also evident by there being over a million brick and mortar stores in Japan. Especially in the major cities, such as Tokyo and Osaka, the number of stores of various types overwhelms even an experienced business expert. The retail business, however, is undergoing a transformation also in the Land of the Rising Sun.
‘The retail business is currently going through an interesting developmental phase. The markets are equally being transformed by global trade platforms and rapidly increasing mobile expertise. In contrast, however, the traditional brick and mortar business is also renewing at the same time and holding its own in the changing competition. Japan is a good example of how the digital transformation of the markets does not result in a zero-sum game, but instead pushes the entire market and actors forward,’ says Professor Arto Lindblom, who has studied Japan's retail business markets during 2016 and 2017.
Japan’s lifestyle and design markets may have a demand for Finnish actors
Although the retail business in Japan is massive and covers everything, it is difficult to conquer for Western retailers. This was learned the hard way by European retail giants Tesco and Carrefour, for example. Market entry is equally made difficult by language and culture differences, but also by the fact that Japanese retail actors, such as Rakuten, AEON, Uniqlo and MUJI are every competitive and raise the bar extremely high. Creating a business breakthrough in Japan is not easy.
‘The comprehensive quality thinking and Kaizen philosophy that focuses on continuous improvement is well-evident in the operational models and culture of local retail trade companies. Being customer-focused is also strongly apparent. All activities aim to achieve a superior customer experience. Many actors in the international retail trade would have a lot to learn from the Japanese,’ says Professor Lindblom.
Despite the challenging market conditions, Japan offers Finnish companies interesting business opportunities. The Japanese appreciate especially Finnish quality and design expertise. Therefore, Japan’s lifestyle and design markets may have a demand for Finnish actors. An encouraging example of this is Iittala, which currently has several stores and shop-in-shop concepts in Japan. Iittala has also opened an online shop in Japanese and Iittala's products are also available through the marketplace of Japan's largest online retailer, Rakuten.
‘There is not a sufficient supply of Finnish products available in Japan compared to demand. This gap can be narrowed cost-effectively through online trade. Finpro has a growth programme that supports global online trade, which hopefully will interest some companies also interested in Japan,’ says Pekka Laitinen, Director of Finpro’s Tokyo unit.
The Japanese retail business and forerunners in the industry have been studied as a part of the Global Marketplaces project funded by Tekes. The research project examines especially the global trade platforms and their operational logic in different market areas.
Professor Arto Lindblom
Aalto University School of Business
Director Pekka Laitinen