Issues involved 1. The complex distribution network of Japanese retail network. It involved 3 to 5 layers of intermediaries. The primary wholesaler was generally a close affiliate of manufacturer. The secondary wholesaler was a regional distributor and tertiary wholesaler was local distributor. The prices of toys were suggested by manufactures. If any retailer or wholesaler deviates from these prices, it had to face stringent action from the side of manufacturers. This model was completely opposite to the method of operation of Toys “R” Us who directly deals with manufacturers by passing all middlemen. They hold the authority of controlling their product prices which were actually offered at discounts. 2. The land prices in japan were skyrocketing during that time because 80% of land mass was covered with mountains and the population density was among the highest in the world with 322 people per square kilometer. The industrial sector was booming with very less land available for business establishments. 3. Because of low child birth rate, the working population in the country was proportionately low. The labour market of Japan was on the verge of full employment due to presence of various industries potential which hired almost all of the qualified workforce. 4. Stringent regulatory laws for retail outlets also posed an issue. A strict licensing/permit policy for the retailers existed in which each owner had to mandatory obtain a license from Japanese government authorities in order to open a departmental store.
Is Japan a good market for Toys “R” Us?? Japan was the second largest toy market after US. Within a year, the Japanese toy market escalated from Y26 billion to Y932 billion. Japanese falling birth rate allowed parents to spend more on fewer children. As a result, they use to spend a large sum of money on children’s entertainment like toys and other recreational activities. Japan was a proprietor based market where nuclear stores thrived on full swing. These small stores accounted for 75% of consumer’s expenditure. Moreover, the concept of large stores never existed in Japan. So, it was a first mover advantage opportunity for Toys “R” Us to encash it and establish themselves.
Is Toys “R” Us good for Japan??
The children of local retail shop owners were not willing to take upon family business as they were looking for much bigger employment opportunities. Moreover, the younger generation realized that they were being fooled and paying a highly inflated price for the products. Also, the new convenience stores started exhibiting potential for the new retailing formats due to the changing demographics of Japanese customers.
The entry of Toys “R” Us could serve as a boon for the existing inefficient distribution system by cutting on costs front.
Their entry will also give rise to healthy competition in the market. The monopoly of certain retailers will end and consumers will be able to buy products at fair prices.
This will also improve the existing unfamiliar commercial customs procedures for foreign players. Thus, reducing a barrier of entry into the Japanese market.
Best strategy for Toys “R” Us to enter Japanese market Toys “R” Us should make a slow and steady start in the Japanese market since it’s a completely new region with a huge difference in customer’s profile. An “All at once” strategy in which the company opens up several large scale stores at different potential locations will be a suicide. Instead they should open a single large scale store at a most promising and potential location and carry out a pilot study for it. They should observe and analyze the response from the local customers. If this concept is much appreciated by masses, then it’s a go signal and company can then expand its operations. Basically, the company should go for a single wholly owned subsidiary concept in which they acquire a small company and gain 100% ownership of it. Wholly owned subsidiaries allow the parent company to retain the greatest amount of control. They also offer an opportunity for company to diversify and manage risk. Damage from the failure of one subsidiary will not necessary be fatal to the parent company. They will also receive favorable tax treatment from the foreign government.
