Changes in the Japanese distribution system

The structural impediments Initiative, deregulation and most recently Wal-Mart are causing changes in Japanese distribution practices. Ultimately, however, only local merchants challenging the traditional ways by giving the consumer quality products at competitive fair price can bring about the demise of the traditional distribution system. Specialty discounters are sprouting up everywhere and entrepreneurs are slashing prices by buying direct and avoiding the distribution system altogether. For example, Kojima a consumer electronics discounter practices what it calls global purchasing and buys merchandise anywhere in the world as cheaply as possible . Kojima’s tie with General Electric enables it to offer a 410 liter GE refrigerator for $640 down the typical price of $1,925 and to reduce the 550 liter model from $3,462 to$ 1,585.

The new retailers are relatively small and account for no more than 5 percent of retail sales, compared with 14 percent for all specialty discounters in the US. But the impact extends their share of market because they are forcing the system to change. Traditional retailers are modifying marketing and sales strategies in response to the new competition as well as to take advantage of changing Japanese lifestyles. There are also indications that some wholesalers are modernizing and consolidating operations as more retailers demand to buy direct from the manufacturer or from the largest wholesalers. The process is slow because the characteristics of the distribution system are deeply rooted in the cultural history of Japan. However, the long supply chain consisting of many layers of middlemen in Japan is vulnerable to the efficiencies that business to business (B2B) commerce provides. Because the Internet allows suppliers and retailers to seek the cheapest price in the global market, it will be harder for the many Japanese middlemen to maintain the control they have had.

Similarly traditional Japanese retailing is slowly giving ground to specialty stores, supermarkets discounters, and convenience stores. Fast retailing a casual clothing retailer features good clothes at bargain prices. The store can sell cheaply without lowering quality because it shuns the traditional middlemen and designs its own clothes and sources them directly from factories in China. In 12 months, Fast Retailing’s sales jumped by a third to $927 million, just as Japanese retail sales showed their 36th consecutive monthly drop.

Konbini, as convenience stores are called in Japan, are among those retailers bringing about a revolution in Japanese retailing. Besides the traditional array of convenience goods, konbini are adding an Internet feature whereby customers can pay bills, bank, or purchase travel packages, music and merchandise on in store terminals or over the Internet at home. Seven Eleven Japan, with 8,000 outlets, has a joint venture with Instead of offering door to door delivery, 7dream wants to lure customers to the nearest 7 Eleven store to pay and pick up purchases. What seemed to be an impenetrable tradition bound distributions system just a few years ago now appears to be on the verge of radical change? Japanese retailing seems to be following a direction similar to that of the United States decades earlier and may not be recognizable in a decade or two.

From traditional to modern channel structures

Today, few countries are sufficiently isolated to be global economic and political changes. These currents of change are altering all levels of the economic fabric, including the distribution structure. Traditional channel structure are giving way to new forms new alliances and new processes – some more slowly than others, but all are changing .Pressures for change in a country come from within and without. Multinational marketers are seeking ways to profitability tap market segments that are served by costly, traditional distributions systems. Direct marketing door to door selling, hypermarkets discount houses, shopping malls, catalog selling the Internet and other distribution methods are being introduced in an attempt to provide efficient distribution channels.

Some important trends in distribution will eventually lead to greater commonality than disparity among middlemen in different countries. Wal-Mart for example is expanding all over the world from Mexico to Brazil and from Europe to Asia. Avon is expanding into Eastern Europe; Mary Kay Cosmetics and Amway into China; and LL Bean and Lands End have successfully entered the Japanese market. The effect of all these intrusions into the traditional distributions systems is change that will make discounting self service supermarkets mass merchandising and e-commerce concepts common over the world elevating the competitive climate to a level not known before.