Why Walmart was Destined for Failure in Japan by Sarah Zhang W'22
High-income, retail savvy and sporting a love for foreign brands, the Japanese consumer market has long appealed to many multinational retail giants. But its lucrative market is just as risky as it is attractive. In 2005, renowned French-based retail chain Carrefour exited after seven years since their first entry in Japan. In 2012, UK-based Tesco followed suit, exiting after nine years of being in the market. And as of last week, Walmart finally exited the country to join the long list of failed foreign giants after eighteen years of relentless effort.
The US retailer sold 85% of its wholly-owned Japanese subsidiary Seiyu to investment firm KKR & Co. and the e-commerce group Rakuten for $1.6 billion. Under the agreement, Walmart retains a 15% minority stake in the business.
An incredibly intricate supply chain for a fragmented market on top of fierce rivalry from local competitors are the commonly cited reasons for failures to capture Japan’s affluence. Driven by a constant demand for fresh produce, most farms and fisheries in Japan are small, family-run businesses who thrive on tight local connections (Kotabe & Helsen). As smaller orders frequently get more favorable terms over those in bulk, this purchasing behaviour poses a significant challenge to multinationals like Walmart whose entire model is based on reduced costs passed along to consumers.
Since the Lost Decade of the 90s, Seiyu had also been struggling financially with debt in excess of 52 times the total shareholder equity in 1997 (Kotabe & Helsen). With its parent company Saison Group experiencing similar financial difficulties, Seiyu was left to survive on its own, selling additional shares before talks with Walmart began at the end of the millennium.
Looking back, Walmart may have overestimated its ability to crack the localized supplier web and overturn Seiyu’s liquidity crunch. But perhaps an even more interesting question is whether Walmart’s “everyday low price” would have captured the hearts of the Japanese consumer anyway.
Culturally, Japan is quite distant from the U.S. For one, Japanese consumers prefer to purchase smaller portions in more frequent intervals over the American habit of “stocking up”. Accordingly and contrary to the U.S., convenience stores thrive in Japan with over 56,000 spread across the country and around the corner of nearly every neighborhood. Moreover, Japanese buyers have an overwhelming preference for fresh produce which opposes the pre-packaged goods that serve as a major selling point for Walmart in the U.S. Coupled with smaller average meal sizes, this further undercuts the need for discounted bulk orders.
But with this in mind, what then explains the success of Costco in Japan? With 26 stores spanning the breadth of the country and concentrated in suburban areas, Costco is one of the few multinational retailers who seem to have captured the Japanese market since they opened their first warehouse in Fukuoka in 1999.
Unlike Walmart, Costco has managed to capitalize on two main strengths. First, it positioned itself as a perceived premium American brand through its exclusive private label offerings and exotic treasure-hunt shopping experience. Next, they successfully adapt to the culture by offering an abundance of fresh food. As one Buzzfeed article’s headline puts it, “Costco Japan exists and it looks like a damn paradise”.
Therefore, foreign retailers can succeed in Japan if they take into consideration the nuances of the culture and tastes of the local consumer. With Japan being the second-largest luxury market in the world, Japanese consumers do have a soft spot for foreign brands, albeit only those with a premium positioning and differentiated offerings compared to local competitors. Ultimately, Walmart failed to find and rebrand its identity in the Japanese mind, and it remains to be seen whether its successors will learn from its lessons.
Sarah Zhang is a junior in Wharton and the College, studying East Asian Languages and Civilizations and Finance. She is passionate about retail, Japanese culture, education, and mental health. In her free time, she enjoys figure skating and binging k-dramas.