Learn about Walmart’s Struggle in Japan in this Learning and Knowledge Guide on Walmart Failure in Japan
- Wal-Mart Stores Inc.entered Japan in March 2002, through an alliance with Seiyu Limited (Seiyu), Japan’s fifth largest retailer in 2002. Walmart owned 100 percent of Seiyu as of 2008.
- On November 16, 2020, Walmart announced they would be selling 65% of their shares in the company to the private-equity firm KKR in a deal valuing 329 stores and 34,600 employees at $1.6 billion.
- Walmart retains 15% and a seat on the board, while a joint-venture between KKR and Japanese company Rakuten Inc. receives 20%. Its a fair conclusion that the Alliance Failed and Walmart suffered a Setback in Japan.
Conclusion on Why Walmart Failed in Japan
1. Lack of Understanding of the Japanese Customs and Culture.
- Walmart Struggled with the Concept of Selling Local Food in Japan because Food tends to be very Regional in Japan and hence it faced sea of Competition from the Local Supermarket Chains that Specialised in Food Retail. Japan’s Culture Varies Regionally ( just like in India), so there is lot of Variability in Food Consumption not only Regionally (North Vs South or West Vs East) but also Seasonally.
- For Japanese Food is an Experience and Celebration and they go out to buy good deals and meals (and not cheap value for money deals that Americans Prefer) Japanese like Fresh Seafood as part of their meals which Seiyu did not offer.
- To Ensure that both different Regional and Seasonal Food Demands are met as per the satisfaction of the locals, came in as a huge challenge not only from Logistical Standpoint but also from Perception Stand Point. Walmart failed to win both the perception and logistical battle.
2. Challenge of Logistics, Complex Supply Chain & Sourcing from Local Suppliers
- Walmart find it difficult to establish and foster relationships with local suppliers due to the strong and robust relationship among local suppliers. 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.
- The Local Distributors and Suppliers are Deep rooted in Japanese Culture and Value Systems just like a local Japanese Customer. To Enter that Supply Chain Network, it required holistic understanding of the Japanese Retailers, Wholesalers, Distributors and how their Entire Ecosystem Operates, Trades, Communicates and Conducts its Business. Perhaps, Walmart, over estimated the Power of its Brand in winning those Local Supplier Relationships which are key for any Retailer to Succeed in Japan.
- Due to Strong Local Inter Supplier Relationship, Suppliers have an Advantage over the Core Pricing Issue to so much extent that even the Local Retailers are unable to force the Discounting Strategies. Walmart would have won that Negotiation with Seiyu by enforcing its Successful American Strategy during the Alliance formation stage but later on found that even Pricing alone was not sufficient to lure in the customers.
- The American Distributor – Supplier Ecosystem and Supply Chain Management System is perhaps not same as the Japanese one. Walmart also attempted to introduce substantial changes to the management of Seiyu stores by revamping its Store Layouts, and Implementing Retail Link, its popular supply chain management software. Despite this SEIYU registered constant losses.
3. Lack of Understanding of the Shopping Behaviour of the Locals
- Japanese families tend to shop on a daily basis, rather than weekly or monthly. This means that locals prefer buying from a nearby convenience store instead of buying large amounts of food at Walmart.
- Walmart Failed to adapt to the local Shopping Behaviour that is driven by a population that is deep rooted in culture, customs and values.
- Food and Groceries are an Intrinsic Part of those Culture, Customs and Values. Walmart failed to build a strategy keep local customers’s Behaviour Pattern in mind.
4. Poor Choice of Locations
Walmart failed to Understand that Japanese buy food and groceries on a daily basis in the vicinity of their homes. So the far away locations of Walmart Stores also became a shopping challenge for the locals, eventually, as many Japanese preferred and shopped at their favourite local convenience store without much consideration to the Promo Deals being offered in the Big Stores like Walmart.
5. Failure of EDLP (Every Day Low Price) Marketing Strategy that is so Popular in the U.S.
- Failure to Understand the Local Shopping Behaviour (that prefers to buy on a daily basis rather than weekly in bulk) and Failure to Form an Efficient Supply Chain Network due to Lack of Understanding of the Local Japanese Retailer, Wholesaler, Distributor Ecosystem perhaps led to the Big Promotion, Supply Chain Operations and Marketing Failure.
- This also proves that different nations and populations exhibit different shopping behaviour. While people in the U.S. like to buy cheap deals in bulk in one place even from stores that are not in the vicinity of the neighbourhoods, this perhaps does not work in Japan. Based on this Article, 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.
6. Walmart Sourcing of Low Cost Chinese Products Hurt Local Sentiments
Sourcing of low Cost Products and Raw Materials from China was looked at with Extreme Skepticism and also hurt the locals’ sentiments. This is due to the unpleasant history that Japan shares with China. This skepticism hurt their Brand Power and also Seiyu’s Expansion. And that’s another reason Walmart failed in Japan.
7. What CostCo Did and What Walmart Failed to Do?
- Costco (a Big Box Retailer & competitor of Walmart), did not faced a similar failure because it adapted itself to the local customs, by remaining true to its identity and improvised by adopting a fundamentally different approach in selling Food whereas Walmart did not do so.
- Instead of trying to win local customers with Food & Experience that it did not specialise in, Costco decided to sell its core speciality Authentic American Experience and also Local Fresh Produce. This ensured that they were not struggling with the Local Japanese Food Expectations and facing a Battle Perception of offering Authentic Japanese Food Experience. Thus, it made Costco’s inroads to Adapt to the Japanese Culture and Expectations much easier.
- Costco is perceived as an American Brand that is Selling American Culture and not Japanese Culture and this promoted a healthy cultural exchange offering a novelty, rather than a conflict or battle of perceptions.
- Ultimately, Walmart did not live up to its true identity and became an American Store selling Standard Common products instead of Original American Cultural Experience. This made Walmart unauthentic and just another one of the many thousands of brick and mortar, convenience stores in Japan. This was also instrumental in the Exit of Walmart from Japan.