Learn about Why Walmart Failed in Japan in this Knowledge Capsule
In the intricate tapestry of global retail, Walmart stands as a colossal presence. However, this retail giant faced a resounding setback in its endeavor to conquer the Japanese market. The Top Reasons Why Walmart Failed in Japan and its journey from anticipation to disappointment reveals a complex interplay of cultural, strategic, and operational challenges that led to Walmart’s failure in Japan. This article delves into the multifaceted reasons behind this failure, examining cultural missteps, strategic miscalculations, and the formidable competition that Walmart encountered on its quest to establish dominance in the Land of the Rising Sun.
The Top Reasons Why Walmart Failed in Japan are Explained Below:
Cultural Nuances and Missteps
One of the primary stumbling blocks for Walmart in Japan was a failure to fully grasp and adapt to the intricacies of Japanese culture. Walmart’s signature “everyday low prices” approach clashed with Japanese consumer expectations, where quality and service often take precedence over cost. Japanese consumers are known for their discerning tastes and a preference for personalized service, which stood in stark contrast to Walmart’s standardized, mass-market model. The company’s inability to tailor its approach to the unique cultural context of Japan led to a disconnect with the local consumer base.
Retail Landscape and Competition
Japan’s retail landscape is characterized by a myriad of domestic players deeply entrenched in the market. Walmart faced fierce competition not only from local retail giants but also from specialized and convenience stores that catered to the specific needs and preferences of Japanese consumers. The failure to effectively position itself amid this diverse and competitive retail ecosystem contributed to Walmart’s struggle to gain traction. Additionally, the dominance of established Japanese retailers, with a strong understanding of the local market, made it challenging for Walmart to establish itself as a formidable competitor.
Supply Chain and Logistics Challenges
Walmart’s renowned supply chain efficiency, a key pillar of its success in other markets, encountered unique challenges in Japan. The country’s geography, with its densely populated urban areas and complex distribution networks, presented logistical hurdles that Walmart underestimated. The company’s model of relying on large-scale, centralized distribution centers clashed with Japan’s preference for smaller, decentralized operations. This miscalculation resulted in inefficiencies, increased operational costs, and ultimately eroded the competitive edge that Walmart enjoyed in other markets.
Failure to Localize Operations
Successful global companies often employ a strategy of localization, tailoring products and services to align with local preferences. Walmart’s failure to effectively localize its operations in Japan exacerbated its struggles. The company’s initial attempts to impose a one-size-fits-all model, without adequately adapting to the nuances of the Japanese market, led to a disconnect with consumers. From product selection to store layouts, Walmart’s approach failed to resonate with the discerning Japanese shopper, contributing to its inability to establish a strong foothold in the country.
Cultural Sensitivity and Labor Relations
Navigating labor relations is a critical aspect of operating in any market, and Walmart faced challenges in this regard in Japan. The company’s corporate culture, often criticized for its stringent labor policies, clashed with Japan’s strong emphasis on harmony in the workplace. Walmart’s difficulties in aligning with Japanese expectations regarding work-life balance, employee well-being, and collective decision-making contributed to a negative perception that hindered its integration into the local business landscape.
- 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.
Product Selection and Localization Challenges
Walmart’s product selection, often tailored to suit American consumer preferences, faced difficulties resonating with Japanese tastes. The company initially struggled to curate a product range that appealed to the discerning Japanese consumer. Failure to localize product offerings and understand the nuances of Japanese preferences resulted in a disconnect, as shoppers sought products that aligned with their cultural and aesthetic expectations. Competitors who excelled in this aspect gained an edge, further hindering Walmart’s ability to capture market share.
Ineffective Marketing and Branding
Marketing and branding play a crucial role in establishing a foothold in any market, and Walmart’s approach in Japan fell short. The company’s communication strategies often failed to connect with the Japanese audience, relying on advertising methods that didn’t resonate culturally. The lack of a compelling narrative that addressed local needs and aspirations contributed to a perception that Walmart was an outsider rather than an integrated part of the Japanese retail landscape. Building a brand that fosters trust and resonates with the target audience is essential, and Walmart’s inability to achieve this hindered its success in Japan.
Resistance to Change and Adaptation
Successful expansion into a new market demands a willingness to adapt and evolve. Walmart’s reluctance or slow response to modify its strategies in the face of ongoing challenges proved detrimental. As the Japanese retail landscape evolved, marked by shifts in consumer behavior and expectations, Walmart struggled to keep pace. The failure to swiftly adapt to changing market dynamics, consumer trends, and emerging technologies hindered the company’s ability to stay competitive. A more agile and responsive approach to the evolving Japanese market could have potentially mitigated some of the challenges Walmart faced.
Conclusion on Why Walmart Failed in Japan
The tale of Walmart’s failure in Japan serves as a cautionary narrative for global enterprises entering new markets. The company’s inability to adapt its strategies to the unique cultural, competitive, and operational landscape of Japan proved to be its Achilles’ heel. From cultural missteps and strategic miscalculations to supply chain challenges and labor relations, the reasons behind Walmart’s failure in Japan are multifaceted.
Understanding these pitfalls provides valuable insights for businesses seeking success in diverse global markets and underscores the importance of cultural sensitivity, strategic flexibility, and a deep understanding of local dynamics. We can conclude on the Following:
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) 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.