Examples of Failure for Market Entry > Advice

Examples of Failure for Market Entry into Japan

(1) Lack of Products Meeting Japanese Consumers’ Needs

There are many examples of foreign retailers that have brought their business concept, with the same product lineup as in their home country, into Japan, and have had their business fail due to a lack of interest from Japanese consumers.

In 1991, the rental video chain Blockbuster (U.S.) established Blockbuster Japan in a joint venture with Fujita Den Trading and entered the Japanese market. In the U.S., videos are marketed as “wholesome home entertainment”, and major video stores do not stock adult or extreme horror movies, and this stance has gained wide support from the community. However, in Japan, adult movies account for 35% of the market, and Blockbuster was unable to fit into the Japanese market, and was put at a disadvantage to other firms. In 1999, Blockbuster handed its shares over to Fujita Den and left the Japanese market.

The sporting goods specialist Sports Authority (U.S.) established Mega Sports in 1995, in a joint venture with Jusco (now Aeon). Sports Authority held management authority, and opened stores similar in size to those in the U.S., with a sales area of 4,000 ~ 5,000 m2. It ignored the characteristics of the Japanese market where product lineup is adjusted seasonally, and had a product lineup similar to its U.S. stores, selling goods centered around fitness, jogging and tennis all year round. Accordingly, sales failed to increase as hoped. On the advice of Jusco, it took measures such as decreasing sales area devotes to home gym equipment, on account of the average housing conditions in Japan. However, sales also hit a downturn in the U.S., and Sports Authority reduced its holding to 19%, gave up management authority, and now excludes Mega Sports from its consolidated accounts.

(2) Failure to Differentiate from Existing Retailers

The office supplies specialist Office Depot (U.S.) and DeoDeo established a joint venture firm with equal holdings in 1996, and opened their first stores the following year. The new firm aimed to attract customers from a wide area by offering low prices achievable through direct deals with manufacturers, and having stores with sales area of over 2,000 m2. However, the market for office supplies to Japanese firms and government offices was segmented above initial projections, a result of direct sales offered by small and medium enterprises that had been around for many years. As a result, it was unable to differentiate itself from other firms with its large stores and low prices. Also, it was unable to win in competition with major domestic mail order retailer such as Askul. Askul was able to drop prices, increase products handles and reduce delivery time with every new catalogue it put out. However, Office Depot handled only a reduced number of items, and unable to offer enough choice to consumers, failed to increase sales. In 1999 DeoDeo pulled out its capital, and as a 100% subsidiary, Office Depot has now changed its strategy to one of opening medium scale stores with sales area of around 500 m2 in central areas of major cities.

The Hong Kong firm Daily Farm International Holdings (DFI) entered the Japanese market in a joint venture with Seiyu in 1995. It opened stores in its supermarket chain “Well Save”, but was unable to differentiate itself from competitors, and left the market. It aimed to attract customers by selling processed foods at low prices, appealing to consumers demand for low prices after the collapse of the bubble, but competitors were also taking the same approach, and it was unable to differentiate itself adequately. Further, its quality control was not up to scratch, and it was unable to meet consumers’ needs. Further, it placed too much emphasis on cutting costs when building stores, and stores lacked atmosphere and ease-of-use, resulting in a loss of consumer support.

(3) Lack of Market Research

There have been cases where it can be assumed that foreign retailers have entered the market without carrying out enough market research on consumer buying preferences, etc. The cosmetic chain Sephora (France) entered the Japanese market by establishing a 100% subsidiary in 1999. Rather than developing products that met the constitution or preferences of Japanese females, it opened stores and offered products based around its reputation as “French Luxury Cosmetics”. It launched its flagship store in Harajuku (Shibuya-ku, Tokyo), but Harajuku is an area popular with a generation younger than the customers in their 20s and 30s targeted by Sephora. They also followed their own strategy, placing perfumes and fragrances near store entrances, rather than makeup items such as lipstick which account for a higher percentage of sales in Japan, but were unable to gain support from Japanese consumers.