Example Of Toys “R” US In Japan: Case Study Case Study

Q. Toys R Us’ retailing format has been successful in the U.S. Is there any reason why this selling format wouldn’t work as well in Japan as it does in the U.S? Should Toys R Us enter Japan? (are the benefits of entry worth the inevitable costs/risks)?
A. Toys “R” Us is a well-known name in United States. The company achieved success in American market by adopting low price and large volume strategy. Toys R Us sells products at 15 to 20 percent cheaper as compare to its competitors such as “mom and pop” stores. The company spend significant amount in advertising round the year to boost its sales through the year. Toys “R” Us procures products in bulk directly from the manufacturers, which help company in selling products at lower rate. The retail format strategy adopted by company in United States may not work well in Japan because of local government rules & regulations, marketing environment, and culture.
Japan is a small country with different rules and regulations regarding size and space of the retail stores. Toys “R” Us has to abide with local store-size regulations of the Japan while entering into Japanese market, which made it difficult for the company to open large discount retail store in Japan. Toys “R” Us may not receive Government permission and also large empty space to open its discount retail store in Japan. The company also needs to consider application procedures of Japan. Japan is dominated by small local retail players. These stores target small market and carries limited variety of products. These small retail stores do not offer large variety of products at low price like large retailers, and emphasize on developing healthy relationship with the customers.
The distribution system in Japan is also not simple as United States, and it is difficult for the company to directly procure products from manufactures. Distribution system in Japan is multilayered; hence, there is high possibility that Toys “R” Us may not get direct supplies of goods. Local manufactures will resist a direct relationship with the company, which may negatively impact the cost advantage of the company. Toys “R” Us may have to work with intermediaries’ in order to procure products from manufacturers.
Japan is a lucrative market with various constraints in terms of costly space and human resources, and complex distribution system. Toys “R” Us should not enter into the Japanese market because of existing business environment and unfavourable policies of the government. Company may not get huge space which will adversely impact inventory system and “category killer” strategy of the company. Presence of intermediaries will not allow company to save margins, which ultimately impact the final prices of the products. Cost of labor in Japan is also high, which impacts all in-store and external operations of the company.
The discount retail format of Toys “R” Us may not be appreciated by the Japanese consumers because it will lack in personal relationship with the consumers. At “mom and pop” stores consumers receive effective and personal treatment from the retailers. In large retail stores customers select, analyze and purchase products based on their own preferences. Intervention of sales staff used to be very low in large retail stores. Toys “R” Us attract consumers by their low price strategy which may not work well in Japan as it is working in United States. Company will have to invest high amount in terms of establishing infrastructure and running day to day operations in Japan. Company may not be able to sell products at low price due to presence of multiple partners in supply chain. Therefore, it is not recommended for Toys “R” Us to start retail store in Japan at this point. However, Company may enter into the Japan market when government policies are favourable and Japan is ready for retail revolution.