TT-472 -- Wal-Mart Persists, ebiz news from Japan

Subject: Terrie's Take 472 -- Wal-Mart Persists, ebiz news from Japan
* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, June 8, 2008 Issue No. 472

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

SUBSCRIBE to, UNSUBSCRIBE from Terrie's Take at:
http://mailman.japaninc.com/mailman/listinfo/terrie

BACK ISSUES
http://www.japaninc.com/terries_take, or,
http://mailman.japaninc.com/pipermail/terrie/

------ MAKE PBXL A PART OF YOUR FLAGSHIP JAPAN OFFICE ----

At PBXL, we use only the best in telephone design
and functionality: Cisco.

Cisco technology gives your clients the right impression.
Join us at our monthly seminar at Cisco Headquarters:
http://www.pbxl.jp/seminarstt

Contact us today!
03-4550-2557
info@pbxl.jp
-----------------------------------------------------------

+++ WHAT'S NEW

Yesterday Seiyu, Wal-Mart's troubled subsidiary in Japan,
announced that it would speed up its cost-cutting efforts,
and start directly importing around 100 house brand
products from suppliers overseas. The company will import
and sell high volume products such as candies, beverages,
processed foods, paper products, canned peanuts, and other
goods. Mostly the products will come from SE Asia and sell
under the Great Value brand. Currently house brands account
for about 5% of Seiyu's sales, and Wal-Mart plans to
increase this to at least 10% over the next 3 years.

There has been a lot of negative media coverage about
Wal-Mart's takeover of Seiyu, done in phases since 2002. The
company has been cast as pushy, uncaring, and heralding a
type of retailing that hurts small players. To be sure,
Wal-Mart is not alone in engaging in hard-ball business in the
sector, but being foreign it stands out more.

In particular, the local press reckons that Wal-Mart has got
it wrong in terms of market positioning. While cheap means
"good" to low-income populations around the world, in those
countries where per-capita income is reasonably high:
Japan, Germany, and South Korea, for example, cheap without
some redeeming qualities also means undesirable. As a
result, Wal-Mart has already received a thrashing in the
German and S. Korean markets and eventually pulled out.

Although it is also getting thrashed here in Japan, there
are signs that the company is far more motivated to stay
here and succeed. So much so in fact, one wonders if they
don't have a case of "fatal attraction" here...?

[Continued below...]

--------------- IT Services at Reduced Costs --------------

As you grow your business…

* Lower your system development costs
* Lower your IT operating costs

We help clients achieve just that through our Japan office
and offshore development center.
We offer Website Development services, Help Desk support,
Office Relocation services, Managed Hardware delivery and
setup, and Managed IT services such as O/S and equipments
upgrades, IT Setup and maintenance.

In addition to Japan we also have the capability to deliver
our services at Singapore and Australia.

For more information, please contact us at:

http://www.toptechinfo.com/
e-Mail: Info@toptechinfo.com
Phone: +81 (03) 6909-4441

------------------ Offshore Development -------------------

[...Article continues]

First the background. Wal-Mart bought into Seiyu back in
2002 after Seiyu had gone into a death spiral. To Wal-Mart,
it must have seemed an ideal opportunity to secure a major
position in a country that it had been looking at for a
long time, but had not taken the plunge. Although Wal-Mart
obviously did its due diligence, what it didn't realize
until later was that Seiyu was not only suffering from
plummeting sales and profits, but also its reputation and
attractiveness to customers were severely tarnished -- a
situation that the company still has not recovered from.

In February, 2005, and 3 years into the partnership, Seiyu
reported an FY2004 loss of US$117m, more than triple its
expected worst result, and revenues slipped 3.7% to
US9.8bn. Analysts predicted dire repercussions for Wal-Mart
if it didn't fix the problem. Wal-Mart's answer was to buy
out the rest of Seiyu's stock, parachute in more foreign
managers, and commit Seiyu to the low-price strategies
that have worked for Wal-Mart in many other countries.
>From the outside, it looks like the new Wal-Mart managers
blamed the problems to date on Seiyu's incompetence and
inability to change with the times. They also clearly had
(and still have) supreme confidence that the Wal-Mart
low-price model was and still is the way to go.

The only problem is that now, another 3 years later, the
Japan operation is still losing prodigious amounts of
money -- in fact more than back in 2005. In FY2007, the
losses were JPY20.9bn (US$195.5m) on sales of JPY952.3bn.
This a pretty disappointing result, and one would think
by now that Wal-Mart would by now be listening to the "experts"
who are telling it to put in a Japanese CEO and play the
Japanese way. However, Friday's announcement shows that
Wal-Mart management has become more polarized in their
thinking and if anything is accelerating adoption of the Every
Day Low Prices mantra. This time around they are planning
to eventually bypass the Japanese wholesaler network and its
ability to leach profits. Hence the rise in direct imports
and house branded goods.

This continuation of a so-far failed policy is either a
very brave, or a very stupid move for Wal-Mart.

In fact, we think Wal-Mart is basically right pursuing low
cost merchandise, but perhaps not for the reason that they
believe -- which seems to be that cheap is good. Our take
is that telling the Japanese that something is cheap and
therefore it's good is a sure fire way to make them lose
interest in buying that product. Competing Japanese
cut-price operators have taken a different tack, in telling
consumers their stuff is good, then once the consumers get
to the stores they find out it is cheap as well. Thus, they
are doubly delighted, and the word gets out.

This is what Wal-Mart needs to be doing and probably they
should be starting with the brand naming. "Great Value" to
us appears to focus purely on the word value, or price.
Instead, Wal-Mart should try to find a second word which
modifies the term value to give it more... well, value.
Although we're not copywriters, "Life Value", or "Family
Value" would both evoke a far more positive image. If the
brand stands for something more, customers respond. One
only needs to look at how Ikea has turned furniture
shopping into a fun experience and is packed out every
weekend -- to see that maybe Wal-Mart should be taking a
leaf from their marketing book.

Anyway, while Wal-Mart doesn't seem to have cracked the
right marketing mix yet, there are two major factors in its
favor. Firstly, as new statistics have shown, the recent
global acceleration of food and consumer goods prices is
causing Japanese shoppers to considerably cut their
shopping budgets, and to look for bargains. The rise in
prices is bound to continue for a while to come, as China
itself is now in the throws of an inflation spiral and so its
exports are increasing in price.

Secondly, house branded products are clearly the way to go,
and providing there are no "China supplier" scandals to
tarnish the entire brand, the acceptance of house brands in
general by Japanese consumers has been good. Japanese
competitors to Wal-Mart have been studying its business
model and are increasingly introducing house branded
products that are chipping away at the traditional names
-- particularly in low-end, high-volume goods. Indeed, some
of these competitors are already well ahead of the game.

Take Aeon for example. They plan to increase their Topvalu
product range by another 30%, or 700 new products, by next
February (2009). More importantly, Aeon has developed house
brand products that Japanese customers actually want to
buy, such as local snacks and salad dressings, rather than
generic cans of world-brand peanuts and candies, which
appeal to a smaller segment of the population.

Anyway, our feeling is that Wal-Mart probably has its best
shot to turn the business around in the next 3 years,
while a probable global slowdown is occurring and consumers
are forced to focus on value for money. If it doesn't, the
company will eventually be required by their US
shareholders to cut their losses and leave -- especially
now that the US operations are also experiencing anemic
growth and profits.

Lastly, one might ask: why is Wal-Mart so obsessed with
making it in Japan? It's been a very expensive exercise for
them. The answer is probably a overriding strategic one.
Although supermarket operator Aeon is still a US$51bn
(consolidated sales) minnow compared to the US$345bn
Wal-Mart, it is a company that has executed extremely well,
and is now swallowing up its mid-sized competitors in
Japan.

OK, granted, it is currently choking on the Daiei deal, but
despite an overall downturn in the markets, the company is
still holding up well. Its President, Motoya Okada, has
said that he sees Wal-Mart as his main competitor and that
Aeon will take the fight to the rest of the world --
investing in companies as targets become available. Talbots
of the UK, is an example of his commitment. Perhaps not
coincidentally, Talbots just reported a big turn around in its
results.

Despite the overall size difference, the fact is that
Wal-Mart earns just 22% of its revenue, around US$76bn,
from its international operations, means that Aeon is
indeed big enough to become a major threat to Wal-Mart's
overseas markets -- especially those in Asia and the
Middle East, where the Japanese image cachet couples
very well with competitive prices.

In our opinion, it will take Aeon at least 10 years before
it can really take on Wal-Mart outside Japan. However, the
company does have an irritating habit of doing much the
same type of business that Wal-Mart does, but better. It
has invested massively in world class IT systems, it excels
in bulk buying local goods and building house brands, and
it has maintained a squeaky clean public image, versus
Wal-Mart's rather tarnished one.

************

Lastly, readers with strong Japanese financial translation,
editing, and management experience should take a peek at a
newly listed position in our jobs section. The job is for
a Managing Editor with a very prestigious brand name
foreign firm. This type of position doesn't come up often and
represents a high-point in the career of a person in the
language business.