Out with the Old -- In with the New

Back to Contents of Issue: December 1999

by John Boyd

We've all had a great idea at some time or other that might have made us rich. Alas, we took it no further than wondering why no one else had ever thought of it. So instead of preparing for an IPO, I'm working bleary-eyed on this story, and you're reading it on some crowded commuter train. Askul Corporation, Tokyo-based office supplier and the leading proponent of e-commerce in Japan's retail industry, is the result of someone carrying a great idea to fruition. Askul started life in 1993 as a division of Plus Corporation, one of Japan's largest stationery suppliers. Market research by Plus discovered that no office supplier was catering to the needs of small businesses: A huge oversight, considering 95% of Japan's 6.6 million companies are small offices with less than 30 employees, many with less than ten.

So Yoshihisa Imaizumi, president of Plus, set up a new retail division to see if small could be bountiful as well as beautiful. He put Shoichiro Iwata in charge, and the new business was dubbed Askul, a romanized contraction of ashita kuru (literally, arrive tomorrow), or, in business parlance, "next-day delivery."

Dealing with thousands of small companies ordering in equally small amounts -- a minimum order as low as ¥2,500 -- meant Askul would have to operate highly efficiently, while maintaining a Lilliputian act.

Investing in bricks-and-mortar stores would have destroyed the business plan before Askul began operations, even if capital had been available. To keep costs and headcount to the minimum, Askul gambled from the beginning on direct marketing, relying on catalogs, fax ordering, and a call center for customer support. At the same time, it hired a workforce comprised mostly of contracted temps supplied by various agencies.

This one-page business plan also precluded the possibility of hiring and supporting its own sales force. Yet to succeed, newface Askul needed to conjure up high volumes if it were going to pull profits out of a hat of small orders. Catalogs alone were not going to do the trick in a society valuing personal service, but the company had an ace up its sleeve to deal with the problem.

Following intense U.S. government pressure during the '80s, Japan had begun early this decade to open up its retail industry to foreign competition. Scrambling over the crumbling trade barriers were huge, efficient U.S. operators like Office Depot and Office Max, lugging plans to build megastores in Japan. Askul, with its Plus heritage, knew that many mom-and-pop stationers around the country faced economic ruin under deregulation, and it sought them out as allies. There was no way a small neighborhood shop asking the manufacturer's full retail price could compete with a giant discounter that came striding into the area, and they proved only too willing to sign up as sales and bill processing agents when Askul came calling.

"We don't need our own sales force," says Iwata. "We outsource sales to the agents. They are responsible for finding new business and taking care of the payments and accounts receivable."

With some 50 agents signed up in 1993, a stock list of 500 items, backing from Plus and its distribution center in Saitama Prefecture, Askul was able to launch itself with a core group of just five people managing a cadre of temporary staff and outsourcers.

The careful preparations saw things get off to a good start. In 1994, the first full year of operations, Askul chalked up a respectable ¥200 million in revenues, supplying 40,000 small businesses with their basic office needs. It looked like the great idea indeed had wings.

The careful preparations saw things get off to a good start. In 1994, the first full year of operations, Askul chalked up a respectable ¥200 million in revenues, supplying 40,000 small businesses with their basic office needs. It looked like the great idea indeed had wings.

That changed when Iwata received a fax from a young female customer in March 1996.

"She was disappointed that she couldn't order online," recalls Iwata. "In her fax, she detailed the kind of graphical interface we should have, so that customers could order over the Internet. It was very specific and detailed."

Impressed, Iwata took the criticism seriously, and had Askul go about taking up her suggestions.

"You know, we really do listen to our customers," says Iwata. "Because we know from experience that they can tell us best how to run our business. E-commerce is not really about computers and technology, it's about creating new customer relationships."

As with other non-core business processes, Askul had outsourced its IT mission-critical requirements to IBM Japan. So it asked IBM to set up and host a sophisticated e-commerce site that could grow as it grew. As a result, Askul became the first user in Japan of IBM's popular Net.Commerce, an e-com software package that can run on PCs and scale up to mainframes.

To order online, a customer first registers with Askul, then can browse through the company's own electronic catalog, dropping off items into an electronic shopping cart as he goes. The company also provides a free CD-ROM in its catalog that can be used for preparing customized orders offline.

Customer orders coming in over the Internet go to Web servers located in IBM Japan's Mitaka hosting center, from where they are forwarded on to Askul dispatch operators for processing. The Mitaka center also hosts an Oracle database server used by Askul for creating customer profiles, as well as an IBM AS/400 midrange system controlling Askul's main business processes.

In addition, this setup links to Askul's call center, where operators use CT (computer telephony) and CRM (customer relationship management) software to view the history of customers phoning in with queries or complaints. Over 100 operators are currently dealing with some 5,000 calls a day.

Online transactions are still relatively small, accounting for 10% of all orders, but are growing fast. Iwata estimates they will have doubled by next year. That's not half bad in a country where the fax and phone are still the preferred way of doing business (instead of via PC), especially among small firms.

Not bad, either, is Askul's rapid growth. In its second year of operations, corporate revenues tripled to ¥600 million. It repeated this feat in 1996 and again in 1997, the year Plus spun Askul off as an independent subsidiary with its own distribution center in Tokyo, to which the company has recently added a second center in Osaka.

In 1998 sales rocketed again to ¥10.6 billion, and in May 1999 more than doubled to reach ¥22.6 billion, with profits of ¥800 million. Estimates for next year have revenues hitting ¥40 billion.

Askul's inventory has kept apace with sales. Those 500 products offered in 1994 have mushroomed to 8,700 items today, ranging from paper clips and computer supplies to green tea, toilet paper, and office furniture. This year the number of customers hit 800,000 and Iwata forecasts they'll reach one million next year.

To manage such complexity, Askul had Hitachi come in and create a highly sophisticated digital picking center for efficient packing. An order automatically activates colored lights to let human packers manning conveyor-belt lines know what items are to be packed in what particular order. To insure against items being omitted, each package is automatically weighed and checked against the order's estimated weight.

If there is one thing Iwata is particularly proud of, it's "our digital picking and distribution," he says. "It works as efficient as a factory."

Askul claims that upon receiving a processed order, it can have it packed and ready for shipment in just 15 minutes. It is the reason why the company has begun promising same-day delivery to customers in the Tokyo and Osaka areas who order before 11:00 a.m.

Currently, the vast majority of orders are by fax, which have to be inputted manually into the system. Nevertheless, online orders will account for one-fifth of all transactions by next year, and 70% in 2005, according to Iwata. So in a country where ordering over the Internet is only now seriously taking off, Askul is acknowledged to be the e-commerce front runner in its field, as well as an e-com leader in Japan in general.

Consequently, IBM Japan sees Askul as an ideal company to showcase its e-commerce strengths. "Askul is aggressive in using new technologies," says Yohsuke Uchida, a manager for IBM Japan overseeing the Askul business. "They see technology as a driver of the business. That's why we're considering supporting it with the newest technologies coming out of our global R&D labs." Uchida points to Askul's latest venture into the online auction business focusing on office products, as a case in point.

As Iwata says, "There's a revolution going on. If you don't participate, you don't know what's going on."

Yet despite its broad use of outsourcing and eagerness to deploy new technologies, Askul still remains a curious blend of the old and new. While orders can be made over the Internet, customers do not pay online. They pay by bank transfer, or have Askul agents come and collect.

According to Makoto Tazaki, an IBM retail expert, Askul's customers appreciate both the personal service and the ability to settle in cash.

"Japan is a cash-oriented society," says Tazaki. "Many Japanese still prefer cash to credit cards, and paying for goods online has yet to attract more than a minority of consumers. The Askul service is a good half-way house between full e-commerce and the traditional Japanese retail model of personalized local service."

This mix of the traditional and new clearly differentiate Askul from its rivals, and is playing a prominent part in the company's success.

John Boyd is a Tokyo-based freelance writer. He contributes regularly to Computing Japan Online and The Japan Times.

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