Wal-Mart set to shake up Japanese retail industry

Japan's world of retailing is an extraordinary combination of plenty and scarcity, service and inefficiency, has changed dramatically in recent years. Already wracked by severe competition, the industry is all set to churn once again following a decision by the world’s largest retail group, the US-based Wal Mart, to open a mega-store in the country. The US retail powerhouse has already taken the first steps towards this by setting up a subsidiary in Japan to handle its Japanese operations.

The US giant is said to be planning a 15,000 square metre store by early next year and is said to have already drawn up a shortlist of 10 proposed sites.

Wal-Mart would be the second global player entering the large Japanese retail market. Earlier French company, and the world’s second largest retailer, Carrefour opened its doors to Japanese consumers with a new 17,000 square metre store, selling everything from groceries to computers at highly-competitive prices, opened earlier this month to long queues.

With the economic bubble having burst early on in the last decade, Japanese consumption patterns have changed in recent years. The continued recession in the economy has seen bonuses collapse, overtime cut and, in some cases, even base salaries reduced. Job security, once the bulwark of the Japanese employment system, has weakened significantly.

Retail spending in Japan has been declining for nearly four years, with consumers quick to adapt in a recessionary environment and a new age swept in: "value for money" replaced "brands at any price" as the prevalent consumer focus. This has fuelled the growth of a series of highly successful discount stores.

The variety of goods and services offered by the average store in Japan ranges way beyond that in most retail outlets abroad. Large department stores stock everything from fresh food and prepared dishes, to discount and boutique clothing, and household and garden goods.

The entry of global players like Wal Mart and Carrefour comes at a time when consumer spending is beginning to rise and Japanese real estate prices are at a historic low. Overseas retailers are also likely to benefit from the economies of scale generated by their worldwide network of suppliers.

What is inescapable is the fact that this decision is all set to put additional pressure on the Japan’s struggling retail chains, which have born the brunt of the four year spending slump. Earlier this year, Japanese retailer, Sogo went under while its rivals, Daiei and Mycal, are realing under severe pressure and are struggling get their act right. The entry of the global players also exposes the Japanese retail industry, closed for so long from outside competition, to global pricing pressure. While this may benefit the consumer, domestic retail firms will have a difficult time since they will be forced to cut prices to maintain market share.