Carrefour's first store in Japan was inundated with customers on opening day. (PANA)

The opening of Carrefour's maiden outlet in December 2000 in the Makuhari district of Chiba, northeast of Tokyo, was greeted with great fanfare. Carrefour is a French-based retailer ranked number two in the world in terms of total sales. This was followed one week later by the opening of U.S. supermarket chain Costco's store just a kilometer (0.6 mile) away. Other foreign chains are considering entering the Japanese market as well, including Wal-Mart Stores of the United States.

A big factor behind the foreign offensive is deregulation of Japan's distribution sector, including abolition of the Large-Scale Retail Stores Law. The new stores in Makuhari are likely to intensify price competition as Japanese supermarkets seek to survive, and this could lead to a realignment of the retailing industry.

Makuhari's Appeal
Carrefour's Makuhari store is immense, with the sales floor for the two-story building measuring some 30,000 square meters (7.4 acres). The ground floor is occupied by 47 tenants, including Uniqlo, the private-label casual-wear chain that has achieved spectacular growth with its low-price strategy. Carrefour's own supermarket occupies the entire second floor, covering around 17,000 square meters (4.2 acres). Selling some 60,000 items--from fresh food to books and even personal computers--it truly offers one-stop shopping. The sales floor has been designed like a French food market, with vegetables and fruit being sold over the counter by weight.

Carrefour's basic strategy is to keep procurement costs down by buying directly from the producers. This has been very effective thus far, as the retailer has outlets in 26 countries around the world. In Japan, it still relies on wholesalers for about 40% of the items it carries, and so the key to success will lie in the extent to which it can lower costs. Carrefour launched its second outlet in January 2001 and plans to open 12 more outlets throughout Japan by April 2004, and this could have a big impact on the distribution industry.

On opening day, about 700 people lined up outside the Makuhari store, forcing it to open its doors 15 minutes ahead of schedule. So many customers continued to filter in that the store had to restrict entry for safety reasons.

Costco, meanwhile, has won over consumers with its low prices, also achieved through direct procurement from producers, as well as through bulk sales.

Makuhari lies between the large consumer markets of Tokyo and Chiba. Although there is still much unused reclaimed land in the area, transportation access by train, bus, and expressway is quite convenient. Cheap land prices and high convenience have lured retailers to move in; there are now so many general merchandise outlets, supermarkets, specialty stores, and discount shops there, in fact, that it has been likened to a retailing trade fair. The appearance of Carrefour and Costco is sure to further intensify the retailing war in Makuhari.

Wal-Mart Next?
Other leading supermarkets in Europe and the United States are mulling the possibility of opening shops in Japan as well. Wal-Mart Stores of the United States--the world's largest retailer--for example, is seriously considering an outlet in Makuhari a couple of years down the line.

What has triggered the flood of store openings? The biggest factor has been deregulation of the Japanese distribution sector--most notably the abolition of the Large-Scale Retail Store Law in June 2000--to make opening new large stores much easier.

Another factor has been the considerable drop in land prices, coupled with increased availability of commercial land, as manufacturers consolidate or shut down their factories and local governments sell off unused lots. These conditions have been an open invitation for financially healthy foreign retailers to snap up real estate.

Yet another factor has been the ability of major foreign distribution firms to take advantage of merits of scale to capture bigger market share, forging alliances through Internet technology. In spring 2000, for example, Carrefour formed the GlobalNetXchange--an online marketplace enabling retailers to procure products and materials via the Internet--along with seven large European and U.S. companies, including Sears, Roebuck & Co.

The big overseas retailers are well-known for their product development and procurement know-how and are sure to bring their low-price strategies into Japan. Their domestic counterparts will try to fend off the competition, but a sweeping realignment of the domestic retailing sector could be in the offing in the not-too-distant future.

Copyright (c) 2001 Japan Information Network. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.