Reference no: EM133653021

In 2018, Walmart brought in more than $500 billion in sales globally. Not surprisingly, 3/4 of those sales came from the U.S. But, overseas - particularly in Japan - things are not going so well for the American retail giant.

Walmart's expansion in Japan involved purchasing a minority stake in Seiyu - a Japanese grocery store - in 2002, which then turned into a fully-owned subsidiary in 2008. Like Walmart, Seiyu uses the "Everyday Low Prices" mantra to market to their consumers.

In between then and now, not much has gone right for Walmart in Japan. Aeon, the top supermarket in Japan, owns 45% of the market share. Meanwhile, Walmart's Seiyu sits at 12%.

That may not sound terrible, but to put it into perspective, let's compare it to another U.S. supermarket that has expanded into Japan with much more success - Costco. Costco only has 26 stores in Japan, but in 2017 they brought in just over $3 billion in revenue. Seiyu, on the other hand, has 331 locations and brought in $7.1 billion in revenue.

So, what went wrong exactly?

Well, the low price strategy that both Walmart and Seiyu abide by is not nearly as effective in Japan as it is in the United States. While consumers in the U.S. appreciate the convenience of being able to find great deals at one central location, Japan consumers are not as concerned with this convenience, making it less of a differentiator in the Japanese market.

High-income, retail savvy and sporting a love for foreign brands, the Japanese consumer market has long appealed to many multinational retail giants. But its lucrative market is just as risky as it is attractive. In 2005, renowned French-based retail chain Carrefour exited after seven years since their first entry in Japan. In 2012, UK-based Tesco followed suit, exiting after nine years of being in the market. Recent reports have shown that Walmart has nearly exited Japan!

Culturally, Japan is quite distant from the U.S. For one, Japanese consumers prefer to purchase smaller portions in more frequent intervals over the American habit of "stocking up". Accordingly and contrary to the U.S., convenience stores thrive in Japan with over 56,000 spread across the country and around the corner of nearly every neighborhood. Moreover, Japanese buyers have an overwhelming preference for fresh produce which opposes the pre-packaged goods that serve as a major selling point for Walmart in the U.S. Coupled with smaller average meal sizes, this further undercuts the need for discounted bulk orders.

The US retailer sold 85% of its wholly-owned Japanese subsidiary Seiyu to investment firm KKR & Co. and the e-commerce group Rakuten for $1.6 billion. Under the agreement, Walmart retains a 15% minority stake in the business.

An incredibly intricate supply chain for a fragmented market on top of fierce rivalry from local competitors are the commonly cited reasons for failures to capture Japan's affluence. Driven by a constant demand for fresh produce, most farms and fisheries in Japan are small, family-run businesses who thrive on tight local connections. As smaller orders frequently get more favorable terms over those in bulk, this purchasing behaviour poses a significant challenge to multinationals like Walmart whose entire model is based on reduced costs passed along to consumers.

Questions

1. What type of adaptation was needed for Walmart? Explain your choice using the case study above.

2. What did not work for Walmart? List and describe at least 2. 

3. Using at least one dimension Hoefstade's 6 cultural dimensions, explain how Walmart failed to understand Japanese culture.