How Costco Cracked Japan’s Impossible Market

About this video

• Video Title: How Costco Cracked Japan’s Impossible Market
• Channel: The Hustle
• Speakers: None explicitly named, but narrator is implied.
• Duration: 11:19

Overview

This video explains how Costco successfully entered and thrived in the Japanese market, a feat that proved impossible for many other major foreign retailers like Walmart, Tesco, and Carrefour. It details the unique challenges of the Japanese market, such as limited urban space and a complex distribution system, and highlights Costco's strategic adaptations and unwavering brand identity that led to its success.

Key takeaways

• Market Challenges: Japan's market presented significant hurdles for foreign retailers, including limited urban space due to mountains (80% of land mass), a financial crisis in the 1990s, and a retail environment that favored small, local businesses.
• Regulatory Hurdles: The "Daitenho" law (Large-Scale Retail Store Law) initially restricted large retailers by requiring consultations with and concessions to smaller, neighboring shops, impacting operating hours and closure dates. This law was eventually relaxed and abolished by 2000.
• Costco's Strategic Partnerships: Costco partnered with Japanese developer Torias, which facilitated overcoming real estate challenges, including converting rice fields into retail space for its first American-style mall.
• Supply Chain Adaptation: While Costco's model is to cut out middlemen, they spent a decade building relationships with suppliers in Japan to establish their own supply chain and meet consumer expectations for quality.
• Consumer Expectations: Japanese consumers associate low prices with low quality. Costco, by focusing on quality and its wholesale model (with 30% of sales from fresh food, much of it locally sourced), appealed to this preference.
• Brand Consistency: Unlike competitors who tried to adapt their core identity, Costco maintained its distinct wholesale brand and bulk-buying model.
• Consumer Adaptation: In response to Costco's model, Japanese consumers adapted their shopping habits, embracing bulk buying and even engaging in "share shopping" or splitting purchases, leading to higher membership density per warehouse.
• Competition's Failures: Walmart struggled with its "everyday low prices" message, which consumers interpreted as low quality, and its logistics model. Tesco and Carrefour also failed due to issues like centralized decision-making and not leveraging their foreign identity.