Katone's Korner (no relation to Alexis) 7/5/10

[Catoneinutica]

It's a mystery worthy of Erich Von Daniken: Why does Japan have so few Costcos? Chiba, for example, could have ten more and still have far fewer per capita than most American cities. Did the j-gov't allow the (very) that do exist here as a purely face-saving gesture? I imagine Costco is a anathema to Japan's huge middleman infestation. I wonder if any bullets have been mailed to Issaquah.

[Yokohammer]

As far as I can tell there are 9 Costco stores already operating in Japan, and around 15 more are planned. There's one planned for the Sendai area too, which will suit the wife and I just fine.

The thing with warehouse stores like that is that you can't just tuck them away in the corner of a mall somewhere. They need big plots of land that are also in areas where there's sufficient population density within a given radius. There are also transport/access issues.

All I can say is ... bring it on!

We're ready. Gotta find a way to fill up my mini-wagon from time to time!

[Taro Toporific]

....Why does Japan have so few Costcos? ...

[color="Silver"](Because of)[/color] Even with "Mark" the [color="Silver"](rumored only the bastard) [/color]son of Mr. Costco in charge of Japanese operations, Costco Japan is making money but, "Costco in Japan is very stable, with middle to high market share." Costco can make THREE TIMES the money opening stores in Mexico and Brazil than Japan.

According to my Wallymart spies, Costco plans to increase number of stores in Japan in 3 years to 17 from the only nine stores now....

[color="DimGray"]...If you want to full rest-of-the-story,
you will have to buy me the beers.[/color]

[Mike Oxlong]

I spoke with their senior North America membership director last month, and they are wanting/trying to get more openings. They are doing gangbuster business here.

[Catoneinutica]

I spoke with their senior North America membership director last month, and they are wanting/trying to get more openings. They are doing gangbuster business here.

Very interesting info from Taro - to whom I owe a BP oil spill's worth of beer - about Costco being more profitable in less-developed countries (though lets face it, Japan is less-developing by the minute).

The one Costco in Chiba practically pulsates like a cartoon building from all the gangbuster business it does, which is why it seems so odd that more didn't follow after it opened ten or so years ago. Costco must've known loooong ago that there was a ravenous demand here, and the fact that they haven't been cluster-bombing Japan with stores makes me wonder if something odd and J-govt/special-interest-related isn't going on behind the scenes.

As for land costs, if Joyful Honda can put up Boeing-factory-sized outlets in shitholes like Chiba New Town, there's certainly nothing stopping Costco.

[Taro Toporific]

[Yokohammer]

And, you can be sure that local merchants and citizen's groups will be having intense heart-to-hearts with anyone thinking of selling or renting property to a company that could potentially wipe out entire swaths of the local economy.

[omae mona]

And, you can be sure that local merchants and citizen's groups will be having intense heart-to-hearts with anyone thinking of selling or renting property to a company that could potentially wipe out entire swaths of the local economy.

That's certainly true, but does it apply to Costco? I just asked Mrs. Omae Mona, a certified Costco fanatic, if a neighborhood Costco would change her shopping habits. "You've gotta be joking. They sell completely different things than regular stores" was her response. 8 pound blocks of cheddar cheese are not very useful when making Omae Mona Jr.'s bento box for school each day.

On the other hand, I think local stores whose revenue depends on toilet paper sales would be in a bit of trouble if Costco showed up in the neighborhood.

[FG Lurker]

Kansai has a population and economy only marginally below that of Canada yet has only one Costco. It's so freaking busy the only time I will go is early weekday mornings or late on weekday nights... The rest of the time it's a complete zoo -- forget weekends, it feels more like a crowded subway car than a store. I keep hoping they'll open one up in eastern Osaka and I've even read that they're considering it... So far no luck though.

[Yokohammer]

That's certainly true, but does it apply to Costco? I just asked Mrs. Omae Mona, a certified Costco fanatic, if a neighborhood Costco would change her shopping habits. "You've gotta be joking. They sell completely different things than regular stores" was her response. 8 pound blocks of cheddar cheese are not very useful when making Omae Mona Jr.'s bento box for school each day.

On the other hand, I think local stores whose revenue depends on toilet paper sales would be in a bit of trouble if Costco showed up in the neighborhood.

Mrs Omae Mona is probably right, but I think the perception is more important than the reality in this case.

Costco brings serious economies of scale directly to the end customer, which is something the traditional retail market can't do (heck, they can't even compete with the conbinis). And Costco will not only sell just about anything their customers will buy, but they're a damn foreign company that is beyond the control of local pricing "discussions."

Of course I don't think anything will actually stop them in the long run. The bottom line is the bottom line, especially for the consumer. I'm just throwing up some reasons why it might be difficult to secure prime locations for their business.

[Screwed-down Hairdo]

It's a mystery worthy of Erich Von Daniken: Why does Japan have so few Costcos? .

Because no fucking spacemen came down and made the in the first place.

[Catoneinutica]

Because no fucking spacemen came down and made the in the first place.

Fucking spacemen! Wasted all that time designing the pyramids and making those goofy Nazca Plain lines. Didn't the schmucks know that the best way to help humanity would be to offer then a cheap place where they could buy in bulk - and get a 200-yen hotdog with all the trimmin's and a tasty beverage for 200 yen.

Costco's been wildly popular from the get-go. The Large Retailer law was long gone by the time they set up shop here. So why did they build one store in places like Osaka and Chiba, and then...stop. It's not like them. Sure, some Mom-and-Pop types would complain, but that hasn't stopped Jusco and the other Japanese behemoths, who've done a pretty good job of denuding most local shotengai.

[IkemenTommy]

Why does Japan have so few Costcos?

Because no one wants to buy 50 gallon drum of mayonnaise when there is Cupie creamie squirts readily available.

[FG Lurker]

Because no one wants to buy 50 gallon drum of mayonnaise when there is Cupie creamie squirts readily available.

Have you ever been to a Costco in Japan? They're busier than hell. They're so busy that it long ago stopped being an enjoyable experience to go there. That hasn't stopped people from going though, and every year they get busier still.

They have plans to expand, but haven't. The question is...what's stopping them?

[Yokohammer]

Costco's been wildly popular from the get-go. The Large Retailer law was long gone by the time they set up shop here. So why did they build one store in places like Osaka and Chiba, and then...stop. It's not like them. Sure, some Mom-and-Pop types would complain, but that hasn't stopped Jusco and the other Japanese behemoths, who've done a pretty good job of denuding most local shotengai.

A couple more thoughts (in addition to the thought that Jusco represents what is probably the most bland shopping experience on the planet). Also note that I'm not telling it like it is, just throwing out some possibilities:

Not only were Jusco and the like fairly early to the game, crapping all over the local retail market before the slow-on-the-take local merchants really understood the consequences, but they often allowed local merchants to set up shop in their stores. Rather than just bulldozing in and setting up competition they, in a very Japanese way, sort of assimilated parts of the local retail economy in order to smooth the way. Of course that's also one of the reasons a lot of Jusco stores are bland, characterless crap.

But now that the concept of "shutter shoten-gai" has infiltrated the molasses-quick minds of mom and pop down at the corner sakaya and vegetable stand, and the operators of the medium-size supermarkets and hyakka-ten that grew out of family businesses in the Meiji era that have never really had to compete in a dog-eat-dog market, the instinct for self preservation has finally kicked in and people are scrambling to survive.

To make matters worse, and as I previously mentioned, Costco makes no pretense of being a cooperative, you-scratch-my-back-and-I'll-scratch-yours entity of the type that has protected the "wa" in Japanese retailing for so long. They're seen as a predatory foreign firm that is raping the Japanese retail market on Japanese soil. That probably won't work. They'll probably have to become much more Japanized (and inefficient) and build "mutually-beneficial relationships" with the powers that be (otherwise known as buying into a corrupt antediluvian system) before they'll be able to gain full access. It worked for McDonalds and other initially foreign retail businesses that have been successful here, but it completely changed the character of those businesses as well.

Japan is changing, so the above might not be as much the case as it once was, but I'm betting there's some truth in my wild conjecturing.

[TennoChinko]

[color="Silver"](Because of)[/color] Even with "Mark" the [color="Silver"](rumored only the bastard) [/color]son of Mr. Costco in charge of Japanese operations, Costco Japan is making money but, "Costco in Japan is very stable, with middle to high market share." Costco can make THREE TIMES the money opening stores in Mexico and Brazil than Japan.

According to my Wallymart spies, Costco plans to increase number of stores in Japan in 3 years to 17 from the only nine stores now....

[color="DimGray"]...If you want to full rest-of-the-story,
you will have to buy me the beers.[/color]

Michael Sinegal? I've only heard good things about him.

Anyways, one easy metric to look up is the market cap of Costco ($23.81 billion) versus Wal-Mart's market cap of $178.06 billion. Compared to Costco, Wal-Mart is the 800 lb gorilla in the room. Rather than wonder why Costco hasn't been opening more stores in Japan, I think the question is why Wal-Mart (via Seiyu or by themselves) have been only fractionally as aggressive as Costco until recently.

Another misunderstanding that might be had by visiting Costco stores is assuming that the busy (retail) traffic means they are thriving. Even though they serve a significant retail population, their main business is as a wholesaler, and one needs to see how many and how often the large trucks from regional grocery stores etc are lining up back to pick up goods.

[Catoneinutica]

Michael Sinegal? I've only heard good things about him.

Anyways, one easy metric to look up is the market cap of Costco ($23.81 billion) versus Wal-Mart's market cap of $178.06 billion. Compared to Costco, Wal-Mart is the 800 lb gorilla in the room. Rather than wonder why Costco hasn't been opening more stores in Japan, I think the question is why Wal-Mart (via Seiyu or by themselves) have been only fractionally as aggressive as Costco until recently.

Another misunderstanding that might be had by visiting Costco stores is assuming that the busy (retail) traffic means they are thriving. Even though they serve a significant retail population, their main business is as a wholesaler, and one needs to see how many and how often the large trucks from regional grocery stores etc are lining up back to pick up goods.

This is a very good point, and goes back to Taro's earlier post about Japan not necessarily being more fertile territory for expansion than, say, Mexico (where I hear they have a special Zeta section for all your narcotic needs). The signs of "not for resale" on some of their beers remind you of Costco's wholesaler identity. It must need extraordinarily hefty sales volumes because its profit margins are so small - about, what, half of Walmart's. In fact, it apparently makes much, if not most, of its income on membership fees.

-catone
-but not everything's a bargain at Costco; the prices of some its brand-name stuff are actually pretty inflated

[Yokohammer]

Even though they serve a significant retail population, their main business is as a wholesaler, and one needs to see how many and how often the large trucks from regional grocery stores etc are lining up back to pick up goods.

This I don't understand.

If a consumer knows that he or she can get the same goods at the same price as a store or business that's buying from Costco, why buy from that store or business? Costco's role as a wholesaler eludes me.

I checked the membership conditions, and business members don't get any more of a discount than private members.

Doesn't make sense.
(Except for restaurants, etc.)

[TennoChinko]

I understand your point. However, not every consumer is willing to make the hike out to Chiba or its equivalent in boondockville. Costco's formulae is 14% above their cost - and a point they are virtually religiously fanatics about.

You can see evidence of Costco wholesale turning up on retail shelves if you look hard enough. I'm no expert in this area but have definitely spotted the Costco 'Kirkland' brand in stores like Nissin, National Azabu and also have spotted Daimaru Peacock trucks carting goods away from Costco. And, yes - restaurants probably make up a critical percentage of Costco's wholesale customers.

[Yokohammer]

Yes, and not every little old lady wants a kilo of cheese when 100 grams will do. I do understand that part of it.

There also seem to be quite a few people buying and divvying up portions for the entire neighborhood, which bypasses the retail stores as well.

So my guess is that Costco's business model includes a percentage of wholesale sales, but probably not enough of a percentage to place them squarely in "wholesaler" territory.

This really is interesting stuff ... and I'm not even in sales.

[Fullback]

I think there was a little buzz from the restaurant trade when Costco first opened, but I think most of it has died off. The US products were a little bit of a novelty.

1. Costco is not dependable for the restaurant business. They're out of stock on many items too many times and can't/won't give you a date for future stock. I don't have any experience with them in the US, but the operation here has no wholesale mentality at all. It seems strictly consumer oriented.

2. It's too crowded and inconvenient. Restaurant people don't have time to fight crowds of KY housewives with kids running everywhere blocking the aisles and screaming.

3. Fresh staples like vegetables and fruits are poor quality.

4. Metro stores (opening now in Japan from Europe) are strictly for businesses, have no membership fees, are stocked with excellent vegetables, fish, meats, frozen foods - virtually everything - at the same or sometimes lower cost than Costco. Plus, they are staffed by very professional people who understand the restaurant business and are helpful with special orders, sizing, etc.

Food wholesalers are more price aggressive now. When you consider your time and tolls, and having to go to several sources, delivery to your door by the wholesalers isn't all that much more expensive.

As I said, I don't know about the quality of their service in the US, but I'm not a fan of Costco Japan. It's an annoying and aggravating place to me.

[omae mona]

This I don't understand.

If a consumer knows that he or she can get the same goods at the same price as a store or business that's buying from Costco, why buy from that store or business? Costco's role as a wholesaler eludes me.

My guess:

1) Bulk doesn't work for everybody. In Japan in particular, customers may not have the storage available. And for perishable items, it can be hard to get through Costco size before the items reach expiration dates. Local stores can divvy these items up into more reasonable sizes. The 24-pack of jumbo size muffins are cheap, but how many families can eat them in the 2-3 days they are fresh?

2) Location, location, location. Costcos always are in awful locations and are surrounded by permanent traffic jams. Getting in and out takes a huge amount of time. Even if you want to buy 24 muffins, is it worth the extra hour versus popping into your local store?

[Screwed-down Hairdo]

Getting in and out takes a huge amount of time.

...Story of my fucking life...

[Taro Toporific]

4. Metro stores (opening now in Japan from Europe) ...

The What Stores?

I never even noticed Tesco even existed in Japan, but through ragtag acquisitions of C Two-Network, Fre'c, and Tanekin they say they have 128 stores.

I see they have rebranded as "Tsuru Kame"
(tesco-japan.com).

I hope this strategy works out better than WallyMart using the old Seiyu store network, and not offering any discount over the previous Seiyu prices.

[Yokohammer]

1) Bulk doesn't work for everybody. In Japan in particular, customers may not have the storage available. And for perishable items, it can be hard to get through Costco size before the items reach expiration dates. Local stores can divvy these items up into more reasonable sizes. The 24-pack of jumbo size muffins are cheap, but how many families can eat them in the 2-3 days they are fresh?

I'm with you here. This is probably the biggest reason. And I think it's probably why you see so many people buying more than they can use and then distributing the excess to family and friends. They get to spread a little goodwill around the neighborhood without spending much more cash than they'd be spending on themselves if they bought local retail, which also meshes beautifully with "osusowake" culture.

2) Location, location, location. Costcos always are in awful locations and are surrounded by permanent traffic jams. Getting in and out takes a huge amount of time. Even if you want to buy 24 muffins, is it worth the extra hour versus popping into your local store?

I get this too, particularly at the stores that are used by people from Tokyo or other huge cities where not everyone drives. Where I'm at, however, (i.e. if they ever get around to opening the planned Sendai area store) it probably wouldn't make a lick of difference because just about everyone drives, and people drive all over the prefecture ... sometimes even to adjacent prefectures ... to get stuff they need/want anyway.

[Yokohammer]

1. Costco is not dependable for the restaurant business. They're out of stock on many items too many times and can't/won't give you a date for future stock. I don't have any experience with them in the US, but the operation here has no wholesale mentality at all. It seems strictly consumer oriented.

Hi Fullback (welcome).

I've noticed the unstable supply problem as well. I used to get Chimay and Morietti beers there on occasion, but they seem to have stopped stocking them. I just assumed they couldn't get them at the right price for whatever reason, and didn't think much more about it (other than being pissed off that I couldn't get two of my favorite beers cheap), but as you say, this would be a problem for the restaurant business.

[Fullback]

No Taro. Here is the Metro stores I'm talking about:

METRO

[Mulboyne]

The What Stores?

Tesco does indeed have a store format called Metro which they are running in Japan but Fullback is talking about Metro Cash & Carry. Their Japan website is here and it looks like they have six stores.

Talking of Wal Mart, they compete directly in the US with Costco through Sam's Club. I suspect they thought it would be taking on too much of a challenge to promote two separate brands and formats in Japan but it would be interesting to see how they could respond if Costco began to make faster inroads.

I don't know enough about Costco to say what is holding them up. It might just be capital constraints in which case the returns available in other markets will be a key factor as Taro points out. However, their website (which FGL linked to above) appears to invite people to contact them with a location in Japan which fits their specific requirements. This suggests the company may not be having any success in finding places for new stores.

It doesn't look like Costco wants to buy its own sites, rather it wants long term leases. Consequently, they have to find a local landowner to deal with. Financially, the landowner may believe Costco would be an attractive tenant but they probably also have a lot of relationships with local businesses. If they thought Costco was going to be disruptive, they might think twice about being responsible for giving them house room.

[Mike Oxlong]

[Fullback]

I think the site suggestion information on the website is a carryover from other countries and not serious here. I contacted them about that, along with a polite request about stocking some other products (which I was directed to do by a disgruntled manager), and never got even a cursory reply.

The manager I spoke with rolled his eyes, saying that the leadership in Japan was hard headed, but very weak. They are still bringing in staff from overseas because of the lack of executive skill in the stores and the HQ. That could play a part in them not expanding faster.

On a separate issue, I would not be confident that their P&L looks very good here. They may be making 14% on dry goods, but it appears to me that they could be losing substantial money on over-date perishable goods. Their logistic system seems in disarray and poor stock planning has their inventory turns ratio out of whack.