Direct marketing in Japan
So although department stores won the battle of the Large Store Law, they may lose the war to the discounters and a new entrant - the direct marketers.
Like discounting direct marketing is still a small force in the Japanese retail scene. It accounts for only two percent of total retail sales. This compares with about 15 percent in the US.
However direct marketing in Japan is growing at double digit rates, and experts estimate that direct marketing will account for more than five percent of retail sales in Japan by the year 2000.
There are several reasons for this growth. First direct marketing offers greater convenience to the shopper.
I remember when I was working in Tokyo. Although I never worked as hard as my Japanese compatriots, I still worked like a dog until late at night. On my way home I'd walk past shuttered department stores which for some reason always closed at 6:00 p.m. My only chance to go shopping was on the weekends when I had to fight with throngs of other shoppers who likewise couldn't shop during the week.
How much easier it would have been to open a catalog, dial a 24-hour toll-free number, place an order, and have the goods delivered the next day to my home or office. Because of the limited shelf space at most stores, the catalog probably also would contain a wider array of products than I'd ever see at a department store.
Fortunately for a growing number of Japanese, this dream is becoming a reality. But because direct marketing is a new development in Japan, it still has snags.
One of the biggest impediments to direct marketing is the lack of mailing lists. In the United States some of the best mailing lists are magazine subscription lists. But these aren't always available in Japan.
Many magazines are sold only at newsstands, so obtaining a list is impossible. Or the magazine publisher simply won't or can't put together a suitable mailing list. Also mail order companies in Japan won't swap mailing lists as is common in America.
Aside from obtaining lists, there's an even more daunting problem of high mailing costs. Bulk rates and pre-sorted rates are limited. A special catalog rate was introduced in Japan, but it has many limitations.
Thus postage rates are about two to three times higher than those in the US. At these rates it is often cheaper to mail from a foreign country like Hong Kong or Korea. There's an added bonus to using another country because printing costs are often much lower than in Japan.
Unfortunately some mailing list dealers stipulate that their lists cannot be used for mailings from outside Japan. They fear this would tarnish the reputation of their list. However an American firm, R.R. Donnelley, has arranged to mail 28-page catalogs from America for very low rates.
Still mail order marketing looks favorable. Germany's Otto Versand, the publishers of Speigel catalog and the world's largest mail order company, sees much promise in the Japanese market. Otto Versand recently teamed up with Japanese trading company Sumitomo to form Otto-Sumisho, a mail-order outfit.
Additionally America's LL Bean managed to get rich in Japan without really trying. Without any advertising in Japan, Bean built up a mailing list of 130,000 customers for its outdoor wear. Eventually Bean had annual sales of $14 million from Japan, even though the firm didn't have an order fulfillment site in Japan.
LL Bean could market from America because it had unique and high-quality products that the Japanese wanted. Other firms can repeat LL Bean's success, and the Japanese government has moved to help foreign mail-order firms set up shop in Japan.
Both the Japan External Trade Organization (JETRO), and the Manufactured Imports Promotion Organization (MIPRO) have assisted overseas direct marketers. JETRO publishes the "Overseas Catalog Shopping Guide," which walks consumers through buying from an overseas mail order company.
MIPRO has an office in Tokyo where catalogs from overseas are on display. People can walk into the showrooms and order from over 1,500 catalogs. The existence of this showroom has been publicized in popular magazines, and the program seems to be successful.
There are also foreign catalog sales corners at about 50 major post offices. This service, called the International Mail Order Support Service, enables consumers to select merchandise from a foreign company's catalog and pay for it through international mail order or credit card. Shipment comes from overseas and there is no need for inventory in Japan.
These methods may be useful for test marketing, but to make it big in direct marketing an American firm will probably need a local presence in Japan. This will be necessary to handle returns and payment, although goods could be shipped from the United States.
This is the strategy used by Shop America. This is a joint venture between an American company and 7-11 Japan. 7-11 hopes to capture some of the four million customers who visit its 4,000 stores each day. Customers pay $20 to join a shopping club and receive a catalog. Prices are typically thirty percent lower than comparable goods bought in Japan.
Customers place orders at local 7-11 stores in Japan and the order is transmitted electronically to Shop America's offices in the US. Products are shipped from America and delivery is promised within two weeks.
After-service may be an issue with Shop America, but the system solves one problem with this sort of international direct marketing - payment.
With the Shop America program, payment takes place at the 7-11 where the goods are ordered. Japan is still a cash-based society where consumer checks are almost non-existent. Most payments are made by cash or bank transfer.
This has begun to change. In the late 1980s, credit cards multiplied quickly in Japan. At first most of these so-called credit cards were not true credit cards because the bearer was not entitled to revolving credit - the balance had to be repaid at the end of each month. However after regulatory changes more true credit cards are being used. Now Japan has 1.4 credit cards for every man, woman and child.
This has made payment for mail-order goods much easier. Instead of forcing customers to go to the bank or go to the post office to arrange a cash transfer, they can now give their credit card number over the phone and have the goods appear at their door the next day.