We Have Seen the Future, and it is Conbini

According to Nikkei's annual survey of the industry, there are over of 35,300 conbinis (convenience stores) in Japan -- that's one for every 3,300 Japanese residents. Led by the large chains like Lawson and Seven Eleven, these ubiquitous, 24-hour retailers have become a part of every day life in Japan. Now some of them are leading the e-commerce charge, making available thousands of products that otherwise would not be on the menu.

by Kevin Osborn

The explosive growth that brought a conbini to every street corner from Okinawa to Hokkaido, is at an end, according to the Nikkei. The best locations have been snapped up, store numbers have reached the saturation point and sales are flat. In 1997 new convenience store openings were up only 7.9%, the lowest figure since the Nikkei first began reviewing the industry in 1974. With consumer spending falling as the recession kicked in, last year's increase in sales per existing outlet across all convenience store chains was a meager 0.3%. This year promises to be no better.

In consequence, competition between chains is getting fiercer, and with store areas limited and with each chain selling similar sorts of products, the main convenience store chains are turning to technology to expand sales. Japan's convenience store chains are installing online terminals that offer customers the chance to shop for the sort of goods and services you would once never have expected a convenience store to sell, thereby improving customer service and winning business not only from rival chains but also from other retailers.

Lawson, the second largest chain after Seven Eleven, has taken the lead in bringing convenience shopping into the multimedia age. Last fall, Lawson invested \7 billion in installing online shopping terminals in each of its 6,700 outlets that cover all 47 prefectures in Japan. The terminals -- called Loppi -- resemble the monitors of bank cash dispensers. Operating as touch-screen data terminals, the machines allow customers to sign on to online catalogs, browse, and place an order. Lawson management predicts that the terminals will bring in over \110 billion in sales over the next few years.

The Lawson terminals and network were designed by IBM Japan, which has installed similar terminals and systems at the Sunkus, MiniStop and Yamazaki Daily chains. "Online store terminals are one of the ways that retailers are revolutionizing the way they sell to customers through the introduction of e-business," says Makoto Tazaki, manager responsible for store solutions at IBM Japan. "By networking their transactions with customers through e-business, Lawson can offer greater convenience to consumers and a bigger market for their stores."

According to Tazaki, convenience stores have been among the first Japanese retailers to take full advantage of the potential of networked IT applications. "Because they must change stocks quickly but have no space for warehousing, convenience stores adopted computerized continuous replenishment systems networked to their supply chains much faster than other retailers. Likewise, the limited space to display products makes online terminals an ideal means to expand their range of stock."

"The Loppi terminals have been a hit," gushes Naoyuki Kiriyama manager of Lawson's New Business Development. "On some days, we have sold more than 100,000 sporting event and concert tickets online, and when a popular computer game software goes on sale, we've received up to 3,000 orders a minute."

A recent Loppi catalog offered a Hello Kitty CD-ROM program, the latest CD from the all female pop group Rise Speed, and a travel bag featuring the France World Cup logo. This summer, Japanese consumers could even buy Windows 98 at their neighborhood Lawson. Big-ticket items, like discount package tours to Korea, Guam, and even Las Vegas can also be booked thanks to a recent government ruling that now allows convenience stores to sell travel products.

Loppi is online shopping with a twist, since most purchases are still in cash at the register. This seems to be overcoming some of the resistance to electronic commerce that is prevalent in Japan. According to Lawson, this face-to-face contact with customers is critical. Shoppers sign on the terminal, select a product, and receive a paper receipt. They take this to the cash register to pay for the item in either cash or with a special Lawson card. Actual products, like computer software or Pokemon toys, are delivered to the store a few days later for customers to pick up. Large items, like computers, or perishable goods, such as flowers, are delivered to the customer's home. Computer games and software updates can be downloaded on the spot from the terminals.

When booking a trip, the process is a bit different. After the customer has input data about dates and location, a Japan Travel Bureau agent instantly calls the telephone attached to the Loppi terminal. The agent confirms the travel details with the customer, who then pays for the trip at the cash register or by credit card online. A few days later, the travel package is delivered to the customer's home.

Lawson expects the terminals to pull in customers and increase sales. "We think the Loppi network will raise average daily sales per outlet by over \20,000, and increase the number of customers coming into each store by five a day," says Kiriyama. "The overall boost to sales could be as much as 6% annually -- nearly \60 billion." Lawson's expectations for the impact of the terminals look modest. However, according to the Nikkei's survey, last year the average convenience store made sales each day of around \400,000 to about 630 customers, putting average expenditure per customer in the region of \650, down 0.7% on the previous year. Given this situation, the terminals could give Lawson a significant lead.

Lawson has already noted that by widening the range of products on offer, the terminals are also bringing in a different clientele. "Convenience store customers have tended to be mostly in their 20s and 30s," says Kiriyama. "But since we introduced the machines, with their entirely new range of products, we've started getting whole new groups of customers -- senior citizens, young mothers and children."

Because all sales are made online, the Loppi terminals overcome one of the barriers to growing convenience store sales -- the lack of merchandising space and the cost of holding inventory. The average Lawson store has a floor area of just under 100 square meters, from which they market around 2,800 items. Just 40 cm wide and 55 cm deep, each Loppi terminal can market about 1,000 items with no extra stock. In the case of game software, the inventory is held digitally on the terminal itself.

By offering a wide range of products not previously available�in�convenience stores, Lawson is moving into direct competition with both general retailers and specialist suppliers like travel agents and florists. For example, Lawson used only to sell flowers in May, prior to Mother's Day. Thanks to Loppi, flower sales this year tripled from February to April, and are now becoming established as a year-round product for the chain. Compared with high-street florists, Lawson is about 30% cheaper.

"The Loppi terminals are a demonstration of how the established boundaries between different sorts of retailers are breaking down under the impact of e-business," asserts Tazaki of IBM. "The core value of a convenience store is its location close to a customer's home or office. Now a customer can buy computer software or book a holiday as easily as he could pick up a carton of milk. This amounts to a revolution in the retail business model."

The blurring of boundaries is likely to increase, as from early 1999 Lawson plans to increase the number of products available through Loppi to 3,000. Kiriyama says that his department receives about 50 telephone calls a day from firms interested in including their goods on the network.

Convenience store cash dispensers could also be provided in tie-ups with banks. "Freestanding bank cash dispensers at supermarkets and other retail outlets are common in the US and Europe, but are still a rarity in Japan," says Tazaki. "Convenience stores and gas stations are likely to be the first to introduce such services in Japan." Lawson is already offering a cash dispensing machine at certain outlets for the OMC credit card issued by one of its sister companies.

Other businesses are also looking at the potential of the terminals to draw in customers. According to Tazaki, IBM Japan is currently exploring possibilities of installing similar online terminals in fast food outlets. As the Japanese convenience store sector continues to sail into a head wind, this new retail concept appears to be offering an advantage to Lawson. However, it remains to be seen whether online terminals are enough to make the convenience store sector boom again. As other firms and industries in Japan wrestle with the problem of making ventures such as electronic money and Internet shopping into profitable enterprises, it is not yet clear how many Japanese consumers are ready to start shopping in new ways. IBM Japan is upbeat about the potential of online terminals to expand e-business among Japanese consumers. "The use of online terminals in stores is far more advanced in Japan than in the United States. Japan has developed a unique retail structure with a convenience store within five minutes of everyone's home. Although PC penetration in Japan is much less than in the US, the proximity of online terminals in convenience stores offers all Japanese people the chance to shop online."

As the next �networked generation' of Japanese kids start hanging out at the convenience store, their tastes could be setting shopping styles for the next century. This summer Pokemon toys and gifts were the latest youth sensation, and Lawson's Loppi catalog featured everything from T-shirts and alarm clocks to the just unveiled "Pokemon" key chain watch." But don't try to order that anytime soon. It sold out in one day.�

"I also ordered a bunch of flowers to be sent to my friend who is living in Hokkaido," she adds. "Delivery is free of charge, and it is cheaper than the flower shop in town. I forgot to order the flowers during the day, but as Lawson is open 24 hours, I was able to order the flowers at 11:30 at night, when the other shops were closed."

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