TT-665b -- How to Compete with Online Retailers, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, June 17, 2012, Issue No. 665b

+++ INDEX

- What's New -- How to Compete with Online Retailers
- News -- Ozawa's wife spills dirt on hubby
- Upcoming Events
- Corrections/Feedback
- Travel Destinations Picks -- Tochigi and Chiba
- News Credits

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+++ WHAT'S NEW

The Nikkei ran quite a good commentary this last week on a
phenomenon in the USA called "showrooming" which is also
becoming a trend here as well. The term refers to the habit
of web-savvy consumers checking out products in physical
show rooms, only to turn to their favorite shopping and
price comparison websites to see if they can buy the same
product cheaper elsewhere. Globally, this is not a new
trend, as evidenced by the demise of Borders and other
bookstore chains in the States after the arrival of
Amazon.com, but it is now starting to have a significant
disruptive effect on Japanese retailers and is being blamed
for sucking the profit out of their operations.

The Nikkei quotes, as an example, home electronics chain
Yodobashi Camera, which has been forced to advertise that
it will not only match prices of other stores but that now
it will match online sites as well. This is a risky
guarantee for them to offer because as the Nikkei points
out, with Amazon's JPY500bn of sales in Japan, it has the
buying power to sell TVs and other items for below
Yodobashi Camera's own cost price. Without the costs of
sales staff and stores, Amazon and other online operators
will eventually win this game.

Currently online retailing in Japan is worth about
JPY10trn, still a modest percentage of overall retail
sales, which run around JPY135trn, but it's growing
rapidly. The reason is because consumers are learning how
easy it is to compare prices online and because
gratification is quick (pull out a credit card and buy).
Kakaku.com, the nation's leading price comparison website,
covers a multitude of products and draws about 35m users a
month. Nikkei also mentions a new smartphone application
called Shoppi, which has even more comparison categories
than Kakaku.com, and which as of the end of May had 650,000
registered users.

This got us to thinking about how traditional companies can
fight back against the online-only retailers and the price
comparison websites. It seems to us that the bottom line is
to either escape the trap of being compared on pricing
alone or alternatively to use the price wars as a means of
meeting customers before upselling them on something else.
This means companies have to create products or service
line-ups that are unique and therefore can't be compared,
bring in some loss leader products for an upselling
strategy, or to make their offerings solutions-oriented so
as to deter the competition. Lastly, they can be old
fashioned and simply deliver consumers enough value that
consumers forget about the price.

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[...Article continues]

In terms of unique products, you have both manufacturers
and retailers in the mix, generally with the makers deciding
whether a product is allowed to be supplied competitively.
From what we can see, the most successful companies have
developed a strategy where they control the overall
distribution chain and therefore don't have to compete at
the retail level. Apple is a good example of this, and has
its own stores and locked in distributors to deal with
customers. If you want an iPhone you're not going to be
able to buy it at an unofficial discount (although there
may be supplementary discounted services).

On the retailer side of things, shoe store chain ABC Mart
is a good example where a retailer has gone back upstream
and taken over the manufacturing, so as to create their own
brands and thus control over how they are sold. ABC Mart's
shoe brands are HAWKINS, VANS, and NUOVO and offer
compelling price-value -- of course they are only available
from ABC Mart. Uniqlo is another outstanding example of
end-to-end control by a retailer.

One foreign apparel maker we spoke to told us that they
went a step further (which we suspect Uniqlo will also do)
of creating a fun, low-cost sub-brand for online sales
only, while at the same time supplying the physical
distribution channels with their normal product. The
company said that after creating the new range, its online
sales and margins have soared and the results are
influencing what they do with their regular line as well.

On the loss-leader/solutions side of things, we are
thinking of companies that take a simple product or
service, then bundle it into something much deeper. The
more complex the solution the less likely an Amazon.com
will come along and take away the business. These companies
typically are not just selling to newcomers but have been
around long enough to have developed a strong customer base
and are repeat marketing. And of course the customers have
been around long enough to understand what the solution
means to them.

As a case in point, we're following with interest the
Low-cost Carrier (LCC) airlines coming into Japan. Right
now these airlines are selling ultra-cheap airfares in
massive quantities to Japanese consumers who are enjoying
the novelty of cheap travel. Going on to Kakaku.com, the
LCCs (and some national airlines that position themselves
in the same space) are winning the price comparison wars
hands down and in the process are scoring lots of new
customers.

But one-time ticket sales are not their objective. Instead,
once they have the customer they start cross-selling them
on hotel rooms, travel packages, upgrades to basic
airfares, and of course repeat holidays every season. The
formula works and a company like JetStar, for example, is
now the biggest carrier of air passengers between Australia
and Japan, with 23 flights per week.

Then there are the old fashioned services where customer
perception and quality counts and online competition still
can't compete -- although recommendation sites do influence
them by bringing new customers. We're talking about a broad
range of professional and personal services that are
provided by so many smaller companies, such as accounting,
legal, language training, restaurants, counseling, massage
and acupuncture services, babysitters, after-school
tutors, you name it. What these companies offer is physical
customer satisfaction that creates word-of-mouth sales and
loyalty. For these companies to allow price cutting through
online resellers or promotions (such as doing Groupon) may
actually mean a loss of business, because loyal customers
see what the newcomers are getting as discounts and feel
bad about it.

The trick with this last category of companies is how they
can stay personal when they're growing larger and through
necessity have had to commoditize their offerings. Some of
the larger English language schools are having this
problem, and for some time have been competing on price, as
can be witnessed on subway ad boards. Actually, it's all
been quite gentlemanly: a few discount campaigns here, a
few marketing twists there...

Then suddenly out of left field came an Internet company
which completely disrupted the industry and destroyed the
incumbents' margins by offering webchat language learning
to the Philippines for JPY500 per session. The answer for
the incumbent English schools appears to be that they
can either watch helplessly as budget-minded customers
defect, or they can move to a loss leader/complexity model.
In this case they would presumably offer the same low-price
webchat, but with better quality instructors, and upon
recapturing their customers proceed to upsell them on
services the Internet-only companies cannot, such as
high-end learning (MBAs), specific language consulting, or
even job placements.

**********

Lastly, our piece last week on Mainali release from prison,
and his deportation to Nepal yesterday, drew a lot of
comments. In our FEEDBACK section below this week, you'll
want to read the response of one reader who had personal
contact with the woman illegally detained in Chiba some
years ago and who successfully sued over it. As our reader
comments: NEVER NEVER confess to something you didn't do,
no matter how much pressure the police put you under.

Oh, and in case you are wondering about the numbering of
the newsletter, we can be a little superstitious at times,
and figured readers would understand. :-)

...The information janitors/

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+++ NEWS

- Ozawa's wife spills dirt on hubby
- LDP/New Komeito, DPJ reach consumption tax agreement
- Whale meat glut on falling demand
- Watami proves restauranting can still make money
- Peach planning China flights

=> Ozawa's wife spills dirt on hubby

As if DPJ politician Ichiro Ozawa didn't have enough going
on, it appears that his divorced wife has decided to weigh
in with the revelation in a popular weekly magazine that
Ozawa fled Tokyo after the nuclear plant explosions in
March last year. Interestingly, the wife decided to stay
put. She also revealed that Ozawa originally wanted to
marry a bar hostess but was talked out of it and instead
was introduced to her through Kakuei Tanaka. ***Ed: Ozawa
is certainly not the first public figure to have been
pressured into marrying respectably. The fleeing Tokyo
allegation, however, is politically loaded. How does that
saying go? "Heaven has no rage like love to hatred
turned/Nor hell a fury like....?"** (Source: TT commentary
from japantimes.co.jp, Jun 16, 2012)

http://bit.ly/K9twcj

=> LDP/New Komeito, DPJ reach consumption tax agreement

Well, given that the ruling DPJ and opposition LDP/New
Komeito parties have the numbers to carry a consumption tax
hike through parliament, the news that both parties have
now agreed to a deal to support the increase pretty much
makes it a done deal. However, the compromise does seem to
ensure a short "lifespan" for the Noda premiership, given
how much opposition to the tax increase still remains both
amongst politicians in both parties and the public at
large. Further, Noda has had to trade away a DPJ election
pledge of a guaranteed minimum pension and changes to
health care for the aged. ***Ed: In addition, PM Noda
appears to have sacrificed Japan's participation in TPP
with the appointment of anti-TPP proponent Akira Gunji as
the new agriculture minister. In so doing he is dooming
Japan to continued protection of its special interest
groups at the expense of the general population.** (Source:
TT commentary from nytimes.com, Jun 16, 2012)

http://nyti.ms/KsCaYd

=> Whale meat glut on falling demand

Good news for whale lovers. While harassment in the
Southern Ocean doesn't seem to have deterred Japanese
whalers, the market may well be their undoing instead.
Apparently the semi-governmental Institute of Cetacean
Research has only been able to sell 303 tons of whale meat
from last summer's catch from the Northwest Pacific. That
means that the remaining 908 tons are still in freezers.
The Institute has had 13 public auctions since last
October, and observers say the reality is that public
demand for whale meat is down sharply. ***Ed: The Japanese
public is well informed, and many people are starting to
feel that whales should not be eaten. In fact, according
to the Guardian article, a 2006 survey found that 95% of
Japanese have either never or seldom eat whale.** (Source:
TT commentary from guardian.co.uk, Jun 14, 2012)

http://bit.ly/LutmyF

=> Watami proves restauranting can still make money

The consumer economy is still under huge pressure due to a
rising number of under-employed (and thus underpaid)
people, and so common wisdom would have it that
restauranting should be a difficult business. However, the
Japanese do love to eat out and companies that have created
proven dining experiences, especially of traditional foods,
are still making money. Such is the case with restaurant
group Watami, which has announced that it enjoyed
consolidated net profit of JPY3.418bn on sales of JPY140bn.
As a result, the company reckons it will be debt-free by
March 2013. ***Ed: This is significant because the company
had interest-bearing debt of JPY21.7bn in 2008.** (Source:
TT commentary from e.nikkei.com, Jun 16, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120615D1506A06.htm?GID=57

=> Peach planning China flights

One of the 3 newest Low-cost Carriers (LCCs), Peach, has
said that pending approvals the airline will start flying
to mainland China later this year. The company says that
its preferred destinations will be Shanghai, Beijing and
Hangzhou. Peach will start flying from KIX airport in Osaka
to Hong Kong in July, for just JPY9,100. ***Ed: People
underestimate the impact that the LCCs will have on local
tourism. These airlines don't just sell airfares. Look at
JetStar's model, which is quite mature, and you will see
that they see themselves as a complete holiday company --
hotels and activities feature in their income-earning
activities.** (Source: TT commentary from e.nikkei.com, Jun
15, 2012)

http://e.nikkei.com/e/ac/tnks/Nni20120614D1406A09.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

=> Last week in TT665, we covered the case of Govind
Mainali, who was released from prison after years behind
bars for what appears to be wrongful conviction. We
mentioned in passing about Mainali's ability to claim
compensation and how a South American woman had
successfully done just this, even though she was still
convicted. As it turns out, she wasn't from South America
(we made a wrong assumption after reading her name) and a
reader that probably many people know, kindly wrote in to
give us more information about her case. Thanks Charles.

=> Our reader comments:

Great piece. I have been following this case for many
years. However, one correction: the woman you are
referring to is Rosal Manalili Villanueva (Filipina) who
was detained on November 8, 1997 after discovering her
boyfriend's body in their apartment. She was illegally
detained for 10 days. She was convicted in September 1999
and given 8 years. She finally was released and deported
January 8, 2007. He daughter, who was three at the time
of the murder, last saw Rosal on November 7, 1997.

There are many sordid details about this case. I know this
because I met Rosal on November 18, 1999 while she being
detained in Chiba appealing her conviction. I became her
advocate and traveled back to Manila with her on January
8, 2007. Her case appeared twice on nationally TV (Torigoe
covered her). While being detained she became fluent in
Japanese (writing as well as spoken) was by all standards
an exemplary prisoner (no infractions, fluency in Japanese
that included use of keigo, and always cheerful), but was
not released early because she refused to accept
responsibility for the death of her boyfriend. Most
prisoners are released after 60% of their sentence. She
held for nine years and two months on an 8-year sentence.

Our support group often met with Mainali's support group to
share information appeal strategies. You are right in
saying his indefinite sentence was probably more cruel.
What you did not clearly mention was in 1999 he was only
one of 51 not-guilty verdicts out of +2000 trials. Even
though 90% of convictions involve a confession, he had
refused to confess. Yet, within six months he was found
guilty at the District High Court because, as one judge
said, "I looked into his eyes and could see he was
guilty."

One thing to tell your readers, If you have not committed
the crime, NEVER NEVER NEVER confess.

Probably more information than you wanted, but just wanted
to give her Rosal her due. She was an incredible woman with
an incredible story. And yet, during her time of detention
you could not find someone more upbeat, positive and not
bitter given what she had been through.

Sincerely,

Charles E. McJilton
CEO / Executive Director
Second Harvest Japan
www.2hj.orgbac

*** We respond:

Charles, thanks for this insight and the accompanying
documentation. From those notes we see that Rosal's illegal
hotel detention happened in evenings in between day-long
interrogations, and that she was guarded by female staff
from the Chiba Police.

***------------------------****-------------------------***

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***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Nikko’s Chuzen-ji Lake, Tochigi

British diplomat, Ernest M. Satow adored this Nikko
lakeside district and, even more, built his own private
lodge here. He visited the lodge more than 30 times and
spent a total of 218 days at Chuzen-ji Lake during his stay
in Japan. It's no wonder why. Chuzen-ji Lake is a beautiful
lake located at the southern base of Mt. Nantai. The lake
was created by explosions from Mt. Nanatai daming up the
Daiya River 20,000 years ago. Senjo-ga-hara marshland is to
the northwest, Kegon-no-taki Falls are to the northeast,
and a slender peninsula, Haccho-dejima, is in the south
part of the lake. It’s really beautiful when the
surrounding mountain ranges and their seasonal colors are
reflected on the calm surface of the lake.

http://bit.ly/N0Yisg

Touring Chiba’s Green Landscape, Chiba

On a sunny morning we set out on our motorbike to drive to
Katsuura, a small fishing port on the Pacific Coast of
Chiba. It would be our first time to Chiba and the drive
would bring us through the Boso Peninsula which we were
very much looking forward to exploring. Though we had heard
a few stories on golf outings, we had no idea what to
expect from the trip as there is not that much information
in English available on the area.

Passing by Haneda airport and the industrial facilities on
this side of Tokyo Bay, we took the Aqualine – the bridge
tunnel connecting Tokyo Bay with Chiba – and arrived in
Chiba shortly after. The landscape very rapidly changed and
green mountain ranges started to sprout up everywhere. I
caught glimpses of small villages tucked away in valleys,
small rivers which disappeared into the green forests and
walls of trees that seemed to shoot straight up into the
sky. We grew impatient with every minute longer on the
highway and wanted to exit as soon as we could. We were
finally able to take the smaller route 410, that led us
through long stretches of green rice fields with patches of
traditional Japanese style houses scattered here and there
– the scenery was wonderful.

http://bit.ly/NFmcLc

***------------------------****-------------------------***

***********************************************************
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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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