Megastores prosper in spite of bleak spending environment

by Mie Sakamoto

SAKAI, Fukui Prefecture (Kyodo) Pummeled by weak consumer spending, Japanese retailers are having to rethink their operations.

One relatively new concept — the megastore — has emerged as a star attraction in this regard, with shoppers showing an unusual willingness to part ways with their hard-earned yen.

Visitors to one such megastore, the Plant-2 Supercenter in Sakai, Fukui Prefecture, are stuffing their carts with everything from fish to flowerpots.

“I can find all kinds of things here,” remarked shopper Chiyomi Saka, a 50-year-old homemaker.

Because she lives relatively far away from the Plant-2 Supercenter, Saka said she can only visit about once a month. But when she does, her purchases range from groceries to gardening supplies.

“I feel things are cheaper here,” another customer said, noting that one brand of bread that usually costs 200 yen in her neighborhood store only costs 148 yen at the Plant-2 Supercenter.

Fukui-based Plant Co., established under the name Mitta Co. in 1982 as a small store for household goods and propane gas, entered the large-scale retailing sector by opening a do-it-yourself store in the prefecture in 1990. It opened the Plant-2 Supercenter in April 1993.

Supercenters, promoted by U.S. retail giant Wal-Mart Stores Inc. in the late 1980s, sell all kinds of daily commodities under one roof at low prices and in spacious surroundings. These goods include groceries, general merchandise and household goods.

The low prices are partly possible because megastores are based in suburban or rural areas where land is cheaper. They are also able to slash prices because of lower personnel costs and limited advertising expenditures, according to industry analysts.

Since Plant opened its first megastore in 1993, the number of such retailers is thought to have grown to about 75 in Japan as of last October, according to the analysts.

“Supercenters are an interesting type of operation, as there had been no such stores (in Japan) selling such a variety of goods at such low prices,” said Yukinori Oishi, a senior analyst within the corporate research department at Shinko Securities Co.

Plant, which generates more than 90 percent of its sales from its megastore operations, chalked up an unconsolidated net profit of 685.7 million yen in the business year that ended Sept. 20, an almost ninefold increase on the 78.2 million yen it posted in the 1993 business year.

It now runs seven megastores in suburban and rural areas of Japan, with the majority of them offering between 180,000 and 200,000 items.

Plant President Masami Mitta, who visits the United States five to six times a year to study Wal-Mart and other stores, said the success of Plant megastores resulted in part from efforts to listen to local customers.

“First, I was thinking about expanding the existing DIY store, but after hearing requests from customers, I realized the store was destined to be like the type run by Wal-Mart,” Mitta said.

Mitta said the main thing he learned from Wal-Mart megastores is how the business can become part of daily life in the locality.

“Wal-Mart serves as infrastructure for people living in rural areas by providing all kinds of commodities all of the time,” he said. “There are products that are marketable and products that are not so marketable. But we offer both.”

Plant wants to raise its number of megastores to 40 and chalk up sales of 300 billion yen by the 2010 business year, having generated sales of 45.2 billion yen in the last business year.

But Plant is not the sole player in the sector. Its aggressive policy in terms of opening outlets was partly triggered by recent moves among competitors to do the same.

Megastore operator Aeon Corp., which ranks second in terms of sales on a consolidated basis in Japan, also believes such outlets will continue to make inroads.

The Chiba-based company announced in August it would accelerate efforts to open megastores in the Tohoku region through a tieup with Sunday Co., one of the area’s largest DIY store chains.

Aeon already operates three megastores — in Aichi, Nara and Akita prefectures — and is reportedly witnessing favorable results.

In a similar move, supermarket chain Seiyu Ltd., an affiliate of Wal-Mart, said it will open a large one-floor store in Shizuoka Prefecture in April.

The store will sell clothes, food and household items, allowing customers to pay for everything at one cash register, according to Seiyu.

Plant plans to open more stores, but not in urban areas, where competition is more intense due to existing specialty retailers, Mitta said, adding that the company’s most successful megastore is in a rural area.

“It would also be costly to open one in an urban area, due to the high cost of land,” Mitta said.

Kazunori Tsuda, a senior analyst in the equity research division at Daiwa Institute of Research Ltd., said, “The supercenter is a promising type of business.”

Tsuda added, however, that merely opening a megastore does not guarantee success.

He said operating them is a more difficult proposition here than in the U.S., citing differences in consumer behavior and harsh competition in the domestic retail industry.