Conventional Japanese supermarket chains, which are suffering dwindling sales and being cold-shouldered by consumers, will be dealt another blow with the advance of foreign retail giants wielding aggressive business plans into the Japanese market.

On Friday, French-owned Carrefour -- the world's second-largest retailer -- will open its first Japan hypermarket. The site, in the Makuhari business district of Chiba Prefecture, is adjacent to several middle-class commuter towns.

U.S.-based Costco Wholesale, a warehouse club chain that serves its customers through a paid-membership system, will follow this move quickly by launching a new outlet on Dec. 13 in the same district.

The emergence of the two foreign retail giants in the district, as if to dwarf an ailing Daiei discount store in the neighboring area, is symbolic of the ongoing plight of Japanese retailers. Some experts say, however, that as painful as this may be, it could finally herald long-awaited fundamental changes to the nation's retail industry.

"As Carrefour probably offers lower prices with its powerful financial strength and low-cost operation expertise, domestic counterparts need to promote further management efficiency," said Shinichi Nagashima, a director at the Distribution Economics Institute of Japan. "Consequently, Japan's distribution system will change over the next five to 10 years into a more transparent and efficient system."

The traditional distribution system, which maintains trade between makers and retailers through multilayered wholesalers and complicated kickback practices, keeps retail prices high.

Foreign retailers like Carrefour and Costco have increased their number of stores worldwide, offering discounts through direct trade with manufacturers, bulk buying and reducing overhead.

Carrefour's Makuhari store, for example, offers around 60,000 different commodities -- including food, home appliances and clothing. It acquires more than 50 percent of its merchandise through direct trading with manufacturers, including foreign makers and Japanese farmers.

But as Peter Kalischer, senior marketing manager of Carrefour Japan Co., points out, the takeoff is not so easy.

The French chain will open its second store in the Tokyo suburb of Machida and its third in Izumi, Osaka Prefecture, in January. But Kalischer said, "Carrefour's purchasing power with only three stores may not be sufficient" to persuade major Japanese manufacturers to trade directly with the firm.

Costco, which opened its first Japan outlet last year in Hisayama, Fukuoka Prefecture, now acquires some 80 percent of its merchandise through direct trading with manufacturers. Although the ratio is up roughly 10 percentage points from a year earlier, Richard Chavez, a senior vice president and managing director of the Japanese subsidiary, said he is not satisfied.

Handling a relatively small number goods -- 4,000 kinds -- and dealing with some 25,000 paid members at the Hisamatsu outlet, Costco continues negotiations with more makers to improve the direct trading percentage, company officials said.

Kazunori Tsuda, retail analyst at Daiwa Institute of Research, said, however, that the ratio would increase with the opening of more stores.

"If a Carrefour outlet earns about 5 billion yen to 10 billion yen annually, 10 Carrefour stores are equivalent to a midsize supermarket chain," he said.

In fact, Carrefour plans to open 13 stores in Japan by the end of 2003, while Costco hopes to increase its number of outlets to more than 10 by 2005.

The invasion of foreign retailers may constitute a double-whammy for Japanese supermarket chains, which are also struggling with decreased sales. According to the Japan Chain Stores Association, sales of 120 member firms in October fell 4.9 percent from a year earlier to 1.38 trillion yen, down for the 23rd consecutive month on a year-on-year basis.

Daiei Inc., one of Japan's top retailers, is now in the midst of a massive restructuring that includes the closure of 32 loss-making stores. Another top chain, Ito-Yokado Co., meanwhile suffered its first drop in sales over a whole business year, through the end of February, since it went public in 1972.

Ito-Yokado President Toshifumi Suzuki said identifying consumer needs is the current priority for his chain.

"When the economy was growing every year, we could increase sales by just increasing our volume of goods. But we have been unable to entirely abandon past ways of thinking," he said. "We've got to do something to win back customers before concentrating on countermeasures against foreign retailers."

Jusco Co., another retail chain, whose headquarters is located between the Carrefour and Costco stores in Makuhari, claims, however, that it is ready to counter the foreign giants.

"Global competition accelerates price competition, and we have been preparing for it for years," said Kaori Watanabe, a spokeswoman for Jusco. The company has been promoting price reduction efforts by introducing cost-efficient distribution systems such as online trading and direct transactions.

Naturally, Carrefour and Costco are not immune to the intensifying competition in Makuhari and its surrounding areas. They, too, are keen to define themselves in the eyes of Japanese consumers.

Chavez said Costco is trying to expand its operations by becoming another wholesaler option for small businesses, in the hope of possibly changing the distribution system.

Carrefour meanwhile hopes to bring the French "hypermarche" concept to its Makuhari outlet.

"The hypermarche concept attempts to provide shoppers with one-stop-shopping at affordable prices and in a pleasant ambience," Kalischer said. "Convenient store layouts, such as zoning multiple categories into single life stage areas, aims to improve the overall shopping experience."

Tsuda of Daiwa Institute of Research said foreign players' success in Japan hinges on how effectively they can adjust their outlets to local needs.

But Tsuda added, "Even if it fails in Japan, it's like catching a cold for a retail giant like Carrefour (which earned about 6 trillion yen in group sales last year at its 682 hypermarkets and 8,379 other stores worldwide)."

Instead, the surer bet is that "Japanese supermarket chains' management systems and the distribution system will undergo changes," he said.