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Looking at an Era of Fierce Competition among Home Electronics Retailer Chains from the Perspective of Store Location

Kenji Hashimoto
Professor, Faculty of Education and Integrated Arts and Sciences, Waseda University

On May 11, 2012, Japan's two major home electronics retail store chains, Bic Camera, Inc. (Headquarters: Tokyo) and Kojima Co., Ltd. (Headquarters: Tochigi Prefecture), announced their operational merger led by the former. The merger of Bic Camera, ranked fifth in the industry in terms of sales, and Kojima, ranked sixth, will create an enormous home electronics store retailer chain with 1.06 trillion yen (actual results in 2011) of combined revenues, the second largest group in the industry after Yamada Denki Co., Ltd. (Table 1) Retaining their trade names for the time being, both companies aim to enhance bargaining power in purchase baked by the boosted sales, increase the operational efficiency, and product development capability, while proceeding with the disposal of unproductive stores.

Table 1: Ranking of major home electronics retail store chains by sales (Fiscal year 2011)
Ranking Company name Consolidated net sales (billion yen)
1 Yamada Denki Co. Ltd. 2,153.2
  Bic Camera, Inc. + Kojima Co., Ltd. 1,061.5
2 EDION Corporation 901
3 K's Holdings Corporation 770.9
4 Yodobashi Camera Co., Ltd. 700.5
5 Bic Camera, Inc. 612.1
6 Kojima Co., Ltd. 449.4
7 Joshin Denki Co., Ltd. 435.2
8 Best Denki Co., Ltd. 340.9
Note) based on materials regarding the financial statements prepared by each company
Who will chase Yamada Denki?

This dramatic merger was said to be triggered by the prolonged sluggish sales of home electronics, against a backdrop of deterioration in consumer appetite and the backlash of the acceleration of demand due to the expiration of the eco point system for home electronics. A more fundamental reason, however, is that both parties found a shared interest in maintaining the right to challenge Yamada Denki, which has a commanding lead in the home electronics retail industry, in order to strive for survival in the industry. Home electronics, which are mainly durable products, have high unit prices. On the other hand, however, they essentially do not generate qualitative differences among stores. Consumer interest tends to concentrate solely on getting wanted products as cheaply as possible, which inevitably leads to extremely intense price competition. In such a situation, larger home electronics retail store chains have an advantage in purchase negotiations, and they are better positioned to win purchase price reductions. Bic Camera and Kojima jumped into second place with their merger, but their combined revenues are still less than half that of Yamada Denki. Herein lies the reason why we see large-scale mergers between home electronics retail store chains constantly. In fact, there have often been industry reorganizations in which home electronics retail store chains ranked second or less unified their operations. For instance, currently third-ranked EDION (established in 2002) is a holding company created by unifying five home electronics retail store chains centering on DEODEO Corporation (Headquarters: Hiroshima Prefecture) and EIDEN Co., Ltd. (Headquarters: Aichi Prefecture), and the fourth-ranked K's Holdings Corporation (Headquarters: Ibaraki Prefecture) is also a holding company which includes nine subsidiaries nationwide, with K's Denki Co., Ltd. at its core.

Store location: the key to operational mergers

When existing chains take a decision to launch an operational merger, store location is a critical factor to measure its success or failure. If the store networks of merging companies are geographically adjacent, competition between stores will arise, and the expected sales effectiveness becomes difficult to attain. In the case of the five companies that EDION comprises, for example, their store networks are geographically dispersed, keeping the encroachment of trade areas to a minimum. (Figure 2) Also in the Bic Camera-Kojima merger, it is safely assumed that inter-store competition would be scarce, as Bic Camera has its store network around the railroad terminal stations in big cities, while Kojima has expanded its business nationwide along roadsides.

Table 2: The number of stores of the three largest home electronics retail store chains by region
Region Yamada Denki Bic Camera + Kojima EDION
Bic Camera Kojima Ishimaru EIDEN MIDORI DEODEO Hyakuman Volt
Hokkaido 31 1 4 0 0 0 0 6
Tohoku 62 0 21 0 0 0 0 0
Tokyo 40 16 30 2 0 0 0 1
Kanto (except Tokyo) 120 10 77 9 0 0 0 3
Koshinetsu 38 1 6 0 12 0 0 0
Hokuriku 24 0 4 0 0 0 0 15
Tokai 57 2 17 0 196 0 1 0
Osaka 18 1 12 0 0 43 0 0
Kinki (except Osaka) 48 1 10 0 1 96 0 3
Chugoku 48 2 8 0 0 0 361 4
Shikoku 30 0 4 0 0 0 109 0
Kyushu/Okinawa 89 5 13 0 0 0 254 4
National total 605 39 206 11 209 139 725 36
Note) The store numbers are based on the website of each company as of March 30, 2012.

On the other hand, if the site conditions or the floor space of the merging companies are significantly different, it might hinder the increase of efficiency through mergers. Home electronics retail store chains can be classified broadly into the urban home electronics store type, comprising mainly long-established stores in electronics quarters such as Akihabara, the urban camera store type, such as Bic Camera and Yodobashi Camera, and the suburban store type, such as Yamada Denki and Kojima. Urban type companies, which can expect high profitability in exchange for high rent, naturally have different operational strategies from those of suburban type companies, which can thoroughly implement low cost management, while population density is low. Undeniably, the merger between Bic Camera and Kojima-prime examples of the former and the latter-must be predicated on overcoming the difference in operational strategies and the disproportionate floor areas.

In addition, in order to increase distribution efficiency, the density of store distribution is also significant. Particularly in the case of suburban type stores, a low store density in prefectural terms means low transportation efficiency by trucks, thus restricting the low-cost strategy to absorb logistics costs. Although suburban type Yamada Denki and Kojima have both developed store networks nationwide (Kojima operates in 46 prefectures except Oita), there are as much as 32 prefectures where Kojima has less than five stores, as compared to only 4 prefectures in the case of Kojima. (Table 3) Furthermore, prefectures with a particularly low density of only one or two stores account for the majority (28 prefectures), a situation in which a disposal of stores is likely inevitable in the near future.

Table 3: The number of prefectures with less than four stores
  Yamada Denki Kojima
4 stores 3 1
3 stores 1 3
2 stores 0 9
1 store 0 19
Total 4 32
Note) The store numbers are based on the same sources as Table 2.
Saturation of suburban markets and the expansion of new markets

Yamada Denki, the leader of today's home electronics retail store industry, has its origins in a predecessor store established in 1973. The company expanded its network of large-scale stores nationwide, riding on the easing of the commercial use of agricultural land (the diversion of agricultural land) and the regulations of large-scale retail stores (the Large-Scale Retail Stores Act), the growing trend of low-end consumer needs, and the motorization in rural areas. In 2005, Yamada Denki became the first home electronics retail store company that achieved sales of over one trillion yen. Meanwhile, the company developed an urban type store LABI in 2006, and expanded into urban centers such as Ikebukuro, Shinjuku, and Shibuya in Tokyo, as well as Namba in Osaka, pinpointing the Bic Camera flagship stores. It is easy to see that these Yamada Denki forays pressed Bic Camera into the decision of the merger.

The trend in the home electronics retail store industry toward Big Box stores has proceeded further with the Bic Camera-Kojima merger, and we will see further rivalries between Big Box stores over market as well as reintegration in the years to come. Yamada Denki, the industry leader, is also facing environment changes which cannot be handled with traditional strategies, such as the growing presence of online stores, the saturation of suburban markets which have up to now supported its growth, and the expanding senior market that requires thorough after services, along with the other Big Box stores which are now bringing together their powers just underfoot. Can Yamada Denki hold its place, or will there be reorganizations or a change of the leader? The situation of the home electronics retail store industry precludes premature conclusions.

Kenji Hashimoto
Professor, Faculty of Education and Integrated Arts and Sciences, Waseda University

Born in Tokyo in 1959. Completed the Ph.D. program in the Graduate School of Arts and Sciences, at the University of Tokyo. Doctor of Philosophy, Professor, Faculty of Education and Integrated Arts and Sciences, Waseda University after working at Distribution Economics Institute of Japan, Matsusho Junior College, Osaka Gakuin University. His primary work is Japan's Distribution System and Informatization [Nihon no ryutsu sisutemu to johoka] (Kokon Shoin, 2001). Coauthored books include Distribution Business Models [ryutsu bijinesu moderu] (Chuokeizai-Sha, 2002), Japan's Distribution and Urban Space [Nihon no ryutsu to toshi kukan] (Kokon Shoin, 2004), and Reconstructing the Distribution Space [Ryutsu kukan no saikochiku] (Kokon Shoin, 2007)