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What should hypermarkets do to survive?

Tomoo Noguchi
Professor, Faculty of Social Sciences, Waseda University

It has been quite a while since the decline of hypermarkets was advocated, and to this day, this trend does not seem to stop. Diagram 1, the Census of Commerce by the Ministry of Economy, Trade and Industry, shows a tremendous 40% drop in total sales by hypermarkets in Japan from approximately 10 trillion yen in 1997 to approximately 6 trillion in recent years (2014). Affected by economic stagnation and the entry of competitive businesses into the market, the number of hypermarkets decreased from 1,888 to 1,423 in the 17 years between 1997 and 2014. The total sales per business (Diagram 2) show a 19.3% drop from the same time in the previous year. Present day consumers are, without a doubt, moving away from hypermarkets.

Unit: million yen
Year 1997 2002 2007 2014
Total sales of hypermarkets 9,956,689 8,515,119 7,446,736 6,013,777
Unit: million yen
Year 1997 2002 2007 2014
Total sales per business 5,274 5,105 4,698 4,258

Why are hypermarkets seeing such a decline?

The main reason for the poor business performance of hypermarkets is integration. In the past, these types of stores were very convenient for consumers, as they sold a wide range of products including food, clothes and even furniture. However, consumers became aware of the lacking options once they started to diversify and place value on uniqueness of products.

1990 was a turning point for hypermarkets. Large specialty retailers (large-scale businesses that carries a specific product category), or the so-called category killers (for example, Gap in retail apparel, Toys "R" Us in retail toys) emerged in the market and became popular, which caused hypermarkets to lose their raison d'etre.

The business environment surrounding hypermarkets is also experiencing significant changes. With the coming of an information-driven society, online shopping is becoming a major way to purchase products. As shown in Diagram 3, the B2C market is growing, and recently in 2015, the market has expanded to about 1.8 times its size in 2011, resulting in sales totaling 13.8 trillion yen (Ministry of Economy, Trade and Industry, FY2015 E-Commerce Market Survey to analyze the current state of the Japanese e-commerce (EC) market). This trend certainly contrasts with the significant drop in the performance of hypermarkets, described above. Opening retail stores in cyberspace, like Amazon.com and Rakuten, enables a product line-up that is unlimited in size. Such stores are also not constrained by regulations of the commercial world. It is no wonder that the hypermarkets, with its comparatively smaller product selection and inconvenient access, are being encroached upon.

Unit: 100 million
Year 2010 2011 2012 2013 2014 2015
Changes in the B2C market 77,880 84,590 95,130 111,660 127,970 137,746

What should hypermarkets do to survive the competition?

The most effective way to grow out of an economic slump is to eliminate product categories with low sales (usually the apparel section). An example of this is the interesting and highly effective approach taken by Uny's APiTA chain stores. APiTA adopted the slogan "gojukatenka (half a department store)" and focused their efforts in product categories with potential growth (home fashion products, cosmetics, etc.).

However, the chains that were established by this approach can perhaps no longer be called hypermarkets. Moreover, merely eliminating product categories in existing stores cannot possibly match the product lineup of large specialty stores.

From the viewpoint of consumers, hypermarkets may be more convenient than going to several specialty stores, located some distance away from each other, when purchasing a variety of products. This is because purchasing different kinds of products becomes possible in one place. It would be meaningful for hypermarkets to establish new locations in areas where the population has such a need. In fact, SAN-A, a hypermarket on a remote island in Okinawa, achieved profitable results by making frequent changes in the apparel they sold and adding directly-managed shops of famous franchises. Careful selection of location and accurate merchandizing will most likely bring befitting results.

Lastly, I would like to comment on the relationship with online stores, which are becoming powerful rivals of hypermarkets. The growth of retail business in cyberspace has brought threat to not only hypermarkets, but also other brick-and-mortar stores. One example of this threat is showrooming. Nowadays, brick-and-mortar retailers have become showrooms where consumers go to look at and try out the products instead of buying them. This is a serious issue for retail stores.

Recently, however, there has been a movement to use this to their advantage. The large-scale retailer AEON created a space in the supermarket for displaying goods. Without any stocks, this system transforms the store into a showroom, and consumers purchase the product through their mail-order site. The focus is placed on having the shoppers see the quality of their products. It is still unknown how this endeavor will affect their business; however, it utilizes the merits of the brick-and-mortar store and improves their corporate image as consumer-friendly.

There is another interesting movement related to online shopping called Webrooming. This is where consumers look at the product online and make the actual purchase at brick-and-mortar stores, the reverse of showrooming. This trend is driven by consumers' need for a tangible experience and asking the staff questions, as well as having the advantage of prompt purchases and a theatrical presentation in a store space.

If hypermarkets are able to transform themselves in a way that allows them to exhibit these features, the growth of online shopping will not be something to fear.

Tomoo Noguchi
Professor, Faculty of Social Sciences, Waseda University

Tomoo Noguchi was born in Tokyo in 1956. He completed his doctoral course at Hitotsubashi University in 1984. After serving as associate professor at Yokohama City University, he became associate professor at Waseda University in 1992. He assumed his current position in 1993. From March 2006 to March 2008, Professor Noguchi taught and conducted research on retailing and marketing at Stanford University’s Faculty of Economics. In 1988, he received the Japan Society of Marketing and Distribution Prize for his book entitled Gendai Kouri Ryutsu no Shosokumen (Aspects of Modern Retail Distribution).

His major publications include: The I-type Distribution Revolution (Kodansha), Distribution—Mega Battle (NIKKEI), Walmart Changes Japanese Distribution (Business-sha), PB Strategy in the Price Splashing Age (NIKKEI), Free Economy Changes Japan (KADOKAWA), New Price Theory (Jiji Press), Fundamental Visual Marketing (Third Edition) (NIKKEI), Visual Marketing Strategy (NIKKEI), Understanding Marketing with One Book (PHP), Matrix Marketing Creating Market with Lateral Thinking (NIKKEI), and Why do Japanese Enterprises Fail with Marketing Strategy (PHP). He has also edited and appeared in the video Easy-to-Understand Marketing (NIKKEI Video) (NIKKEI).