Transcripts

Wal-Mart's Cautious Crawl Through Japan

PAUL KANGAS: Here in the U.S., nothing strikes fear in the hearts of mom-and-pop retailers more than news of Wal-Mart (WMT) coming to town. The world`s largest retailer is known for its aggressive expansion techniques, including devastating price wars. Many expected that same approach when Wal-Mart moved to Japan. But as Lucy Craft reports, this time Wal-Mart is moving a bit slower.

LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wal-Mart`s advance into Japan`s nearly $1 trillion retail market has been less go-go than go slow. The goliath of retailing is taking a cautious five years to tinker with and streamline the 400-store Seiyu chain in which it gained a controlling stake in 2002. Wal-Mart`s laboratory is this pilot outlet in a fishing port south of Tokyo. The user-friendly signs, spacious warehouse interior, and of course, bargain price tags, are pure Bentonville, Arkansas. But the other Wal-Mart trademark, every day low prices is on lay away. Wal-Mart, which is virtually unknown here, must first persuade an affluent and fussy Japanese public that sale doesn`t always translate as shlock.

JEFF MCALLISTER, SR. V.P. & COO, JAPAN/WAL-MART: You talk to customers, and the first thing they ask you is, if I paid 1900 yen for it yesterday and I pay 892 for it today, what did do you to it, because you had to have cheapened the product? The fact is the product was the same. The sourcing of the product was different, where we bought it from. But it was the same shirt at the end of the day. The fact is we were overpaying for it before and so were they,.

CRAFT: The Achilles` heel of every discounter in Japan is the country`s convoluted distribution system, where goods pass through a gauntlet of middlemen en route from factory to shore shelf. Wal-Mart has vowed to tame the distribution beast through a combination of cheap imports and by striking alliances with local suppliers and wholesalers. Key to this strategy is its retail link technology which allows Wal-Mart and its suppliers to track sales and inventory up to the minute.

YASUYUKI SASAKI, CREDIT SUISSE FIRST BOSTON SECURITIES: In the past also many Japanese retailers tried to expand into such a discounting format. But all failed. Why? Because they could not develop the good distribution system, the supply-chain management. So whether Wal-Mart can adapt the supply-chain system, or not, this is the most important point, whether Wal- Mart can be successful in that area or not.

CRAFT: Wal-Mart`s trial super store has been open only since April, but the company is already claiming victory.

MCALLISTER: Customers are telling us with their foot traffic and with their yen that they like when they see, and that the feedback is we want more of it.

CRAFT: After two years of losses, Wal-Mart says it will show a modest profit in its Japan operation this year. The company says it`s on track to start registering strong growth after 2007, when a store-wide overhaul is set to be completed. Given Japan`s notoriously competitive retail market and ultra-demanding customers, many analysts say a real turnaround for Wal- Mart in Japan could be years away. Lucy Craft, NIGHTLY BUSINESS REPORT, Numazu, Japan.