Toys R Us Japan

Toys “R” Us’ business model aimed for high volume and low margin business. Being a giant toy retailer, Toys “R” Us could take advantage of its economy of scale to purchase a large amount of merchandise directly from manufactures at very low prices. Thus, the chain could be able to set prices of its goods lower 10 – 20% than other smaller toy retailers (p.2). On the other hand, Japanese toy industry consisted of many small shops and outlets and was dominated by the manufacturers who forced retailers to sell at much higher or “selected” prices. Therefore, it was impossible for local retailers to offer discount prices.

Being a late mover in Japan, Toys “R” Us gained certain advantages such as facing fewer competitors and changing demographics in Japan. From 1980 to 1990, numbers of overall toy stores in Japan had declined from 8,000 to almost 6,000 stores. Therefore, when entering Japanese toy market, Toys “R” Us would experience less pressure as numbers of its competitors fell. Moreover, the decrease in Japanese birthrate encouraged families to spend more on toys and less on food since they have fewer children to take care of. The rigorous Japanese education also led parents to reward their children with gifts such as toys. Further, since Japanese retails sell their goods at inflated prices, Japanese consumers were beginning to demand lower prices. The advantage of Toys “R” Us was able to sell at much lower prices than its competitors. (p.3).

Japanese regulation tended to limit foreign investments, but to concentrate more on its domestic businesses instead. Thus, this competitive advantage caused a hug entry barrier for other countries’ investors, especially the U.S firms, to enter Japan. However, by 1990, this issue was improv...

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...lers, wholesalers, and manufactures attempted to build long-standing relationships, there was a possibility that local manufactures would refuse to work with Toys “R” Us. Moreover, Japanese government attempted to support and protect its own small toy retailers. Large retailers in Japan were forced to undergo a series of screenings and required to directly explain their business plans to local retailers. The company also had a hard time finding real estate because Japan has limited amount of land that was suitable for large-scale retailers. This was another problem in Toys “R” Us’ attempt to establish stores and become a part of cluster effect in Japanese toy industry.

Exhibit 1

Exhibit 2:

Reference:

Works Cited

Kumar, V., & Subramaniam, V. (1997). A contingency framework for the mode of entry decision. Journal of World Business, 32(1), 53 – 72.