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Executive Summary The purpose of this paper is to analyze the business of the convenience store in Japan retail sector. This paper addresses the general concept, the structure, and the changing roles in the convenience store in Japan. Introduction The concept of convenience stores was originally from the United States nearly 40 years ago. When the first convenience stores in the U.S. opened in 1974, they were just places to sell daily necessities, from food, magazines, to clothing and only be paired with gas stations. Convenience stores in Japan, however, differ from those in the United States although the major role is still to provide daily necessities food. Japanese had studied management practices from the U.S. convenience store and invented their own business techniques. With its dense urban populations, limited-space homes, and small retail-store stock, Japan was ideally suited to the convenience-store format. Two possible reasons that convenience store position in Japan's retail sector is so strong today are from their innovative products and service and the unique distribution system. The concept of U.S. convenience store was modified and transformed into Japanese original retailing concept to focus on achieving both on the economy of scale and scope. “Konbini or Konbiniensu stoa”, which is the term Japanese calls the convenience stores, is a high-technology version of the U.S. convenience store. It is a place for customers not only to buy products but also to get services. They also fit into Japan's logistics system since delivery companies use Konbini like distributing offices. There is highly competitive in this business and companies are trying to use several strategies to increase its sales and retain customers and use e-commerce as the driving force to gain the competitive advantage in the future. History In the Japanese retail sector history, convenience stores have been growing significantly in recent years. In the earlier years, convenience stores introduced itself as the general store which provides a wide range of products operating 24 hours a day. The first technology used in convenience store was called “Point of Sales system”. It helped store managers gather in the information storing that was related to sales. The benefit from using Point of Sales (POS) helped managers a better decision on product order volume and delivery which links to the concept of Just-in-time (JIT) in the present. Thus, convenience stores had improved better performance than general stores. General stores later had experienced declining in sales due to the increased competition, economic downturn, and the deflation. However, convenience store sales still rose from 3.89 trillion yen in 1993 to 6.18 trillion yen in 1998. Although the economy in Japan has experienced ups and downs since then, convenience stores have remained at that desirable level throughout this year. After the retail industry deregulation, it was opening the way for new offerings that fit the convenience store services strategy. The convenience store has been dominated by three stores, Seven-Eleven Japan, Lawson, and FamilyMart since then. In 1996, there were only about 32,000 convenience stores in Japan, which estimates a population per store around 4,000. The key companies perceived this as a chance to expand as many as stores. With the increasing and intensive competition, many independent stores could not survive and completely shut down which resulted the total convenience store to decline by 9,000 to 39,627 stores in early 2001. In 2002, the top four convenience stores had sales over 67 % of total convenience store sales. By that year, convenience store business was expected to reach its market saturation level. There were 55,658 convenience stores in 2002 and a population of 3,000 people per store. General information of key companies Seven-eleven Japan Seven-Eleven Japan is the largest convenience store in Japan by stores volumes and sales. The total sales in 2002 was 424.09 billions yen which was increasing 10.3% from last year and the total stores nationwide was 9,690 which was up for 1.4% from last year. It successfully keeps the position of the first rank in convenience stores for 23rd consecutive years through this February 2003. Store locations heavily concentrated in the Tokyo region in which 1,300 stores are and also in Osaka. The majority earnings are from the rice balls and streak products. The company has branched out its business model into e-commerce (7dream.com) and food delivery (Seven-Meal service). Seven-eleven Japan is a 50.6%-owned subsidiary of Ito-Yokado, the Japanese retailer that holds 73% of Seven-eleven in Northern America. Lawson Lawson is the second largest convenience store. Lawson, which headquarter located in the Osaka area, is the only chain store that operates in everywhere in Japan. It has more than 7,700 stores throughout Japan and nearby countries. The company was established in 1975 as a subsidiary of Daiei, Inc, Japan’s largest GMS. Daiei has been reducing its shareholding, making the company essentially independent, though it has come increasingly under the influence of Mitsubishi Corp. However, during a year through February 2003, Lawson got decreases in profit for 45% of about 8.86 billion because of the 391 unprofitable stores and their early retirement program. At the end of the February, Lawson has remaining stores on 7,625 domestic outlets. FamilyMart FamilyMart is the third largest convenience store company by number of stores and sales in Japan but becomes one of the largest franchised retailers in Korea. Their store locations are primarily located in Tokyo area. FamilyMart was established in 1981. It was a former member of the Seibu Saison group, and considered to be a part of the Itochu group since 1998. FamilyMart is focused in Tokyo and Nagoya, Japan's third largest metropolitan area. Table 1 shows the company performance and financial statement of key convenience stores in 2002. Table 1: General information on key conveniences stores in Japan in year 2002 (ending at February 2002) : (Yen: billions) Seven-Eleven Lawson FamilyMart Revenue 424.09 256.11 195 Operating income 155.86 36.36 23 Number of stores 9,690 7,625 6,013 Average daily sales per store 656 489 503 Source: Japan’s retail industry and Seven-eleven, Lawson Company, and FamilyMart annual reports in year 2002.
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