Consumer spending in Japan has continued to struggle since the start of the 21st century, with some statistics indicating that spending per household has fallen by around ¥300,000 annually. Households are becoming more compact too, with an increase in small and single-person households. What sort of strategy have you adopted to continue increasing revenue and profit against a backdrop like that?
Nitori
As you might expect, it’s important to pre-empt the market. What we do is carry out advance research into population trends in 5, 10 or 20 years’ time, identify areas in which the population is likely to increase over time, and prioritize store openings in those areas.
Terashima
I see. As well as being successful with suburban stores using methods such as these, you have increased your number of city center stores in recent years too. Does that involve adopting a different strategy?
Nitori
We work on product projects that are unique to our city center stores. That’s not to say that we sell completely different products. If you breakdown our product structure according to price brackets, around 60% of products are in the low-end price bracket, and around 40% are mid-range. At our city center stores, we only stock mid-range items aimed at offering comfort and luxury in the form of home fashion. Stores are targeted mainly at professional women in their 20s and 30s and young couples.
Terashima
With more and more compact households in city centers in recent years, you have firmly established an urban business model with such households in mind. You seem to be sticking closely to your philosophy of providing high quality products at affordable prices, symbolized by the phrase “offering the unexpected.” By looking at the way young people buy furniture, I get the impression that NITORI is becoming an increasingly popular choice. What targets do you have in mind for the future, in terms of increasing store numbers and sales?
Nitori
Our first 30-year plan came to an end in 2002, so we are currently partway through our second 30-year plan, which will take us to year 2032. We tripled our number of stores during the first 10 years of that plan, and we are currently in the second 10-year phase. Our current target is 1,000 stores and 1 trillion yen in salesultimately working towards 3,000 stores and 3 trillion yen in sales.
Terashima
What are you planning in terms of the breakdown of those 3,000 stores?
Nitori
In Japan, we will have 500 HOME FURNISHING stores, combining home furniture with curtains, carpets and other home fashion items. We will also have 500 DECOHOME stores measuring almost 1,000 square meters, each carrying items such as ceramic tableware. That takes the total to 1,000 stores. Overseas expansion will account for the remaining 2,000 stores, including locations such as China and other parts of Asia, as well as Europe and the U.S.
Terashima
Essentially, you’re planning to retain your focus on NITORI, whilst expanding by offering a diverse range of related products aimed at clear target markets. As part of your focus on overseas expansion, you will no doubt be looking to the U.S., as the country that opened your eyes in the first place.
Nitori
I don’t expect our business in the US to be an overnight success. I feel that Japan is still approximately 20 years behind the U.S., and there’s the fundamental difference in the size of Japanese people, so we won’t be able to sell any more than 20-30% of the same products as in Japan. That’s why we’re approaching expansion into the U.S. market as a “second founding,” in the sense that we will be starting from scratch with product development at the local level.
Terashima
Has anyone questioned why you are taking a risk like that, when you know how difficult it will be?
Nitori
That’s something we’re going to work out at the local level. We have continued to send employees from Japan to the U.S. for training, so that they can study and learn the market, but we still need to do more. I believe that it will be faster to open stores in the U.S. to see what sells and what doesn’t, and analyze the reasons.
Terashima
I see. Listening to you today has reminded me that your emphasis on first-hand experience, such as getting your feet on the ground and seeing things for yourself, is what has made NITORI the company it is today. Thank you very much.
