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4.03.2013

Japanese Electric Appliance Giants Respond to Amazon with Same Day Delivery and Free Installation

Google started same day delivery of groceries in the San Francisco area to compete with amazon in a bid to win back "search traffic" from amazon. It was a interesting learning to see what could trigger a search engine to want to get in to the same day delivery logistics "game"...

In Japan, for the home appliances business, competing with amazon is a more direct and easy to understand formula - amazon has been stealing their cake and they have to do something about it.

Free Same Day Delivery and Free Installation - You Can't Get That at Amazon
From 1 March 2013, Japanese electric appliance retail chain, Yamada Denki (1.8 trillion yen turnover for the period ending March 2012, down from 2.15 trillion yen the previous year), has commenced same day delivery of goods ordered before 15:00 from their closest brick and mortar store, with free installation and advice on the newly purchased goods. Yamada will call the consumer before delivery to set up the ideal delivery time.  According to the Nikkei Marketing Journal, though the service is new, there are approximately 1 to 2 orders per store a day already. That is huge, considering that they have approximately 800 directly operated stores and a total of 5,383 stores as at the end of March 2012 including franchises.

In the event that the item ordered is not in stock at the retail outlet, the item will be shipped from the warehouse and delivered by a courier, in which case there are no installation or instruction services. This inconsistency is a bit troublesome, but since Yamada says they hope to deliver 80% of online orders through this direct from store system in the near future, this may be resolved.

Yamada now has big posters blaring "Yamada will offer the best price, even in competition with online prices by other retailers," in their stores and on their advertisement. This is clearly in response to all the consumers who flash the amazon site on their smartphones to negotiate discounts.

Noboru Yamada, Chairman of Yamada Denki has confided in the Nikkei MJ that "amazon has become the price leader in electric appliances, and has been taking market share. We cannot ignore this. I have now instructed my staff to sell in competition with amazon even if their retail price is cheaper than our procurement price."

Perhaps even more aggressive on price competition than electric appliance stores are camera stores in Japan. I was a sales rep for Olympus selling cameras to such stores from 1989 through 1995 (long before Olympus's window-dressing fiasco), and I had first-hand experience of the cut-throat competition that was played out among Yodobashi, Sakuraya, and Bic Camera. For them, the loyalty points is the key currency used to make up for what they cannot offer in raw yen terms.

Yodobashi now has systemized a pricing mechanism that enables them to sell at a lower price than amazon in real terms when the points given to the consumer is taken into account. Senior management at Yodobashi implies with the Nikkei MJ that they have designated staff checking the amazon prices in real time to ensure that the stores are up to date at point of sale prices. (Back in the days when I was at Olympus, they sent out staff several times a day to their competitors' stores to check the prices on the hottest items. They have institutionalized competitive price checking long before Kakaku.com and other digital tools made it a click away.)

Yodobashi has even commenced selling books from February 2013, and offers a 3% point back for them.

In addition, like amazon, Yodobashi offers free shipping, but does better than amazon in the major metropolitan areas where same day delivery is offered free of charge. And they have not been shy about trumpeting the difference between amazon and them whereby amazon charges for shipping unless you are a membership fee-paying PRIME customer. Yodobashi's warehouses are located in Kawasaki and Kobe, and shipments originate from one or the other.

Yamada's Chairman does not see Yodobashi as direct competition, however. He says, "we each have our own turf." And perhaps that is true - for now. Yodobashi's 21 stores are no match for Yamada's 800 directly operated stores, and while Yodobashi stores are concentrated in urban areas near terminal train stations, Yamada's stores are predominantly road side suburban stores. 90% of Yodobashi's orders received are within the urban delivery areas that qualify for same day delivery.

Amazon's Japanese turnover in 2012 was 7.8 billion dollars or approximately 700 billion yen in 2012, up 18.6% from the previous year. The electric appliances retail industry estimates that approximately 30% of that is in appliances, which would come to around 200 billion yen. The electric appliances stores boast in excess of 600 billion yen in sales on a consolidated basis, so their purchasing power is far mightier than that of amazon. But amazon't strong growth in amidst the shrinkage seen by the electric appliances stores (due mainly to the fall in television set sales) is a sure threat.

In terms of online sales, Yodobashi is at around 50 billion yen while rival Bic Camera is at 60 billion yen. Yamada has not made their figures official.

Of the key major players in this field, only Yamada and Yodobashi seems to be competing full-on with amazon at this time. Bic, Edion, and Joshin are selling through amazon while K's HD sells Kindles in their stores. (Yamada and Yodobashi do not.)

Amazon is preparing to open its largest logistics center in Japan yet - a 18,000 square meter warehousing facility in Odawara city of Kanagawa Prefecture, their 12th, within this year. Amazon has officially said that "there are no plans to cut back on our electric appliances offer" so how they will leverage this new location and expand their procurement capabilities is yet to be seen.

How Cheap is Amazon Any Way?
The Nikkei Marketing Journal published in their cover story on 3 April a price comparison of some popular items comparing the listed prices on Yamada Denki's online store, Yodobashi.com, and amazon.co.jp:

1) Canon EOS M (Camera body only)
    Yamada: 48,800 + 5,368 points (actual price: 43,432 yen)
    Yodobashi: 48,800 + 4,880 points (actual price: 43,920 yen)
    amazon: 44,359

2) Sharp Water Oven AX-CX3 (steam oven and microwave)
    Yamada: 30,960 + 3,405 points (actual price: 27,555 yen)
    Yodobashi: 39,800 + 3,980 points (actual price: 35,820 yen)
    amazon: 27,625 yen

3) Panasonic SD-BMS 105 (bread maker)
    Yamada: 19,900 + 2,189 points (actual price: 17,711 yen)
    Yodobashi: 19,600 + 1,960 points (actual price: 17,640)
    amazon: 17,816 yen

4) Toshiba Light Tech (E-core) LDA9L-D-G (LED light bulb)
    Yamada: 2,350 + 258 points (actual price: 2,092 yen)
    Yodobashi: 1,960 + 196 points (actual price: 1,764 yen)
    amazon: 1,782 yen

At Yamada, shipping is free of charge for purchases over 10,000 yen and orders received by 15:00 qualify for same day delivery by store staff from nearby stores. Yamada also responds to inquiries through online chat, and may agree to further discounts if other stores like amazon are offering lower prices.

At Yodobashi, delivery is free of charge and in major cities, same day delivery may be possible if orders are received by a certain time.

At Amazon, PRIME members enjoy free shipping, but other consumers may enjoy free shipping as well, except for express delivery, which comes with a 500 yen surcharge or date certain delivery which costs 350 yen.

The Nikkei MJ says they tried to compare prices of PCs, refrigerators, and washing machines as well, but it came to light that amazon does not sell most of the best selling ranges in these categories by domestic brands, so the Nikkei MJ gave up on those categories.

### CarpediemJapan Comments and Observations ###
As mentioned in the article, points are a key currency now and has proven to become a powerful price negotiating tool for the likes of Yodobashi, as well as a loyalty tool for Rakuten. But amazon has never gotten into the loyalty points game. And from the price comparisons, it is obvious that amazon prefers to offer discounts up front to reward customers now rather than later, and as they are now the largest e-tailer in Japan, it has paid off in winning loyalty as well.

Looking at the site, I have always been amazed at how much more advertising amazon is getting from outside of amazon...

According to Media Radar, Amazon's advertising prices for October through December 2010 starts from 500,000 yen for a top rectangle space with 4 million impressions guaranteed to a marquee push down, full jack package guaranteeing 10 million plus impressions for the top marquee (where you see the pink marquee ad for a set of books here), 10 million plus impressions for the top rectangle A (where you see Pepsi here), and 100 million plus impressions for the site wide mini marquee for a week costing 17,500,000 yen.

I personally know a number of people who claim to do their searches for books and entertainment on amazon, but buy on Rakuten to get the points, unless the price is significantly lower on amazon.

This explains why Google in the US feels threatened by amazon as a search engine.

Rakuten now has a Rakuten Search add-on, which enables users to earn points for searching on Rakuten and not on other search engines... Google must be really worried there, too!

Convenience has always been highly sought by Japanese consumers and that is why we have so many thriving convenient stores that operate 24/7 (most of them anyway) where they are not the cheapest options, but the most convenient places to shop.

I personally feel the fall of retail giant Daiei began with the Great Hanshin Earthquake in 1995, but as the once great retailer fell to come under the management of a once rival, Aeon, and the recent developments in the Shibuya area with yet a major department store closing, this time in Tokyo and not a rural city, it is obvious that the retail scene in Japan has changed for good.

I will deep dive into this in another article, but in a nutshell, convenient stores are great places to shop because there is a limited choice and there is no paradox of choice happening there. Consumers accept the limited selections in exchange for convenience of time and location to shop.

While some giant electric appliance stores are taking over locations from department stores and teaming up with UNIQLO, the cities are obviously not big enough for all the existing players now. So looking to utilize the brick and mortar assets to enhance the online shopping experience is probably a wise move and perhaps the fast take up of Yamada's service is a good indication of that. But whether Yamada's and Yodobashi's decision to fight with amazon head-on will pay off, or whether the odds will be better for those who have decided to join amazon if you can't beat it, is an interesting game to watch.

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