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Seiyu, Wal-Mart's Japanese division, recently opened a pilot Supercenter-style outlet in Numazu, Shizuoka Prefecture, southwest of Tokyo. The Seiyu Numazu store trades from a single floor (although there is a partial second story with extra car parking) with a total area of 13,672 square metres, including 7,899 square metres of sales space, with parking for 574 vehicles. Existing Seiyu superstores typically have a sales area of just over 4,333 square metres.

It is conveniently located 1.3 kilometres northeast from Numazu train station and is sited alongside a busy road to afford easy access to motorists. As well as looking similar to a Wal-Mart Supercenter from the outside, a full range of merchandise, including clothing, food and home supplies, is offered in the store. Despite being smaller than the average Supercenter in the US, the debut of this format marks a key stage in Wal-Mart's development in the notoriously difficult Japanese market. Seiyu's trial of the new format at Numazu could well herald a full roll-out of similar Supercenter-style stores in Japan in the coming years.

According to Seiyu, the company has been exploiting Wal-Mart's systems and expertise in the planning of the store, and the new unit also features equipment and merchandising displays inspired by Supercenters in the US. In merchandise terms, alongside Seiyu's own labels, the store also sells globally sourced Wal-Mart own labels (such as the George clothing range - marketed in Japan as 'G') and puts greater emphasis on Every Day Low Price (EDLP) by presenting a wide range of 'RollBack' items.

Beyond store design and merchandising, a core aspect of the pilot store is its higher than average ratio of part-time to full time workers, enabling the store to operate within an Every Day Low Cost (EDLC) model. According to Seiyu, part-timers at Seiyu Numazu account for 154 out of the 172 staff (or nearly 90%) in terms of equivalent working hours.

Although many Japanese retailers have recently been increasing the number of part-time workers in order to pare costs in the face of ongoing deflationary pressure in the market, the average part-time ratio at major retailers is still between 60-80%. Thus, the 90% at Seiyu Numazu is something of a trailblazing initiative. The higher part-time ratio enables a reduction in social security costs as companies do not need to shoulder the burden of social welfare and pension expenses for part-time employees, and it also enables efficient management of labour costs through more flexible labour allocation.

Wal-Mart Seiyu has, since early 2003, made a steady strategic move towards the implementation of lower cost operations. The company has started work on the standardisation of its store operations, in particular with the introduction of uniform daily work scheduling for its store staff (Day In the Life Of - DILO), an evaluation of the Retail Standard operating system and Smart System - a store information system designed to support the efforts of instore employees. All of these initiatives are evidence of Wal-Mart's behind-the-scenes involvement in Seiyu and it is needless to say that these will be in full effect at the new Numazu store.

Besides the opening of the Seiyu Numazu store, the 'Wal-Mart isation' of Seiyu will become increasingly visible during 2004. This is the second year of Seiyu's Five-Year action plan, launched in early 2003, and the company intends to complete the foundations of EDLC to sustain its EDLP strategy. Smart System was launched at nine pilot stores in August 2003 and its full roll-out is scheduled to be completed in 2004. Meanwhile, Retail Link (information-sharing with suppliers) started with some 100 suppliers in December 2003, and is planned to include more supplier participants this year.

The reorganisation of Seiyu's corporate structure is another ongoing process to improve the company's efficiency. Seiyu recently announced an organisational reshuffle, which has seen Seiyu and its five regional subsidiaries (Hokkaido Seiyu, Tohoku Seiyu, SSV, Kyushu Seiyu and Sunny) take control of retail operations from what was previously a fragmented and decentralised corporate hierarchy. Namely, buying and marketing functions have been integrated and centralised at corporate headquarters, and store operations will be standardised and streamlined. This reflects the fundamental essence of Seiyu's restructuring programme: rationalization and the implementation of EDLC by way of integration, standardisation and computerisation.

It was just two years ago that Wal-Mart announced it had acquired a 6.1% stake in Seiyu and 15 months since Wal-Mart took management control by increasing its shareholding to 34%. It is slightly more than one year since Seiyu unveiled its Five-Year Action Plan, but since all of these moves were implemented, Wal-Mart has produced mixed results in Japan - one of the most competitive retail sectors in the world.

Last year, Seiyu tried to accelerate the roll-out of EDLP and reduce its dependence on high-low promotions through the withdrawal of the 'Chirashi' promotional circular. However, sales immediately declined and it embarked on a u-turn by reintroducing the Chirashi promotion.

Although Seiyu's results for the year ended December 2003 documented only a 10-month trading period, the group's net result remained firmly in the red with losses of JPY7.09 billion (USD61.1 million). Like-for-like sales slid by 3.7% for the period and are yet to show any tangible signs of bottoming out. In addition, earlier this year, the company announced an early retirement programme which will see one in four full-time employees lose their jobs - a laudable move in cost-cutting terms, but one that has done little to improve morale or confidence.

Seiyu has projected annual sales of JPY1.1 trillion (USD10 billion) and net profit of JPY500 million (USD4.5 million) for the current fiscal year that ends in December 2004. This year will be the one in which Wal-Mart's influence is fully brought to bear on Seiyu, but it must also be a year in which these measures deliver some indication that they are creating genuine progress. This should be easily achieved in terms of cost-cutting, restructuring and in areas such as non-food merchandising, but there are still some concerns that the impact of Wal-Mart's model in the food retailing arena might not be entirely positive.

Wal-Mart has a reputation for pursuing a relatively standardised approach to its grocery retail operations in any given market, and this approach might fare badly in Japan (as rivals such as Carrefour have already discovered). Despite being a fairly compact country, Japanese shoppers exhibit fairly diverse regional preferences and also place priority on quality, freshness and service when it comes to shopping for fresh foods. Add in the fact that store sizes and configurations are also quite diverse according to location and market, it remains to be seen if Wal-Mart's ideal of integration and standardization will find much favour with Japanese consumers. The performance of the Seiyu Numazu will be an intriguing indicator to see if Wal-Mart's world-beating strategy will stand or fall in Japan.
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