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JAPANESE HOME FURNISHING

Inspired by the U.S., Nitori plans to build an empire in home furnishings

Interview - October 7, 2015

Japanese furniture and home furnishings giant, Nitori was first inspired by the U.S.’s home decoration, but today it is the U.S. and indeed the world who should pay attention, as Nitori expands globally with an obsession for high-quality products and a low price.

MR. AKIO NITORI, PRESIDENT OF NITORI HOLDINGS
MR. AKIO NITORI | PRESIDENT OF NITORI HOLDINGS

Japan is truly going through an exciting time at the moment. In a period of global economic recession, Japan is making the difficult choices to reorient its economy for a more globalized world. As Prime Minister Shinzō Abe has said, Japan is taking economic reforms that are “once in a generation,” through the popular Abenomics. But we are trying to understand the perspective of the private sector in this transformation. What would you say has been the impact on the retail and manufacturing sector, and on Nitori specifically?

You said our product is furniture, but it is actually not the case. As of now, our furniture sales are only 42%. Another 58% comes from the home furnishing product, like floor- and window-covering, pictures, and products like the ones sold in Ikea.

At the moment, we have 401 stores all over the world. Our target is to have 410 stores by the end of the fiscal year. Abenomics started approximately three years ago, and the yen got weaker–approximately 55%, which is 80 JPY/USD to 124 JPY/USD.

We import products, as 90% of our merchandise comes from foreign countries. This is why the weaker yen had a big impact on our profitability. The impact of one more yen per dollar would have an impact of JPY 1.5 billion on our profits.

Basically, the 44 yen difference in the exchange rate caused close to JPY 60 billion unrealized losses in our profitability. By the end of this fiscal year, we are expecting a JPY 60 billion operational profit. But, like I said, in these three years we have missed the same amount of money as unrealized losses.

Thanks to our effort, hard work and some luck we recovered from these deficits, and now we are keeping this kind of very high profitability. Because 90% of our products are imported, partly from our own factories in Indonesia and Vietnam, the weak yen is counter wind to us and it makes things difficult for us.

At the same time, the weak yen also makes the procurement of raw materials from abroad more expensive. For example, food processing costs are going up. The current situation is that, because consumption is not rising so much, most of the companies are only able to raise prices in part, so that their profitability is going down.

This is the current difficulty faced by Japanese small and medium companies. On the other hand, export companies are reaping the benefits of the weaker yen. For example, with cars or machinery being exported, some companies may be experiencing a benefit of JPY 1 billion per every extra yen a dollar costs, and possibly even JPY 10 billion per yen.

They are making higher profits, which some have been able to return in the form of higher wages and better labor conditions for their employees. But since more than 80% of Japanese companies are small- or medium-scaled companies, they do not have the capacity to raise wages in any case. In conclusion, the competition is going to intensify in Japan.

It has always been a very competitive environment in the US, but until now the situation in Japan was that the small- and medium-sized companies had intense competition whereas the large-scale companies were kind of safe.

This situation is changing, and even the top three companies in a sector are at risk, are in danger. In the future, I expect that the number of companies will be narrowed down, and that only the fittest will survive. Particularly considering the consumption tax hike expected in 2017.

But I believe that this is an opportunity for us, because we will try to be one of the companies that remain. In the same that we were able to recover the JPY 60 billion unrealized losses due to the exchange rate, we will succeed in becoming the new leader in a more narrowed down economy.

I believe the situation is becoming polarized with a smaller group of leading companies, and then the others falling aside. I believe that balance is very important. In terms of exchange rate, I think that approximately 100 JPY/USD is optimal, considering the power of the national economy.

Maybe a maximum of 110 JPY/USD, but obviously right now we are much higher than that. So I do not believe that the devaluing of the yen against other currencies is positive. It is not.

When we met Minister Amari last week, he was very excited because President Obama had recently given fast track authority to the signing of the Trans-Pacific Partnership (TPP), which seems imminent. Taking into account that the TPP is comprised of 12 countries, 40% of the world’s GDP and a third of its trade, it will be the largest trade deal in history. What opportunities do you see with this new agreement for Nitori not only in the U.S but also the rest of the Asia-Pacific region?

I believe the TPP is a positive thing, and I hope that it can be realized as soon as possible. I believe it is very important to remove custom tax barriers between countries, not only bilaterally–for example, just between the US and Japan–, but for all the countries, so that they are all on an equal footing to do trade.

We not only just create products in South East Asia; we have directly operating factories in Indonesia and Vietnam with over 5,000 employees there. So we are sourcing raw materials from that area. This means that for us it would be best not to have any trade barriers.

I believe that protection against trade has never helped any country. Japan is offering very strong protection still, and I hope that this can be removed sooner rather than later, and that barriers to trade can be pulled down and that the TPP will be realized as soon as possible.

These are the kinds of things I discuss with Minister Amari when I see him.

One of the main reasons we wanted to interview you is because Nitori has a unique story and connection to the United States. Can you outline for our U.S. audience what inspired you to fund Nitori and bring this affluent home decoration to Japan?

This is a story about a long ago, but I was 24 when I began business in a 100-square-meter office, all alone, then I married and opened another store of about maybe three times that size. A year later, another company opened a store of five times that size which made us go almost bankrupt.

So at that time, I decided to participate in a furniture training seminar in the US.  When I went to the US, I was truly astonished, moved and struck. One of the things I noticed was that in Japan, at the time, 60% of the furniture being sold was like stand-alone furniture.

And the other 40% were floor-related products, whereas in the US there was no stand-alone furniture. Everything was built on the building, like walk-in closets. When I went to the US for the first, I realized how wealthy the US life is when compared to Japanese life.

First of all, homes were much more spacious in the US, most homes had a two-car garage, homes would have a living-dining space where guests would be welcomed, and the further back there would be a family-room. This is not possible in Japan.

They even had one bathroom on each floor! It was like a dream world, I was so excited I could barely get any sleep. Until then, I had thought of Japan as a democracy, but when I went to the US I realized that the economy of Japan had a sort of authoritative collective style.

In the US, I felt that democracy had been realized in all aspects, including the economy. I felt that we were behind by at least 50 years. There are four reasons for this. The first was that the prices of the products in the US were one third the prices in Japan.

The second was that the US offered a variety and quality of very functional products that were convenient for use that were not available in Japan. The third was that I felt that, at the time, Japan had a controlled system, where the manufacturer was at the top and then the retailers were below.

This was not the system in the US. The retailers coordinated everything, from planning to manufacturing, distribution and retail sales. The fourth reason was that all sorts of stores were ten times the size the ones in Japan, and chain stores that had over three digits stores were the mainstream. 

At the time, they were saying that Japan was catching up to the developed countries. But, at the time, I think we were still a developing country that was about 50 years behind. Having realized this, I wanted to bring the affluence of the US to Japan.

At first, I was pursuing my own sales and profit. Then I realized I was wrong. Ever since I visited the US, I changed my life philosophy, setting up an aim to enrich everyday life of Japanese people. I made my mind to develop and provide affordable and full-featured products for Japanese people.

At the time, we were only making JPY 160 million sales, but I had made a 60-year plan, because that was what I thought it would take for us to catch up. After the first 30 years, my aim was to have 100 stores and JPY 100 billion in sales, and then my target for after 60 years was to be number 1 in Japan and in the world, with 3,000 stores and JPY 3 trillion in sales.

So having studied, at the age of 32, from my mentor Mr. Shunichi Atsumi, I learned that the bare barometer of the success of a retail business is social contribution, not the sales or profit but being needed by customers. The one and the only barometer of social contribution was the increasing number of customers and stores.

The reason why I first aimed for 100 stores is because that is the number where you can achieve a sort of a standard and low costs and low prices. The next stage is 200 stores, where you can double your activity so you can source from all over the world, and then drive prices down even further.

This is the way I see that US chains have succeeded. The next stage is 500 stores, and the next one is 1,000 stores. At the time, we had JPY 200 million in sales, so we were in effect aiming for 500 times that. That was our target.

In fact, we did manage to achieve this. In the first 10 years we managed to have 11 stores, and after the first 10 years I developed a training strategy, in order to accept fresh graduates from the university and to train them into specialists, not just people who can put a lot of effort and work hard, but people who can make results from their scientific knowledge, their logic, their facility with quantitative matters.

It was 20 years to develop this human capital. We managed to complete the first stage of 30 years in 2002. Actually, the results were achieved in 2003, so a year later than planned and the next 30-year plan will be complete in 2032.

We have broken this up into several stages. By 2012, we were able to open 300 hundred stores, and have sales of JPY 300 billion, and by 2022 we aim to have 1,000 stores and JPY 1 trillion in sales. And then, by 2032, at the end of the 30-year plan, we plan to have 3,000 stores and JPY 3 trillion in sales.

We are constantly striving to learn from the US, and I have a program where we send about 900 employees every year, including 400 rookies. The reason I am doing this is because I feel that we still need to learn from the US and that we are still 10 to 20 years behind them.

We are striving to close the gap. The products we offer are for the general public, not particularly rich people or anything. The products are for enriching daily life, not for special occasions. In order to achieve this, we need to lower prices, which we have been able to do quite a bit.

But our prices are still about two times that of the US, and in order to lower our prices further, to realize this affluent life for all, I am planning to spend the rest of my life working. I believe that the domain that I am working in is the living part.

Humans need three things: to be clothed, to eat and to have a roof over their heads. I work on the 'roof over their heads' part. You can see that I have been putting a lot of effort into that. Even my license plate has the number 3,000 on it, because we are targeting 3,000 stores.

And even in the bathroom, when I am going to the toilet, I have the 3,000 number written there. When the target was 1,000, I had the number written everywhere! My aim is to open stores not only in the US and Asia, but also in Europe.

For Asia, as it was even more behind than Japan, it is not so difficult to expand operations there. But you might ask why we operate in the US, where they are more advanced. It is actually for us to learn from the American ways. 

We are really there to learn by operating there in a 5 to 10 year vision, rather than to have short-term profits. That is why those stores are not very successful at the moment, but we are there to learn. When a price is slashed by one third, it means that the value of the amount of money you earn is three times more.

In the US, the distribution system has been really advanced through the efforts of the American people, leading to a comfortable and affluent living. Whereas in Japan, people are still facing very expensive products. The ratio of everyday expenditure to their wages is still high, so that the Japanese are still living a poor life, even today.

I am very against raising our prices just because we have a weak yen. I aim to decrease prices further, even in spite of the weak yen, for the wellbeing of the Japanese people.

How do you ensure you keep your unique corporate culture, which embodies many Japanese virtues, such as high-quality, efficiency and giving back to society constantly as you expand? Do you plan on using your Japanese roots as a brand in itself?

My mentor, Mr. Atsumi–who passed away three years ago–, he told me to learn from US chains. And he told me that my competition should be Walmart. At the time I said, 'That is impossible, it is such a large company, it has 10,000 odd stores and sales of over JPY 60 trillion' but he told me that I should always try to consider myself competitor of the biggest in the sector.

Yes, indeed, around JPY 10 trillion of Walmart's JPY 60 trillion was for home furnishing, which are huge sales.  Another competitor that he mentioned is Target, and I believe they are very strong in providing quality management and color coordination on their products.

We have a lot to learn from them. There is other companies like Bed, Bath and Beyond, and Ikea. I really respect Ikea and wish to learn from them, as they have some great strength such as making a total life proposal. They are really superior in that.

Also, they have an overwhelming variety of products, which is something we should also learn. The Japanese president of Ikea came to our office here and we talked about the business. I asked him how he feels about the expansion of Nitori, and he said, 'Oh, we welcome your expansion.

Just like the pervasion of washing machines in Japan led to a more affluent life for the Japanese people, we can raise the standard of the home furnishing industry together and we can both work abroad as well.' I have these kinds of exchanges with my competitors.

I also visited the Ikea offices in Funabashi, Chiba. My top priority is price, and the second priority us the quality and functionality. Together, they create value. But in a matter of total coordination, we are still lagging behind; it is something we need to work on.

In regard to quality control, we have 300 employees who specialize as quality inspectors.

I recruited the president of Honda in China 11 years ago, and he has developed this inspection system where our testing is so stringent that it is the same as precision instruments' inspections. In terms of quality inspection, we are top level in the world.

But in terms of total coordination, Ikea is leading by far and I would like to try and reach them and, hopefully, overcome them.

Ikea is really good at communication, they have a strong brand in many countries and there is a whole philosophy behind it. What would you say the idea of Nitori is? What is the philosophy of your company?

The main thing that differentiates us is our focus on quality and functionality. We have been developing many products that we are very proud of. For example, the N cool products, sleeping pads, sheets, and blankets that makes you feel 1 to 2 degrees cooler when you use it.

This was developed considering the very humid and hot summer of Japan. We sold 5 million sets of N cool last year. First, we were selling only 10,000-20,000. We spend 5 years on it with lots of advertisement, and now we have hit 5 million sets.

We are creating various products with our partners in Japan. Once they have been developed, we manufacture them abroad. Things like sofas and beds, for example. I am very interested in this myself, so I take part in the procurement of the raw materials.

I think that not just prices, but the value is the most important thing for us, which makes us unique. We want our customers to feel like they got a good value from shopping from us, and that we have become a destination store, where they may regret it if they go shopping to other stores.

I want total coordination solution to become our corporate culture. The biggest difference between Ikea and ourselves is that Ikea produces and sells the same products in all its stores worldwide, whereas we sell products specific to the area, to meet the needs of that particular culture.

For China, we develop products taking into account what they need and what will be useful to them.

COMPANY DATABASESee all Database >

FUJISASH CO.,LTD.

Manufacturing, Japan

ABLIC Inc.

Manufacturing, Japan

LEADER DATABASESee all Database >

Katsumi Ishizaka

CEO & President
Fuji Silysia Chemical L.T.D.

TSUTOMU YOSHIDA

Representative Director and President
FUJISASH CO.,LTD.

Nobumasa Ishiai

President and CEO, ABLIC Inc. Senior Managing Executive Officer, MinebeaMitsumi Inc. (Parent Company of ABLIC)
ABLIC Inc.

HIROSHI KOYAMA

MANAGING DIRECTOR
JUJO CHEMICAL CO., LTD.

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