Using a 'one-of-a-kind' management approach, consumer electronics retailer K’s Holdings Corporation has built up solid customer loyalty and enjoyed decades of steady growth. CEO, Chairman & Representative Director Shuichi Kato explains how it has become such a strong, stable company that benefits its employees, customers and shareholders.
Can you provide some background about your company?
After 64 years of continual growth, since our founding in 1947, came the transmission of color TV switching from analog to digital broadcasting and we sold too many TVs at that time. We actually sold more than we wanted to, so of course there was a backlash reaction in which our sales declined. But we are always working towards growth, and it had been so for the two consecutive years that we experienced this backlash. The third year after that, we experienced the consumption tax hike, and right before the hike the customers were rushing to make purchases so we had an increase in our sales. But last year we had the backlash from those tax increases, and sales decreased as well. I think the situation could not have been helped.
If you look at our profit line, we are definitely growing as we have foreseen. Just in the four years, including the three years affected by the TV broadcast switching and the consumption tax, our sales have gone a little bit over the line. In terms of our profit line we are making stable growth. You can see that we have received extreme effects from the external elements in these last few years, but from now on I expect that there should be stable growth.
Last year you opened 40 new stores, which is pretty impressive. Can you maybe outline your ambitious growth plans for K’s Holding?
K’s Holdings is at the moment still only covering 60% of the Japanese available area with our stores, so there’s still 40% left for us to cover. Even if the Japanese population decreases by say 10%, if we cover the rest of the areas it would be as if the population was increasing by 50% for us.
In this expansion, K’s Holdings enjoys a strong brand here in Japan; but how are you working to differentiate yourself from other major companies like Bic Camera?
At K’s Holdings, our strategy has been to focus on the areas where residents live. So even if we’re working in the urban areas like Tokyo, we would open stores in the suburban areas outside of Tokyo, such as commuter towns where people commute to/from Tokyo. We concentrate on creating large stores in the suburbs with large parking lots for people to drive to.
On the other hand, Bic Camera, they locate their stores in terminal locations, for example Shinjuku or Yurakucho, and their model is that their customers would come by train to these areas to their stores. We have different models so I feel that we both have room to grow.
K’s Holdings has been doing three basic sales campaigns to capitalize on its cash discounts, long-term free repair warranty, and Anshin Passport membership on smartphones. Can you outline these campaigns and how important they are to cultivating a trusted relationship with your customers?
In Japan it has been the trend for companies to provide a points system, whereby rather than discounting the actual products, customers receive points they can use later, and many companies have adopted this practice. We at K’s Holdings believe that customers actually prefer to buy the products at a cheap price rather than buy them more expensively.
Nowadays, compared to the past, electronic items malfunction much more rarely, but because the parts are becoming larger, if they do malfunction or breakdown it is much more expensive to repair them. We feel like it’s not fair for the customers whose products malfunction to have to spend so much money. Depending on the product we offer a guarantee for repairs for three to five years, and even for large goods like refrigerators we would provide 10 years cover. The system taken in the United States as well as by competitors is usually that if you pay for insurance you can receive this kind of guarantee.
We feel that with the insurance system there are some people who say, “Oh well I don’t think it’s going to breakdown so I won’t pay for it.” And then some people will decide to purchase the insurance. So there’s a disparity among the customers.
We at K’s Holdings provide for a cheap price the products as well as guarantees for all customers. At the same time, under the same policy we want the customers to buy what they really want to buy instead of urging customers to purchase products that are profitable to us. We make sure that our employees give service to our customers by listening to the customers and what kind of lifestyle they lead and letting them choose the best product for them.
Speaking about our Anshin Passport system, when we provide the guarantees for repair, we do not want the customers to lose the warranty certificate for example. So we store all of their data in the computer and the passport allows us to input that information just by having their name, phone, and address.
As well as storing the data for the guarantees, the passport also acts as a way for us to get in touch with the customers if the manufacturer does a recall of any product because we have their address on file.
Let’s imagine a customer comes to the store to buy an ink ribbon for their printer, the peripherals. Then because there were so many ink ribbon products they wouldn’t have an idea which one is actually the one they should be buying for their printer. They might have to go home and check what kind of printer they have; but with the passport we can look up which printer they have purchased so that we can recommend to them the right ribbon for example.
What K’s Holdings is thinking about and concentrating on prioritizing among all of our employees is to think not on behalf of the company, but on behalf of the customer and what will satisfy them. The reason why this kind of system works in our company is because when we think about the customer first, it actually means that we also need to think about our employees first. That has been our management style within the company. That means improving the conditions we offer to our employees as well as making a positive environment for them so that they enjoy working, and because they are the ones who come into contact with the customers, we can’t provide good service without happy employees. Even more than people like shareholders, we put the employees first.
Another relationship that we value is our relationship with our business partners, namely the manufacturers that provide us with quality products. If we don’t have a good relationship with our business partners, they won’t be able to provide us with the most popular products that will disappear off the shelves quickly. In order for us to be able to provide our customers with the best products, we need to have a good relationship with our business partners.
As a result of doing this kind of management, we are able to get the customers to like purchasing from K’s Holdings and if they buy products from us obviously that’s going to increase our sales, and if we have increased sales our investors are going to make money. I think it would be wrong to think about the shareholders first and make that the objective to help them make money.
At the same time, we encourage our employees to own shares of the company as well so that not only do they enjoy working, but when the company is doing well they also make money through those shares.
It’s almost like you’re creating a customized shopping experience for each customer.
That’s true. Our employees’ work begins when a customer enters the store; they have to find out what exactly they want. Normally in retail stores it’s common for companies to concentrate on how to sell the most profitable goods; but we at K’s Holdings focus on what the customers want.
At K’s Holdings I believe that the job of the employees is to provide services and help the customers buy things they like so that they become fans of our stores and continue to purchase from us, so creating these new customers.
As a result we have been designated by the magazine Nikkei Business, which is made by the newspaper Nikkei, as being top in customer satisfaction in the last five years consecutively.
Central to Abenomics is a great emphasis on corporate governance reforms. The Tokyo Stock Exchange launched the JPX-Nikkei 400 Index to aggregate these companies that are really efficient. Of course K’s Holdings is a part of this. Also, you’ve been awarded Japan’s Most Respectable Company. What does it mean to you to have K’s Holdings in this index?
This means that we are well recognized as an excellent company which will lead to more people wanting to work for us as well, and that will lead to our company continuing to exist in a sound manner. Especially in Japan we always keep in mind sustaining the company for the long term rather than creating a company that momentarily creates big profits and then stopping its operations.
One of K’s Holdings’s most important competitive advantages is its corporate culture. It’s very unique for Japan and embodies a Japanese virtue of being obsessed with the customer and customer satisfaction. This of course also comes down from the top; you wrote a book in 2011 talking about having the one-of-a-kind principle of not working too hard for your employees. Can you outline for us this interesting concept and how it shapes K's Holdings' success?
In Japan there is this famous word called “ganbaru”, which is to work hard. It often means that people overextend themselves in order to work so hard. When I say “ganbaranai”, not to work so hard, what I mean is that people should objectively think about what they need to focus on, and make a selection, and work on only what they need to work on.
Let me take the example of sports. Maybe the very top athletes in the world, maybe they’ll see results if they do work so hard; but for the rest of us accepting that, you’re not going to be the very best is probably beneficial in that you can do your best by relaxing. If you play golf you understand that hitting the ball as forcefully as you can is not going to give you the best results.
I feel that, both in Japan and in the world, there are companies that have set too large a goal and in order to achieve those goals they ended up resorting to malpractices. I believe they wouldn’t have happened if they hadn’t been told by the management to try too hard; if the order was to not try so hard I don’t think these kinds of unfortunate incidents would have happened. Because a company needs to continue growing, not just this year but next year and the year after, it is very important for the companies to practice in a correct and fair manner.
The results of our company are achieved by creating more fans and in our history we have continued to create fans of the company, which has resulted in positive financial results as well. Another thing that differentiates us from our competition is that although right now I’m explaining our philosophy, most of the decisions are taken at the discretion of each employee. Our company’s main corporate policies and ideals have been declared for a long time so the employees are already familiar with them. When the employees work within this structure, they don’t need to consult their bosses at every turn and they can work freely, which makes for smooth operations.
We do have employees who transfer to our company seeing that we provide positive workplace environment.
At the heart of this cultivating new customers is the concept of ‘wa’, which is really about involving the community, giving back to society, creating a healthy, positive environment. How important is this community interaction to the company’s success?
Everything is built up on relationships so that when K’s Holdings does good to others, the others also want K’s Holdings to continue to thrive. Same with how we treat our employees: if the company treats the employees well the employees will benefit from the success of the company. It’s all mutual. On an even larger scale there is a relationship with the country, the state government, which maybe we’re not large enough to be involved in yet.
What would you like to achieve in the next five years? Do you have international ambitions for K’s Holdings, for example?
The first point is we will not open any stores internationally because I believe that home appliances and the way we sell them is directly related to how the country is structured, the country’s laws, and the national character. If we were to go abroad, even if we were to bring over our way of thinking, we would need to create different kinds of products.
In five years I would not say that the shape of K’s Holdings will be significantly different from what it is now, except that sales and profit would have increased and I would have stepped down and someone else will be in my place.
What would you say about an impact on the retail sector and indeed on K’s Holdings specifically?
Until now we have experienced about 20 years of deflation as well as the wages that were not increasing, but we are now moving to exit this period of stagnation and to have a bit of inflation while also attempting to increase wages. Abenomics is an attempt to shift from a contraction trend to growth. Within the retail sector we, as a company, have always strived to exist eternally and while we did grow significantly during the post-war economic miracle, we also continued to grow and increase our results during the period after the bubble and during the economic stagnation period. Of course it is always going to be more helpful for society being healthier, so we really welcome Abenomics in achieving that.
What message would you like convey to G7 leaders who will be reading this campaign?
I would like to ask the leaders to work toward creating positive and enjoyable working environments for their people, because for most of our lives we spend our time working and so I believe that this is very important that people enjoy doing that, and this is one of the first things I tell to incoming employees. From that spirit, instead of being ordered around, the employees can move around and make decisions freely which creates for a positive environment.