Sun, Mar 31, 2002 page11

• Wal-Mart finds out how to use the back door

  • By Patrick Smith / BLOOMBERG
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  Why am I not in the least impressed with the decision by Wal-Mart Stores Inc finally to get into the Japanese retailing market? After dithering for six months, Wal-Mart has just paid US$46 million for a 6.1 percent interest in Seiyu Ltd, Japan's fourth-ranked supermarket chain. Hard to get worked up over this, isn't it? It's not just the defensive back-door approach, or the piddling stake with which Wal-Mart has planted its flag. It's the promise this deal holds out. I can't see much. If it isn't against anybody's rules (and this must be checked) I'd like to open a book on the outcome. I doubt Wal-Mart will ever exercise its option to acquire two-thirds of Seiyu by 2007-a deal that would value the stake at US$2 billion. Any takers? With a market cap of almost US$300 billion, even the fully consummated transaction is birdseed for Wal-Mart. And I've heard all the arguments in support of the supposed wisdom of the Seiyu tie-up. The toe-at-a-time approach will give Wal-Mart a chance to learn the Japanese market before making big mistakes. Seiyu seems to offer Wal-Mart a matching corporate culture and philosophy.

  Well, for one thing, I'm never quite sure what the notion of matching cultures means in the best of these sorts of cases, and this doesn't strike me as among the best. For another, it seems to me that the lesson Wal-Mart has to learn in Japan is not worth US$46 million. Here it is for free: These behemoth US retailers and their European knock-offs amount to inappropriate technology in the Asian market. I see no more than a modest future for any of them at the western end of the Pacific.

  It's not that venturesome an opinion, after all. (Does this mean I have to offer odds?) Not long after Costco Wholesale Corp.

  opened its doors in Makuhari, a bedroom community across Tokyo Bay from the capital, I recall strolling through the aisles wondering where any Japanese consumer was supposed to put, say, 100 toilet paper rolls or a case of No. 10 cans of tomato ketchup. It's a question of scale.

  There was a modest crowd at Costco that day. But modest is not what drives this kind of retailing. It's low-margin, high-volume; modest means failure, not to put too fine a point on it.

  The plan then was for 50 stores in Japan, though I've heard in the analysts' community that Costco has since lowered its expectations of the market.

  Boots Plc, the No. 1 British drugstore chain -- been and gone. Sephora, the French rival to Boots? Maybe they were all on the same plane back to Europe.

  There was already a Carrefour opened in Makuhari when I got there-one of three in Japan. And sure enough, Carrefour SA, the French supermarket chain and the world's second-largest retailer, has since stepped back from its expansion plans.

  The Japanese didn't want low-cost items marketed with the particularities of their palates in mind -- they can take care of that on their own. They wanted the French to put a little Frenchness in their lives, and the cost -- as so often in Japan -- wasn't particularly important.

  The grail now among these big retailers is a deeper understanding of "the Japanese consumer."

  That's what Wal-Mart wants out of Seiyu. But it's not the point.

  To understand the point, we must turn to that dear and wise man of American ways, Sam Walton. Sam grasped the issue. He talked about something he called the Wal-Mart culture. Marketing wasn't merely a matter of the tallest stack of the cheapest plastic buckets you've ever seen. Wal-Mart has a culture and a philosophy.

  Look on the Web site: You will read about Wal-Mart's "three basic beliefs."

  The act of exchange is fulsome. It contains within it implicit expressions of cultural and social values shared by those engaged in the transaction. This is especially true, it seems to me, at the local level -- in the winding lanes of Tokyo or the back streets of the quartier in Paris. Anyone who has ever shopped in either Japan or France knows this to be so by way of the small rituals and courtesies one is expected to observe.

  Anyone who has shopped in America over the past decade, let us say, also knows this to be so -- but only by omission. Here is America, where we have marketized everything, including our neighbors, we don't even have to say "please," or "thank you" any longer. The American way of shopping is thus equally an expression of our social and cultural values. In the American case, it happens to express the evaporation of public space and consciousness: Here's the money, give me the bucket, and there's nothing more to say.
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