Market Report on Yamada-Denki

Ethan James Hunt
BUS1BUF Business Foundations
Dr Seyed Mohammad Sadegh Khaksar
La Trobe University Business School

Grade missing
Havard referencing style

Executive Summary

The following report is a report on the Japanese consumer electronics retail chain, Yamada Denki (株式会社ヤマダ電機); and on the consumer electronics market in the State of Japan. The report will suggest a new product for the company based on an analysis of both the company and of the domestic consumer electronics market.

The key findings of this analysis were that Yamada is a market leader in Japan and that the company has had great success, even in the face of the decline of the market in Japan over the last five years. However its resources are strongly concentrated in Japan, and the threat from neighbouring countries such as in the People’s Republic of China that dominate the industry in the Asia-Pacific region could pose a long-term threat to the company.

The strategy that was used was an internal weaknesses, relative to external threats strategy, in order to minimise the weaknesses of the company whilst simultaneously addressing the threats posed to the company externally. As a result, the new product that is recommended to the company is the Yamada Patriot (애국자) smart television.

Introduction and background to the company

Report introduction

The purpose of this report is to recommend a befitting new product for Yamada based an analysis of the company’s strengths, weaknesses, opportunities and threats (a SWOT analysis). This has been conducted in order to “identify the strategies and tactics needed to achieve the objectives” (Samson et al. 2016b, p. 140) for the product. A SWOT analysis is a “systematic and detailed examination of all internal and external factors that may affect a business, at any specific point in time.” (Samson et al. 2016b, p. 126)

Background to Yamada Denki

Yamada is a retail chain of consumer electronics in Japan, operating in both the country, and in international markets as well, headquartered in Takasaki (高崎市), Japan (MarketLine 2017, p. 3). The company predominantly specialises in household electrical appliances such as televisions, cooking appliances and air conditioners (MarketLine 2017, p. 4). However, the company also offers products in home information appliances such as personal computer software and mobile phones; as well as other products such as audio and visual software and books, and even clothing and jewellery (MarketLine 2017, p. 4). The company employs approximately 19,183 people as of the 24 February 2017 (MarketLine 2017, p. 3) and accumulated a total revenue of approximately JPY¥1,612,735,000,000 in the financial year ending March 2016 (MarketLine 2017, p. 20) — AUD$1.00 is equivalent to JPY¥83.3241 as of 15:25 8 April 2017 (XE, 2017). Some of Yamada’s key competitors in the Japanese consumer electronics market include (MarketLine 2017, p. 15):

  • Bic Camera Inc. — Bikku Kamera (株式会社ビックカメラ)
  • Don Quijote Holdings Co., Ltd. — (株式会社ドン・キホーテ)
  • DEODEO Corporation (their subsidiary Edion Corporation) — (株式会社デオデオ)
  • K’s Holdings Corporation — Kēzu Hōrudingusu (株式会社ケーズホールディングス)
  • Yodobashi Camera Co., Ltd. — Yodobashi Kamera (株式会社ヨドバシカメラ)

Market Description

Market size

As a result of recent natural disasters on the Japanese archipelago, coupled with government intervention, the consumer electronics market has been declining since 2010 (MarketLine 2015a, p. 7) where it had a market value of JPY¥2,422,071,900,000 (MarketLine 2015a, p. 8). This value however, has plummeted to a value of less than half that in 2014, with a total market value of JPY¥1,020,841,300,000 (MarketLine 2015a, p. 8). The decline of the market is forecasted to steady in the following years with a compounded annual growth rate (CAGR) of only -1.2% for the period 2014-19 (MarketLine 2015a, p. 11), compared to -19.4% for 2010-14 (MarketLine 2015a, p. 8). However, the consumer electronics market in China is predicted to increase yet again, by 3.3% for 2014-19 (MarketLine 2015a, p. 7), who already dominate the market in the Asia-Pacific region with 54.1% of the consumer electronics market in 2014 , compared to Japan, with only 12.9% (MarketLine 2015a, p. 10).

Market leaders

Based on net income statistics from 2014, Yamada is the leading consumer electronics company in the Japanese market by far. Yamada’s two largest rivals in Japan, the EDION Corporation and Joshin Denki Co., Ltd., reported a net income of JPY¥5,149,000,000 (MarketLine 2015a, p. 19) and JPY¥3,037,000,000 (MarketLine 2015a, p. 21) respectively. However Yamada hosted an astounding net income of JPY¥18,667,000,000 (MarketLine 2015a, p. 24), more than double it’s two biggest competitors combined.

Market concentration

There are several significant consumer electronics chain retailers operating in Japan. In saying this however, Yamada is the clear market leader in the nation. With a lot of Yamada’s competitors such as Bic Camera and Yodobashi Camera dealing almost exclusively in photographic equipment (MarketLine 2015a, p. 9), Yamada is in a great position to continue dominating the market. Photographic equipment only accounts for 29.5% of the total consumer electronics market in the Asia-Pacific, and will continue to decline due to the increased substitution of professional photographic equipment with smartphones (MarketLine 2015a, p. 16). The remaining 70.5% of the market is audio & visual equipment (MarketLine 2015a, p. 9), which will continue to grow, and which Yamada specialises in and will continue to unless new entrants capitalise on new segments of the audio & visual market such as in “smart TVs or new gadgets” (MarketLine 2015a, p. 15).

Distribution

Yamada’s distribution channels to its retailers are through retail stores that are either directly operated by, subsidiarily operated by, or franchised by Yamada (MarketLine 2017, p. 4). The numbers of stores that fall under these categories are 637, 310 and 12,087 respectively, accounting for a grand total of 13,034 stores through which Yamada retailers operate (MarketLine 2017, p. 4).

Industry growth

As stated previously, the consumer electronics market in Japan is forecasted to slow in its decline over the 2010-14 period by a CAGR of -1.2% (MarketLine 2015a, p. 11). Unfortunately there is little prospect for positive growth in Japan, and the Chinese consumer electronics market is forecasted to continue to dominate the market in the region.

Strengths, Weaknesses, Opportunities and Threats

Strengths

Weaknesses

  1. Leadership position in the domestic consumer electronics market (MarketLine 2017, p.11).
  2. Focus on the dominant audio & visual market section (MarketLine 2017, p. 9).
  3. Large network of stores and diversified methods of operation (MarketLine 2017, p. 4).
  1. Reliance on the domestic Japanese market (MarketLine 2017, p. 10).
  2. A “significant level of indebtedness” (MarketLine 2017, p. 12).

Opportunities

Threats

  1. Forecasted growth of the consumer electronics market in the region (MarketLine 2017, pp. 12-13).
  2. Structural reforms and future projects that could increase profit (MarketLine 2017, p. 13).
  1. Subject to numerous laws and regulations in Japan (MarketLine 2015, pp. 13-14).
  2. Leadership position could be threatened if it fails to compete (MarketLine 2015, p. 14).
  3. Chinese domination of the regional market could penetrate and take over the domestic market in Japan.

Explanation

The choice of rankings are all based on possible economic benefit; i.e. ranked based on their perceived economic significance to the company by the author.

Strengths

(1) As reiterated throughout this report, Yamada does hold the leadership position on the retail consumer electronics market in Japan (MarketLine 2017, p. 11). The resources that come with such a leadership position allows Yamada to lower the cost of their products, which is ultimately the large driving force behind competition in the retailer industry (MarketLine 2015a, p. 12).

(2) Yamada focuses their products on the more dominant section of the consumer electronics market — audio and visual equipment. Many of Yamada’s competition focus either solely or mainly on photographic equipment, which is steadily declining in the region (MarketLine 2015a, p. 9), allowing Yamada to take advantage of the trend away from professional photographic equipment, and towards smartphones as a substitute (MarketLine 2015a, p. 16).

(3) As mentioned, Yamada holds a very large network of stores in Japan, with stores in all the 47 prefectures of Japan (MarketLine 2017, p. 11). Their diversified mode of operations through direct operations, subsidiaries and franchises, gives Yamada flexibility in their approach to retail sales (MarketLine 2017, p. 4).

Weaknesses

(1) While Yamada is an market leader in Japan, they also lack any geographical diversification. Over 90% of the revenues from Yamada came from their domestic market in Japan in the financial year ending March 2016 (MarketLine 2017, p. 10).

(2) Yamada has accumulated a level of long-term indebtedness that has totalled JPY¥117,585,000,000 as of the financial year ending March 2016 (MarketLine 2017, p. 12). The company also as a result of this debt, had an interest expense of JPY¥1,743,000,000 in the same period.

Opportunities

(1) It would be prudent for Yamada to capitalise on the growing market in the Asia-Pacific region. With a projected CAGR of 8.8% from the period 2015-20 (MarketLine 2017, p. 12), it would be wise for Yamada to exploit this growth by projecting into foreign markets to stabilise itself from the declining domestic market.

(2) Yamada in recent years has undergone structural reforms in an attempt to drive profitability as a result of a change in consumer preferences due to the changing demographics in Japan, such as a “falling birth rate, ageing demographic and population decline” (MarketLine, 2017, p. 13). Yamada has also begun a number of new projects such as a ‘HERB Relax’ spa range that it intends to implement as well as ‘Smart house’ concepts that are expected to increase profits for the company (MarketLine, 2017, p. 13).

Threats

(1) Yamada is subject to a number of industry laws and regulation in Japan. As a result of this, there is a possibility for regulatory oversight to occur (MarketLine 2017, p. 13). It is imperative that Yamada has adequate legal counsel and stringent processes in place to ensure there is no breach of existing laws and regulations; and also to ensure that any revisions to existing laws are addressed quickly and efficiently.

(2) There is a risk of new entrants into the market as well, specifically in “rapidly-expanding segments” of the market, such as in smart televisions (MarketLine 2015a, p. 15).

(3) A possible foreign threat to Yamada is the monopoly that China is gradually securing over the consumer electronics market in the Asia-Pacific region. With the decline of the market in Japan, and the inclination of the market in China (MarketLine 2015a, p.10), it is likely, that Chinese consumer electronics companies will attempt to take over the market in neighbouring countries.

Recommendations

Target market

Since Yamada Denki supplies a large range of consumer electronics, the target market for their products as a whole can be very broad, as their products range from colour televisions, to air conditioners, to hair dressing and beauty supplies and even clothing.

Demographic variables:

While the products Yamada sells are widely varied, they generally are targeted towards people of adult age and older. It is very unlikely that a person under the age of 18 would be interested in purchasing an air conditioner or a cooking appliance — it is their parents who would do this. Income may be a variable to be considered, Yamada hosts a wide range of products from high-end to low-end, and as a result will target low-end products towards lower-income consumers, and vice versa. Family size may play a role in marketing products such as televisions; e.g. bigger families may require more televisions and as a result, specials may be offered on multiple purchases.

Geographic variables:

Japan is a small nation in which climate and terrain are not necessarily varied; and consumers will require products such as cooking appliances and washing machines regardless of whether they are situated in urban or suburban areas.

Psychographic variables:

A lot of the products Yamada offers are office-focused products such as ink cartridges, fax machines and telephones, which are marketed more towards persons in a business or office-based profession. But also home-focused products such as home cooling and heating equipment that could be marketed more towards family-orientated individuals.

Behaviouristic variables:

How long a product is going to last (volume usage) for a consumer is going to be a big factor in whether or not they purchase a product such as a refrigerator. Yamada needs to ensure their marketing puts an emphasis on the lifetime of products.

New product description

For the purposes of this recommendation, Yamada will be targeting South Korean customers in order to grab a foothold in other nations in the Asia-Pacific region, before Chinese companies can completely dominate the region; and a penetration into the Chinese market would be considerably difficult due to the laws and regulations imposed on foreign companies by the Chinese Government.

Product:

While Yamada is a retail distributer, for the purpose of this report the company will be manufacturing and selling their own product. Yamada should adapt their current products in the Japanese market, in order to be appropriate for the market in South Korea. We will be taking advantage of a relatively new product in the consumer electronics market that is rising in popularity — a 75-inch smart television, that will be targeted towards a Korean consumer. The product will be named the Yamada ‘애국자’ (‘patriot’ in Korean).

Price:

In order to gain a foothold in the South Korean market, the company will need to offer the television at a competitive price to the consumer, which may mean potential profit is sacrificed. However this is necessary if Yamada intends to be a regional player in the Asia-Pacific. The 애국자 will be offered to the consumer at KRW₩3,500,000 — equal to JPY¥341,694.86 as of 9 April 2017 at 16:10 (XE, 2017). Bundles and specials on multiple-product purchases should also be encouraged in order for Yamada products to be present in as many South Korean households as possible.

Place:

Yamada should sell their product through existing retail distributers in South Korea, as a venture through establishing a direct store could be extremely expensive.

Promotion:

The most effective way for Yamada to promote their product should be through a combination of television commercials, physical branding such as billboards, and advertisement on social media so that a wide and diverse range of consumers are able to be exposed to the product.

Customer value proposition

The main value of the 애국자 is that it will provide a lower-cost alternative to other 75-inch smart televisions being sold in the South Korean market. It will be of similar quality to others on the market, just at a cheaper price. This will be greatly appealing towards ‘average, middle-class consumers’ who can be highly price-sensitive towards products such as televisions.

Justification of the choice of new product using at least one strategy

The 애국자 satisfies the weakness-threat strategy. This strategy minimises Yamada’s internal weaknesses whilst avoiding external threats. This is illustrated by the fact that Yamada’s revenue is heavily reliant upon their operations in Japan, and with the declining consumer electronics market in Japan, an attempt to penetrate the market in South Korea can diversify their revenue as well as address the threat posed by China’s increasing monopoly over consumer electronics in the Asia-Pacific region.


Reference List

Samson, D, Daft, RL, Hanson, D, Pitt, MA, Ireland, RD, Hoskisson, RE, Pride, WM, Ferrell, OC, Lukas, B, Schembri, S, Niininen, O, Emerson & Linton, T 2016a, ‘External environment analysis and competitor analysis’, in Business Foundations 2e, Cengage Learning, Melbourne, VIC, pp. 49 – 94.

Samson, D, Daft, RL, Hanson, D, Pitt, MA, Ireland, RD, Hoskisson, RE, Pride, WM, Ferrell, OC, Lukas, B, Schembri, S, Niininen, O, Emerson & Linton, T 2016b, ‘Internal environment analysis and SWOT analysis’, in Business Foundations 2e, Cengage Learning, Melbourne, VIC, pp. 95 – 144.

Samson, D, Daft, RL, Hanson, D, Pitt, MA, Ireland, RD, Hoskisson, RE, Pride, WM, Ferrell, OC, Lukas, B, Schembri, S, Niininen, O, Emerson & Linton, T 2016c, ‘Customer value-creating concepts’, in Business Foundations 2e, Cengage Learning, Melbourne, VIC, pp. 145 – 216.

MarketLine 2015a, Consumer Electronics in Japan, industry report, viewed 8 April 2017, retrieved from MatketLine Advantage Database.

MarketLine 2015b, Global Consumer Electronics, industry report, viewed 8 April 2017, retrieved from MarketLine Advantage Database.

MarketLine 2017, Yamada Denki Co., Ltd., company profile, viewed 8 April 2017, retrieved from MarketLine Advantage Database.

XE 2017, Currency Converter, XE, viewed 8 April 2017, <http://www.xe.com/currencyconverter&gt;

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s