Japanese Retailer Bucks a Trend by Selling Cheap

HIGASHI HIROSHIMA, Japan —  Politicians are pumping $171 billion into yet another gargantuan stimulus package aimed at jump-starting the anemic Japanese economy. But one retailer is making his own economic miracle come true a buck at a time.

Daiso Industries Co., one of the few booming chains in Japan these days, sells every item in its stores for 100 yen--slightly less than $1. It already packs more than 1,300 outlets, known as 100 Yen Plazas, into a country roughly the size of California, and it’s growing exponentially. On average, two new stores are added every day.

Some are bigger than football fields, brimming with merchandise ranging from the sublime to the ridiculous: from surprisingly decent wineglasses and china to silly strap-on breasts. Brightly colored plastic bins, enough gadgets and tableware to stock a kitchen almost completely, tools, alarm clocks, neckties, office supplies, along with battery-operated massagers you never knew you needed, create a “video arcade for housewives”--a description coined by the chain’s founder, Hirotake Yano.

That Yano can sell 40,000 products for a standard 100 yen apiece is all the more surprising in Japan, where little can be purchased anywhere for a buck: not candy bars, not morning newspapers, not even a can of Coca-Cola. Indeed, competitors sell many of the same things at several times the price.

“At first, I was shocked when I saw the prices here,” college student Minako Ofuchi said as she loaded up on nail polish and hair accessories at the always-bustling five-story store in Tokyo’s trendy Shibuya section. “What’s really great about it is that I can buy so much, and it makes me feel like I’m spending a lot of money when I’m not.”

Her bill: About $8.

At Daiso’s equivalent of the Southland-based 99 Cents Only chain, revenues were expected to top $1.33 billion for the fiscal year that ends in March, a huge boost over the $777 million in sales at the privately held company in the previous year.

Daiso’s rock-bottom pricing is testament to the extraordinary zeal of Yano, 56, who is as jarring in the staid Japanese business world as are his prices. In fact, until he struck gold with Daiso, nearly everything he touched went bust, including a fish-farming business he took over from his in-laws.

For a while, he supported his family by what is known in Japan as “toilet paper exchange,” in which he collected newspapers to recycle, giving donors token rolls of toilet paper in return. It was one of nine jobs he has held over the years, and his failures were all the more humiliating because his father and two of his brothers are successful physicians.

“I learned that good times don’t last,” Yano said. “Since I haven’t been successful, I’m not greedy or rich.”

Empire Began on Back of a Truck

Daiso had humble beginnings. In 1977, Yano began hawking 100-yen items from a truck, parking it on vacant properties or streets just outside town. By 1991, when he opened his first retail space in the corner of a supermarket, 92 of his trucks were prowling Hiroshima-area streets.

In the early days, he overheard a homemaker’s hesitance to purchase a sugar bowl for $1 because her friend advised, “You get what you pay for.” From then on, Yano vowed to offer decent quality along with low prices. That philosophy has helped propel his recent growth rate of about 60 new stores or franchises a month.

The value-consciousness such growth implies is one reason Japanese officials are trying to ward off a deflationary spiral, as gloomy consumers, battered by continuing rounds of corporate job cutbacks, keep tightening their belts.

But Yano does more than just offer low prices. He also makes sure that merchandise is changing constantly to keep repeat customers from getting bored.

“We are aiming to sell 500 yen worth of goods to customers who drop in for 30 minutes,” he said. “That’s better than paying 2,000 yen [admission] for a movie.”

The 100 Yen Plazas even provide a form of entertainment. At one huge store in northern Tokyo, about 5,000 customers stroll through each day, the company said.

“I just come to kill time and look around--sometimes I buy many things, and sometimes I buy nothing,” said Miyoko Terada, who recently walked out of the Hiroshima store with 88 items, including five big ramen bowls, a dozen soy sauce dishes and about a dozen rice bowls for her small restaurant.

“Don’t you have enough now?” her husband was overheard asking, even as he tossed a Kabuki-figure kite into the shopping basket.

At company headquarters in rural Higashi Hiroshima, a 10-minute bullet-train ride from Hiroshima in southern Japan, watching founder Yano in action is like watching a Ping-Pong ball on speed. He can’t seem to sit still for more than a few seconds at a time, taking care of the most minor details, even though the headquarters staff now numbers 300.

In a chilly, brightly lighted former warehouse, product samples are arrayed: Racks of masks, shoe inserts, fake guns, cookware and stuffed animals are stacked on racks and interspersed among employees’ desks.

Workers take off their shoes when they enter--obligatory in Japanese homes but rare these days in large offices. Yano’s reason: to keep the office cleaner. As it is, all employees spend the first half-hour of each workday tidying the workplace, inside and out. The practice not only eliminates housekeeping costs, it builds teamwork, Yano said.

Does he take part?

“I’ve been neglecting to clean lately because I’ve been taking time to open the mail,” he said.

During a recent hourlong interview at a conference table set amid the office hubbub, Yano jumped up at least 25 times. “I have 20 guests coming today,” he explained.

He rushed outside to adjust the sign welcoming representatives of a major department store, stopped to chat with potential suppliers from China and cornered another supplier to ask him to draw the product Yano is thinking of making: plastic bricks. Yano told him to make them simple and square, nothing fancy.

“It’s not like a cool, good-looking business style,” Yano said of the way he runs the company. “Japanese people care too much about style or appearances.”

On this day, Yano donned a mask to get an easy laugh from his employees. At his favorite neighborhood lunch dive, where diners sitting around a grill shoveled onion and vegetable pancakes into their mouths using spatulas, he performed tricks with chopsticks and poured sake for the visiting retailers, who want to open 100 Yen sections in their stores.

But when it comes to negotiating prices, Yano has no time for fun and games. He once described product procurement as a “combat sport.”

“In the past, Japanese companies were able to sell whatever they bought, but now that stuff won’t sell anymore,” he said. Now, the strengthening yen is on Yano’s side, as Daiso procures more than 40% of its stock from overseas: There are glass canisters from Austria, beer steins from Turkey, trays from Brazil and plastic products from South Korea. For products made in Japan, buying in huge volume helps Yano charge bargain prices.

Smaller Markups, but Volume Sales

Just how profitable Daiso is, however, is anyone’s guess. Yano isn’t saying. But he does say that other Japanese firms are too greedy. Picking up a mirror on a wooden platform, he said: “This sells in Tokyu Hands [a popular household products store] for 1,500 yen, and they must earn a 500-yen profit. But Daiso sells 10,000 units per day, so a 10-yen profit is enough for us.”

Indeed, a quick price comparison showed that Tokyu Hands and other retailers charge hefty premiums: A semitransparent Halloween mask was on sale for 550 yen, a colored paper gift bag for 350 yen, a plastic clothes hanger for 400 yen and a toiletries holder for 1,000 yen.

A Tokyu Hands spokesman said the store has many competitors and is not “especially conscious” of Daiso.

Yano acknowledged that some of the items he sells are loss leaders to pull people into the store. Which ones? “I don’t know,” he said.

In some ways, Daiso seems an accident waiting to happen. If Yano is to be believed, the company has no budget and no business plan. It doesn’t take inventory through cash-register receipts to see what’s moving: The part-time cashiers simply count the number of items in a shopper’s basket and multiply by 100. Of Daiso’s 8,000 employees, 7,500 are part-timers, including many store managers. Moreover, it is expanding so rapidly that even Yano is troubled: He has urged his employees to slow the pace of new store openings.

For the time being, however, Daiso is making hay while the sun shines.

“I’m dreaming now,” Yano said. “I’m just hoping I won’t wake up from this dream. Things shouldn’t be working this well.”