CEO COLUMN

Published
Subject Jun-2019, [No.241] Story of "Daiso" in Japan and Korea



Despite the economic downturn and a severe slump in consumption, the" warehouse discount store" and "Outlet" are shining, especially the growth of Daiso , the 1,000 won store (99 cent store), which is dominated by household expenses is drawing the attention of many people with its caustic price. Daiso, which sells between 500 won to 5,000 won products, has recorded an average annual growth rate of 20% over the past 10 years, surpassing 2 trillion won in sales last year (2018), and its profitability is also showing a high operating profit ratio of six to eight percents every year, and it has become one of Korea's leading household goods stores with between 700,000 and 800,000 visitors per day. Since opening its first store in Cheonho-dong, Seoul in 1997, the number of Daiso stores has increased to 1,300 and settled in Korea as a "fourth distribution" rather than department stores, discount stores and convenience stores.



In Korea, "1000 won" used to be quite valuable, but now it's so cheap that you can't even buy a bottle of soda. However, because Daiso stores make consumers feel the value of £1000 completely, it is gaining huge popularity among men, women, the young and the old. In particular, it is used as a dating place for teens and college students, and it is said to be used as a "magic space" where one's anger is relieved if one is shopping at 10,000 won or 20,000 won even if the other person is late. For a 1000 won product, the unit price of the purchase price should not exceed 500won, given the margin of 30% of the Daiso's store, 10% of the logistics cost and 5% of the company's revenue. so the question is that what solution it would take to make a 500-won product a product that is not cheap, but a product that's satisfying to consumers?

Executives of Daiso are focusing their efforts on developing overseas products by visiting China, Southeast Asia, and South America, where cost of labor and raw materials is low, and on digging out domestic companies with competitive prices and quality so they have made great efforts to develop good products, claiming that more than 50% of Daiso products are made in Korea.



Park Jung-il, the chairman of Daiso's Aseong Industrial Co. made 2 trillion won in annual sales from 1,000 won worth of products. Who is he and how can he be described ? He graduated from Hanyang University majoring in industrial management and worked for a lighting equipment manufacturer called Poongwoo Unemployment in Guro Industrial Complex and went up to the factory manager. His management team put a lot of pressure on him, who was a factory manager, as his company had a labor union centered on foreign workers whose visas had expired. As a result, he felt a sense of skepticism about the company and quit the company despite opposition from his family to start his own business. Instead of the stable life he had before, the start-up company that would bring him a sense of accomplishment was Hanil Man Power, which mainly provided training and seminars for Korean executives and employees in Japan. Gradually, he expanded his business into a trade that supplied household goods to a Japanese home appliance company.



Mr. Park, who was exporting household goods to Japanese companies at that time, was interested in the "100 Yen Shop" that was popular in Japan at the time and was supplying various products. Developing and supplying low-priced and high-quality products for the shop in Japan gave rise to a new start to the 1,000 won shops in Korea. Koreans, who faced an economic crisis in 1998 when the foreign exchange crisis erupted, were enthusiastic about the low-priced and high-quality Diaso products. I.M.F was a crisis for all Koreans but an opportunity for him. Within three years, the number of stores he owned increased to more than 100. Judging that another challenge was needed for the Aseong industry, he accepted the offer from Japan's Daiso Corporation and decided to participate in the company's management with a 34 percent stake, and since then, he has changed the company's name to "Daiso Aseong Industrial" and unified the names of all stores across the country into Daiso. He used the word Daiso which is japanese pronunciation of Daechang Industrial Company. But the word has had an unexpected marketing effect because it is easy to pronounce and can be interpreted as we have all you need and look for.

 

Although Daiso in Korea is unique and has developed most of its products on its own, its underlying business form is similar to Daiso in Japan. Daiso in Japan basically deals with about 90,000 products based on the products which cost 100 Yen and develops 1,000 new products in private brand (PB) every month. Attracted by the charm of these new products, 1.6 million customers visit Daiso in Japan every day, 600 million a year. As a result, Japan's Daiso ranked 46th in the overall Brand Assessment considering its excellence, innovation and internationality. (Chairman Son's Soft Bank was ranked 47th, while Mr. Donuts was ranked 48th.) In this type of business, second place is "Seria," third place is "Can Do" and fourth place is "Watts," but Daiso's market share is 60%, so it holds an overwhelming position in the market.



In 2000, when 100 Yen shops expanded their stores across Japan, creating a heated response from consumers, the largest retailer of the country, "Daiyi" challenged Dasio. It set up 88 Yen corners in 270 stores nationwide, targeting the "100 Yen Shop" market at 88 Yen which was the fixed price for every product, and also posing a threat to the M/S industry at that time. When unique products and 300 daily necessities such as cleaning, kitchen and school and office supplies were sold at 88 Yen, many consumers began to flock to those stores. The original discounter store that opened the horizon of Japan's Discount Store, "Daiyi," pioneered its own business, ignoring emerging discounter stores like "Daiso." But four years later, in September 2004, "Daiyi" quietly pulled out of the "88 Yen corners", ending up with a complete victory for Daiso. Daiyi mistook the competition with Daiso as a price competition of 88 Yen and 100 Yen, and didn't realize that Daiso was actually a company that offered the pleasure of shopping, "entertainment services" rather than selling 100 Yen of low-cost goods. Daiyi made the mistake of analyzing his rivals fragmentarily and viewing their confrontation simply as a price competition with hasty judgment, and was defeated by Daiso.



You can see the opening of the "Daiso Theater" on the website of Daiso in Japan. This suggests that the audience remembers only the feelings of joy or sadness after watching a movie in a normal theater, but the customers who enter the Daiso Theater will be happy to see the five products in their hands when they get out, enjoying enough of the amazing and touching stories offered by as many as 90,000 products. Daiso's founder, Yano, sees the Daiso store as a "Leisure Land for Housewives" rather than a discount shop, and continues to stress that it's an "entertainment facility with a half-hour's entertainment at 500 Yen." If you think Daiso in Japan is similar to one dollar shop in the United States, your judgment was made too early. While one dollar shop in the United States is a typical low-cost business for low-income people, Daiso in Japan is targeting a wide range of customers, including high-income earners.



The founder of Daiso, Yano, is an eccentric CEO who has never done what he calls a post-business meeting, has never set any management goals or plans, and has a "life-to-life" management philosophy. He says he is relieved by the currently well-run Daiso, but at the same time he can't sleep out of fear of Daiso's future. He thinks it's the absolute truth that a company will go bankrupt one day. Daiso, which generates more than 400 billion Yen in annual sales and significant profits each year, is still headquartered in his hometown of Hiroshima, the countryside. According to his words, if his headquarters are moved to Tokyo, there will be too much corporate information, and a lot of analysts and consultants will visit him, he has to attend management seminars to make a speech and those are all the last thing he would be willing to do. Also, if unlisted Daiso goes public, the company will become a major company, and he will become a major manager, and as a result, Yano will be ranked top of Japan's billionaire ranking. But he thinks he sells a 100-yen item to became a rich person, and then customers can turn their backs on him.

 

Born in Hiroshima in 1943 as the youngest of eight children, Yano grew up in a relatively well-to-do family and graduated from the Department of Civil Engineering at Zuo University. Unlike his major, he failed to manage a fish farm inherited from his wife's family, and ran away leaving a lot of money in debt to his brothers. Every business he did was a series of failures, but he started moving around by his truck to sell. He said it was the biggest challenge to have different price tags depending on the purchase price of the product. Eventually, he made a bold decision to sell all his products for 100 Yen to save the time that he spent on price tagging, which led to the birth of the "100 Yen Shop Business Model." Due to the oil shock and continuous inflation in Japan in 1973, the foundations of 100 Yen shop business were shaken, and the partners were screaming and withdrawing from 100 Yen shop business. Taking advantage of this crisis as an opportunity, Yano burned his will to 100 Yen Shop, and Daiso's sales trucks were successful in exceeding 90s. But he did not stop and settle down. He turned every mobile business he ran into a permanent store business, creating today's Daiso store.



It is true that in Japan, Daiso and other 100Yen Shop retail outlets are compared to locusts, making traditional retailers fearful and unwelcome. Like locusts that suddenly occur and disappear due to climate change, many people expected that the huge breeding of 100 Yen shops would one day lose consumer support and disappear like a bubble. In fact, in the 1970s when the Japanese archipelago was seething with high inflation, the "100Yen Shop Business Model" was considered to be doomed to fail to read the trends of the times, and in the 1980 bubble, 100Yen shops were seen as totally unviable in this era of stock and real estate speculation, with no expensive foreign cars and luxury goods available, and many 100Yen shops were closed. Mr. Yano said that he survived by not the belief our stores exist for customers or employees. but the spirit of "working to avoid death by hanging himself."



While Daiso has been on a roll, the problems of "poor inventory" and "coming into the era of inflation" could serve as Achilles' heel. Daiso, which represents Daiso Theater and emphasizes "entertainment services," has no choice but to increase the search for new products so that customers don't get tired of it, so bad inventory will continue to grow. The monthly release of a new product means that you risk a bad inventory every month. Therefore, they are dealing with faulty inventory by operating a huge computer system in the management of the stock and seal of POS data. While the era of price-falling deflation has continued for a long time to make 100 Yen Shop operational, the rising inflation era and the ever-increasing consumption tax rate may make it difficult to operate 100 Yen Shop. Therefore, in 2003, the company began to exclude "100 Yen" and only label it "Daiso." A considerable number of 200 Yen, 300 Yen, and 500 Yen products are also being released, and excise taxes are paid by consumers separately.



As we talk about Daiso in Korea and Japan, I wonder if "1000 won shop" will survive in the era of rapid increases in the minimum wage and inflation. In fact, many of our business partners are suspending transactions due to cost pressures, and we hear that they are considering withdrawing because of worsening profitability due to rising costs. However, as the LCC, which boasts the highest quality and price competitiveness in Korea, I believe that it will be able to overcome the rising cost of raw materials and the rapid increase in minimum wage if efforts are made to increase productivity, such as automation and productivity. We should also continue to release new high-value products, neutralizing those that are in deficit or profitability, thereby increasing overall sales and improving profitability. Above all, I think Daiso store can contribute to enhancing the image of ORIOX Brand, the future of LCC. Toward 10 billion won in Daiso revenue in 2022...



CEO BAIK, SUNGCHUN

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