1Why is the profitability of large Japanese retail booksellers relatively poor and their scale relatively small? According to the case, ‘stagnation in sales along with the steady increase of costs over time has reduced the profitability of both large chains and small stores’ (Peng 2009, p. 391). There are several reasons that results in the relatively poor profitability of large Japanese retail booksellers and their small scale.
Firstly, the Saihan system, i.e. Resale Price Maintenance, is the most important factor. The system’s price-fixing policy rules out the price competition (Peng 2009, p. 390), which would be a normal competitive strategy to increase sales in a market that sells undifferentiated products, like books. Also, profitability can be even lower if bookstores choose to do advertisement or promotion campaigns. According to Ken (2009), Japanese readers tend to purchase books based on alluring advertisements and good reviews.
Secondly, the emerging substitutes, e.g. used books, e-books and rental books (Taylor 1997), have reshaped the customers’ reading behavior. More than 80 million dollars in book sales were sold online in Japan, i.e. a 50% rise since 2004 (Peng 2009, p. 390). Hence, it is understandable why the profitability of Japanese retail booksellers is relatively low.
Thirdly, most of the Japanese book retailers are short of unique strategies to differentiate themselves and often copy the cost leaders. Copy alone does not constitute the best practice, but its combination with innovative improvements do (Lok 2010). Thus, generally poor profitability in the Japanese book retailing industry is inevitable.
Lastly, the Consignment Sale System leads to the low requirement on big scaled bookstores. The system allows retailers to return unsold books free of charge to the publishers (Peng 2009, p. 388). Therefore, the retailers have no need to build large warehouses to stock their inventories.
2The Saihan system serves as a price-fixing cartel to deter entry. This practice, often labeled “collusive” and “anticompetitive”, would be illegal in many countries such as the United States. What are the benefits for individual companies and the industry to participate in this system? What are the costs? The Saihan system encourages the increasing appearance of various publishers, booksellers and titles, offering a wider selection of reading materials and bookstores to customers, and also giving the opportunity to lesser known authors to place their works in bookstores (Peng 2009, p. 390).
However, a growing number of small book retailers are going out of business due to the inability to stock the newest bestsellers (Peng 2009, p. 389). The access to new bestsellers is a pivotal source of profitability in a retail market of undifferentiated products, price-fixed books. The distributors’ preference to larger retailers due to the Consignment Sale System gradually leads to the bankruptcy of small retailers.
Moreover, the Saihan system makes Japanese retail bookselling industry an inhospitable host for new entrants, because the system bans the price competition, which would otherwise be a normal competitive strategy for new entrants (Peng 2009, p. 391).
Generally speaking, although the system does bring benefits to the industry, the accompanying costs are also heavy, i.e. the stagnation in sales together with the steady growth of costs over time has resulted in the poor profitability (Peng 2009, p. 391).
3Draw on the industry-, resource-, and institution-based views to explain the success of Bookoff and Amazon Japan. From the industry-based view (Porter 2008), the Japanese book retail industry has five apparent characteristics: fierce competition among existing small bookstores, high threat of potential new entrants, strong bargaining power of suppliers – the wholesalers and publishers, the weak...