Harvard Business School
Rev. February 25, 1999
Toys "R" Us Japan
I do not believe the Japanese have chosen freely to have these limitations. All we would have to do is open a large retail store where prices were 40% less and choices were very broad. If the Japanese consumer didn't like products offered in that fashion, then the store would not be a success. . . .
—Carla Hills, United States Trade Representative, February 1990
In early 1991, Toys “R” Us seemed poised on the brink of a high profile entry into the world’s second largest toy market. A “category killer” that enjoyed phenomenal success in the United States and Europe, Toys “R” Us had tried for several years to crack the lucrative but forbidding Japanese market. At every step, the U.S. company had faced difficulty and opposition. Japanese retailers had tried repeatedly to block the chain’s entrance, as had small shopkeepers from the area around Niigata, site of the first Toys “R” Us store. The Japanese media had loudly denounced Toys “R” Us as the “black ship of Kawasaki,” and a host of Japanese toy manufacturers, including Nintendo, had refused to deal directly with the U.S. retailer.1 The very structure of Japan’s multilayered distribution system also seemed to conspire against Toys “R” Us, thwarting the company’s attempts and perpetuating Japan’s infamously high consumer prices.
Despite this litany of problems, though, success seemed finally within reach. Toys “R” Us had found an influential local partner, Den Fujita, and won approval from Japan’s powerful Ministry of International Trade and Industry (MITI). Management also felt confident that some of the more restrictive aspects of Japanese retail regulation were about to change. But still some basic questions remained: Would Japanese customers, accustomed to small shops and personal service, ever accept a self-service discount warehouse? Would Japanese manufacturers risk damaging long-standing relationships with wholesalers and retailers by dealing directly with Toys “R” Us? And how quickly and efficiently could the chain hope to expand in the face of protracted local opposition?
1The epithet referred to Commodore Matthew C. Perry’s four black warships that sailed into the harbor at Edo
(now Tokyo) in 1854, forcing the Shogun’s government to end three centuries of self-imposed Japanese isolation. “Black ships” thus became symbolic of the opening of Japanese culture to Western influence. Reuters, December 19, 1991, and The Toronto Star, December 23, 1991.
Professor Debora Spar prepared this case with the assistance of Jacqueline MacKenzie, MBA ’95, and Research Associate Laura Bures as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
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Toys "R" Us Japan
The Toys “R” Us Company
Toys “R” Us was the brainchild of Charles Lazarus, a shop owner who founded the chain in 1957. Born in Washington, D.C., in 1923, Lazarus had learned about the retail business from his father, who rebuilt bicycles and sold them at the family store. When Lazarus asked why the store did not sell new bicycles, his father explained that the big chain stores could sell them much cheaper—a comment Lazarus would clearly recall later in his career.2
After a wartime career as a cryptographer, Lazarus inherited the family shop and turned to selling children’s furniture in a market boosted by the post-war baby boom. Over...
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