TOKYO -- Embarrassed by the recall of thousands of kitchenware pots after they appeared to leak lead when heated, Japan’s discount-furniture king, Akio Nitori, took an unusual step. He hired a team of auto industry engineers to revamp his quality assurance and testing division.
Ten years later, every one of Nitori Holdings Co’s products must survive a furniture torture chamber before they are ready for showrooms. Chair backs are prodded with hydraulic presses. Towels are spun in centrifuges to see if they stretch. Technicians wrestle with the legs of coffee tables to make sure they will hold up to a rambunctious house party.
It is unorthodox tactics like these -- and a willingness to borrow ideas from everywhere -- that have made Nitori one of Japan’s richest people and his namesake furniture company the country’s biggest.
“People want it to be inexpensive, but it can’t be cheap,” he said in an interview at his headquarters, an austere office above one of his big-box stores on the outskirts of Tokyo. With short-cropped hair and black-rimmed glasses, he has allowed himself a few splashes of colour - a pink tie and a matching handkerchief. “Our products are getting better every year,” he said.
So are the financial results. In the 12 months through Feb 20, Nitori Holdings did something no other public firm in Japan ever did: post a 30th consecutive year of increased profit to go along with ever-expanding sales. It is a feat all the more remarkable given the country’s epic real-estate bust of the 1990s and the six recessions since.
In 2006, Ikea of Sweden AB opened the first of its eight locations in Japan, but the competition did not slow Nitori down. He sent groups of employees to Ikea’s stores, armed with cameras and notebooks, to learn from the rival.
“They went through every molecule of our operation,” said Tommy Kullberg, president of Ikea’s Japanese business at the time.
Punishing Economy
A deflationary environment has punished most of the country’s traditional retailers, driving department-store sales down every year but one since 1998, according to the Japan Department Stores Association. Yet Nitori thrived by offering bargains to Japan’s middle class, which became more price-conscious with every economic slump.
After the 2008 financial crisis, Nitori lured consumers with advertising blitzes for 12 price cuts in the span of several years. His company’s ubiquitous catchphrase -- “More than you paid for” (it’s more elegant in Japanese) -- was the product of an employee contest rather than an ad agency.
“It’s not stylish, but it’s inexpensive and the quality is pretty good,” said Kaoru Uminuma, who was shopping at a Nitori store in suburban Tokyo for a bath mat.
Born on the Russian island of Sakhalin during World War II, Nitori moved to Hokkaido when he was 3. For a time, the family home consisted of one room the size of eight tatami mats, with no furniture. A bad student, Nitori said he was the only kid in elementary school who could not write his own name properly.
“Even now,” he wrote in a 2015 autobiography, “I’m undisciplined. I drink too much, and I like to fool around. That’s why I’ve always relied on other people to help me be successful.”
Employees called Nitori crazy, and some even quit, when he came home fired up from a business seminar early in his career and announced a 30-year plan to build a chain of 100 stores crisscrossing the country, Nitori wrote in the book, “You Make Your Own Luck.” An awkward salesman who sometimes stammered in front of customers, Nitori at that time owned only two stores in his hometown of Sapporo. “I just made up a big, round number,” he admitted in his book.
Nitori missed that target -- but only by a year.
Since then, Nitori almost quintupled his stores to 488 locations, mostly in Japan. This year, the chain has opened an average of about four outlets a month, selling everything from sofas and bookshelves to towels and dishware. In the fiscal year that ended Feb 20, revenue increased 12% to 513 billion yen (US$4.6 billion), according to data compiled by Bloomberg.
The shares have gained 21% since January, after more than quadrupling since the end of 2012, making Nitori the third-most valuable Japanese retailer after convenience-store giant Seven & I Holdings Co and Fast Retailing Co, owner of the Uniqlo clothing chain.
The run-up increased the value of Nitori’s personal fortune -- as chairman, he’s still the company’s top shareholder -- to about $3.5 billion, according to the Bloomberg Billionaires Index.
“It’s not a sexy business, but the guy knows how to make money,” said Ken Kusunoki, professor of business strategy at Tokyo’s Hitotsubashi University.
The turning point for Nitori came during a 1972 trip to California, where he spent a week touring Sears department stores and Levitz Furniture outlets. He marvelled at the designs, the colour coordination and the quality -– which came at one-third the price of Japanese furnishings.
“I wanted Japanese people to live as well as Americans,’’ Nitori said. “I couldn’t afford to triple salaries for my workers, but I thought maybe I could lower prices so my customers paid one-third as much.’’
To do that, though, meant bypassing the wholesalers, a fearsome undertaking in the days when he says distributors sometimes had links to the Japanese mafia. To deal directly with factory owners, Nitori had to meet them in the middle of the night to avoid being seen.
In the early 1980s, the pursuit of low prices took him to Taiwan, where he combed through the phone book to find suppliers. By 2000, most of Nitori’s furnishing were made in China and other low-cost Asian countries, and the company now has its own factories in Indonesia and Vietnam. “The key to it all is how much we import,’’ Nitori said.
And, ever since that first trip to America, Nitori copied unabashedly from his rivals. Every year, he flies hundreds of employees to the US to visit outlets of Wal-Mart Stores Inc and Target Corp. They travel on charter buses and pose for group photos in the parking lots, looking like students on a field trip.
When it comes the real-estate side of the business, Nitori has been a contrarian. During the go-go days of the late 1980s, he resisted the advice of his managers, who urged him to open stores closer to Tokyo, the county’s richest market. Instead, he waited until Japan’s asset bubble burst and land prices plunged.
It is only now, about 50 years after starting the business, that Nitori is finally moving his suburban brand into the centres of Tokyo and other big cities. Japanese department stores are struggling, so their owners are leasing prime space at very low prices, said Roy Larke, co-founder of market researcher JapanConsuming. In April, Nitori opened its ninth department store in Osaka’s Umeda area.
“I would imagine that, nationwide, Nitori could easily get into dozens of inner city department stores -- and that expands their clientele hugely,” Larke said.
At 73, Nitori said he’s not ready to retire, but he handed day-to-day control to longtime lieutenant Toshiyuki Shirai while he concentrates on expanding in countries such as China, where he has opened 11 outlets since 2014 and plans to double that number this year.
“It’s going to be a lot harder than he thinks,” said Shaun Rein, founder of Shanghai-based consultancy China Market Research Group who offers Ikea’s travails as an example of how difficult the market is to crack. Ikea’s stores are packed with people -- but they come to take naps on showroom beds and enjoy a bit of free air conditioning, rather than to buy.
For Nitori, the challenge will be building brand cache, Rein said. “You can’t compete on price in China.”
Still, Nitori is betting he can replicate his success in the world’s most populous nation, a market 10 times the size of Japan’s. It is key to meeting his current 30-year target: 3,000 stores by 2032.
“I’m absolutely confident we’ll make it, as long as you don’t hold me to the deadline,” he said with a laugh. “The demand is endless.”