Localization: a story of two quintessentially American brands in Japan

I hope everyone in the United States is having a good Thanksgiving weekend. I’m having a slow, lazy week but letting myself be more creative and prolific than ever.

Since it’s a holiday weekend, I will keep this short — and this issue replaces the Wednesday, Nov. 21 issue. The Brand Fairy editorial calendar generally follows a once-every-three-day release schedule, with exceptions of weekends.

Some people are traveling this week, and maybe a handful people have decided to use this week to go abroad instead of observing Thanksgiving.

When you visit another country, there are many homegrown brands, even for something that’s familiar to Americans. For example, Japan has McDonald’s but also the homegrown MOS Burger (yes, it’s pronounced “Moss Burger” but the letters stand for Mountain-Ocean-Sky); Starbucks competes against the local Doutor Coffee chain.

One of the long-established conventional wisdom in business is to localize your brands to suit the local taste and cultural norms. These days, multinational companies are also buying up homegrown brands and some are keeping the old brand names that the locals have grown to love and trust, while others are co-branding or rebranding as soon as they enter the new country.

Localization is a very tricky act. There is no easy magic formula that works every time.

A good example is the case of Walmart Japan Holdings, K.K., which operates 333 stores in Japan through its subsidiary, Seiyu, G.K.

As CNBC recently reported, Walmart has been struggling to stay afloat in Japan for years. It isn’t the only foreign chain stores: French company Carrefour and British chain TESCO failed in Japan long ago and have departed that market, selling remaining stores to Aeon Group (which was originally founded as Japanese United Stores Company, or JUSCO), one of Japan’s leading retail chains.

But the report also notes the success of another U.S.-based chain store: Costco.

Walmart’s approach was to inherit most of Seiyu’s (Seiyu was founded in the 1960s as part of the Seibu Railway Group of businesses, which started out by building supermarkets next to the Seibu train stations in residential suburban areas to capture the commuter traffic) business model, brands, products, and culture. In the end, Walmart-Seiyu not only failed to distinguish itself from its fierce competitors in the grocery industry but also failed to keep up with the domestic trends in which newer homegrown discount stores (such as Don Quijote) are driving older, more established competitors out of business.

At the same time, Costco has opened its Japan locations in 1999 and currently thriving at 26 stores, all of which are located in industrial districts far from typical residential areas or urban cores.

Unlike Walmart, Costco made very little modifications from the original Issaquah, Washington model. Stores look pretty much the same as the Costco in Tigard, Hillsboro, or Portland. Products they sell inside too are mostly the same Kirkland Signature, except for a smaller selection of local products. Placement of stores follows the same logic as in the United States, despite the fact that many Japanese people never drive a car and are dependent on the excellent Japanese public transit systems. (Though, parking seems to cost money there.)

The iconic rotisserie chickens, cheap hot dogs, and 15-yen (unlike in Oregon, where the 10-cent bottle deposit forces the price up to 25 cents!) bottled water vending machines are there intact.

Costco won Japan by being different. It refused to modify its brand to suit the “Japanese taste” or “Japanese culture.” Just about the only thing that’s different there is that signs are bilingual (English and Japanese) instead of just English. People go there not just for great prices but also for an immersive cultural experience — kind of like stepping into a slice of American life they’ve seen on TV or movie. As they tend to perceive, America is “big” and everything Costco sells is also “big.”

Walmart, instead, took the opposite approach of localizing and failed miserably. Now it has been rumored that Walmart wants to get out of Japan, maybe looking to sell the Seiyu stores to a Japanese competitor like Aeon, Seven & i (owner of the Ito-Yokado chain, in addition to the 7-Eleven), or Apita/Piago.

As I wrote earlier on the Brand Fairy blog and its predecessor, Creative Liberation Lab Notes, a brand is a touchstone for a certain customer experience.

Walmart did not offer the Japanese consumers a distinct Walmart experience when it chose to keep Seiyu mostly intact when it acquired that company.

Costco, on the other hand, positioned itself as a kind of American suburban lifestyle theme park and created a devoted following.

Similar observations can be made also of IKEA, which succeeded by being unapologetically Swedish everywhere: in China, in the United States, in Japan.

When you feel a temptation to compromise your brand to cater to a certain demographic or a geographic market, it is important that you do not lose sight of what your brand offers by way of experiences and culture. This is a very tricky act on a tight rope, and it requires a lot of careful consideration.

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