Japan’s fourth dimension of convenience

The Japanese are well known for their ability to modify foreign inventions and come up with better versions than the original. It started with firearms and continues today with automobiles, audio and video equipment, and timepieces. And now it has reached previously unimaginable heights with convenience stores, as these shops have become multisector retail modules that handle bank deposits and broker housing loans in addition to peddling potato chips and soft drinks.

If a customer can stop by a 7-Eleven and sip on a Slurpee while getting a deal on a home loan, it’s apparent that convenience stores have morphed into a new kind of sales outlet unlike any other in the world. Combined with the growth of the Internet, this may portend a transformation in the way commercial transactions are conducted everywhere in the future.

Ito-Yokado opened the first 7-Eleven in Japan in 1974. They were so successful, they bought a 70% stake in their ailing American parent less than 20 years later. Today, 7-Eleven has become Japan’s leading food retailer and most profitable retailer overall.

At first, the transformation was incremental. They resembled a typical American outlet, selling soft drinks, snack foods, bread, milk, cigarettes, ice cream and any other product that would save a trip to a grocery store and waiting in line for a couple of items. Sales of beer and other alcoholic beverage began a couple of decades later, after they were allowed to have liquor licenses.

Then the Japanese went to work and redefined the meaning of convenience. For food, this meant hot meals prepared on the premises or at a central kitchen and trucked to the store through hyper-efficient distribution systems. The staff heats them in a microwave after purchase. These include the ubiquitous noodle dishes, as well as bento boxed meals that include rice with servings of meat and vegetables, frankfurters, and fried potatoes. They thus have become a fast food outlet—and not just for people, as some stores carry pet food.

The merchandise they now handle includes stationery, magazines, comics, paperbacks, newspapers, cosmetics (some with the store brand), cleansing cream, shampoo, toothbrushes and toothpaste, and perfumes. They’ve added paper cups, paper plates, and plastic knives and forks to their inventory. Customers also can buy toilet paper, tissues, and trash bags. They stock socks, underwear, women’s hose, slippers, and work gloves. In some convenience stores, you can find umbrellas, electric batteries, shavers, cameras, fluorescent lamps, and children’s toys. They thus assumed the role occupied by American-style drugstores (including handling some pharmaceutical and vitamin sales) and outlets such as Wal-Mart’s.

They didn’t stop there. Family Mart and Lawson’s sell fresh fruit and vegetables, which means they now compete against supermarkets and, more specifically, the old street corner mom and pop produce stores.

They launched sales of stamps and post cards, and accept registrations for bicycles and for voting. Customers can ship and receive parcels at a convenience store, which means they don’t have to hang around the house waiting for deliveries, or taking time off from work to pick them up. They have thus become a de facto satellite center for City Hall, the post office, and government agencies, as well as a distribution chain.

People can walk into a convenience store and make arrangements for travel, either for overseas jaunts or trips in Japan. Travel agents have formulated special packages for travelers planning their trips from these locations. Customers can use a terminal to rent hotel rooms on line, often for rates cheaper than the hotel’s own website. The outlets offer ski lift passes good anywhere in the country, discount tickets for pools and amusement parks, and tickets for skydiving, whitewater rafting, and other sports. Customers can make reservations for planes trains, or buses, and rent cars. They can buy tickets to concerts, museums, or other entertainment events. They also can vote in the balloting for the starting players in the American All-Star baseball game every July.

There seems to be no limit to the Japanese imagination when it comes to finding new uses for convenience stores. All are now equipped with large copying machines. People can go to a convenience store to develop photos from digital cameras, recharge cell phones, and send and receive faxes.

Their transformation moved into a new dimension with the growth of the Internet and IT. Checks are not used for payments in Japan, so the stores began to accept payment for utility bills. Some people are uncomfortable about providing their credit card number to on-line merchants, so convenience stores stepped in to offer a service for ordering from Internet merchants. The customer establishes an account, orders an item on-line, and has it shipped to a convenience store for pickup at their convenience, either for cash payments or through a card registered at the store. Some convenience stores offer their own branded credit cards.

That’s not even close to being all. The country has been deregulating financial services for more than a decade, and convenience stores seized the opportunity to develop business in a new sector. Banks have been loathe to install 24-hour ATMs, instead inexplicably turning off machines at 7:00 p.m. Convenience stores, which never close, stepped into the breach by offering the option of ATM withdrawal 24 hours a day.

The stores are now authorized to sell government bonds. The Finance Ministry wanted to attract more individual investors, so they sold the financial instruments in the chains at prices lower than those at securities companies. We’ve already seen that they handle bank deposits and housing loans. They sell traveler’s checks in American, Canadian, and Australian dollars, English pounds, Swiss francs, Euros and yen (a service that goes hand in glove with the travel agency business.) Some expect they will soon offer shares of investment trusts for sale. They thus have become branches of banks, securities companies, and other financial institutions.

All this in outlets whose floor space usually occupies less than 200 square meters.

What effect has this had on the commercial sector in Japan? Some industries openly embrace the change, while others resist. One convenience store located inside the branch of a local bank has its own computer terminal to provide customers with banking services. They’ve already placed teller machines in the stores.

This prompted one bank to slash the number of its own ATMs and cut deals with some chains to exempt customers from paying fees when they withdraw money from ATMs in those convenience stores. The bank pay these stores 150 yen per transaction, making it cheaper than maintaining its own ATMs. In contrast, another bank kept its ATMs and made handling fees more expensive at convenience stores.

Japan has more than 50,000 convenience stores, and its not unusual for shops from several competing chains to be located cheek by jowl in the same neighborhood. Surveys show that 90% of the population visits a convenience store once a week. The 13 major chains have annual sales of more than 7 trillion yen, or about US$ 57.5 billion. Since convenience stores have been allowed to have liquor licenses, alcohol sales overall have grown. These outlets account for 12% of the sales of beer and happoshu, a low-malt, beer-like beverage, by volume. Some believe this may drive small liquor stores out of business.

The Japanese government dropped department store sales as one of the 12 components used to determine the overall index of economic indicators and replaced them with convenience store sales. As an outlet type, convenience stores have the third highest sales in the retail industry, behind supermarkets and department stores, and some observers expect them to claim the second spot before long.

The country has become saturated with these outlets, so the only place to expand is inside other facilities. As we’ve seen, they’re already inside banks. Three years ago, a convenience store opened in the Fukuoka City Hall building. And one chain opened an outlet on the campus of the venerable University of Tokyo, the most prestigious institution of higher education in the country, becoming the first such outlet on a national university campus. After the university president cut the ribbon for the store at a special ceremony, a university official proclaimed, “We hope to sell ballpoint pens and mugs with the University of Tokyo logo on them in the future.”

Some things are universal, and it seems as if the tendency of academics to miss the point completely is one of them.