Background & Business Model
Nitori Holdings Co Ltd (“Nitori”), the largest furniture and home accessories retailer in Japan, has rapidly grown with its effective set of business/operational models. As of FY2015 Nitori has achieved 28 years consecutive increase in its operating profit.
While its rival, Otsuka Corporation, has focused on middle to high-end products, Nitori has succeeded in capturing volume zone by the concept of “Total Coordination” and the low-price strategy. Nitori’s has:
- Developed unmet needs of “Total Coordination” in the Japanese home furniture industry: With its vision of “Present Japan and the Whole World with the Abundant Home Decoration that is as Splendid as that of the Europe and the USA”, Nitori has changed the minds of Japanese towards furniture. Japanese didn’t tend to coordinate furniture and interiors goods inside home by color, design or material. Nitori has continuously proposed the excitement of total coordination inside house.
- Provided low-price products with good quality: Its business model has been to provide adequate quality products at inexpensive prices so that mass consumers could enjoy fashionable furniture at affordable costs.
Nitori’s operation model is similar to IKEA’s but some difference exists, making some of Nitori’s products 30% cheaper than IKEA’s.
- Product Lineup / Coordination
Nitori intentionally expanded interior goods. The sales of furniture account for less than half of total revenue, while interior goods and others accounted for the majority. In Japan, Nitori is the pioneer of “Home Furnishing Store”, the store offering a full line-up of home products, from large furniture to decorative interior goods such as curtains, carpets, dishes and household goods.While the frequency to purchase furniture tends to be low as they typically do so when moving. On the other hand, customers more often purchase interior goods. By increasing the product lineup of interior goods, Nitori increased customer visits.In order to encourage “Total Coordination” to customers, furniture are displayed in coordinated (in colors and styles) sets for living rooms, kitchens and bedrooms as if the space is a real home, making it easy for customers to form an image.
- Fewer StaffA furniture store with large floor usually required many staff. But Nitori adapts self-services system in its selling spaces in the same way as IKEA does. Instead of placing staff in selling spaces, Nitori built customer services centers. Fewer staff in the selling spaces not only reduces labor costs, but also leads to shortening customers shopping time.To support customers with fewer staff, the floors are arranged in the organized way with the large main aisle, easy to follow. Also there are lots of signs and instructions placed inside stores to navigate customers.
- Store Opening StrategyWhile Otsuka Corporation opened many of its stores in major cities, Nitori has opened its stores Home Furnishing Stores mainly in suburban areas to targets low-mid income families.Nitori also started smaller format stores to improve the convenience of customers’ access and to increase the customer visits:
- Home Fashion Stores (mainly in shopping centers): sell interior goods (no furniture).
- Deco Home (mainly in the Tokyo metropolitan area): sell only frequently-purchased essential daily goods in a limited space.
- Manufacturing, Distribution and Retail Sales Model
Nitori has created a “manufacturing, distribution and retail sales model” that takes the traditional “specialty store, private brand apparel (SPA)” approach to the next evolutionary level. Over 80% of Nitori’s products are developed in-house and Nitori handles every process in-house from product planning to final delivery.
- Unlike other retailers such as UNIQLO, Nitori does not use external designers. Nitori’s internal team reflects end-customers’ preference on the products design and material selections to assure the adequate quality and functionality.
- Nitori has own production facilities located in Indonesia and Vietnam. IKEA takes the SPA approach but uses OEM for its production.
- While typical retail companies outsource most logistics activities, Nitori is involved in every logistics process, from overseas production facilities to the end-market in Japan.
- Nitori use its own delivery network to deliver completed furniture within company specified areas free of charge, while IKEA expects customers to assemble products themselves.This vertically integrated operation enables Nitori to assure the product quality and to reduce the costs by scheduling production volume precisely.
We can see that its store design/location strategy has driven its access to mass markets and developed the unmet needs and that its vertically integrated operation and staff allocation has achieved affordable prices with good quality.
- Company Website (and its disclosed materials): http://www.nitorihd.co.jp/en/
- Chief Executive Officer Akio Nitori’s Interview (in Japanese) : http://www.assist-plan.co.jp/business_letter/2005_8/yellow.php
- Feature article by Tokyo Broadcasting System Holdings, Inc. (in Japanese): http://www.tbs.co.jp/gacchiri/archives/20130929/2.html
- Toyokeizai (Japanese Institution) online (in Japanese): http://toyokeizai.net/articles/-/77317
- Forbes article: http://www.forbes.com/global/2010/0607/companies-akio-nitori-japan-sugiyama-doing-ikea-one-better.html