Porter Prize
Winners Selection Rationale
This report has been written based on: (1) the materials submitted by the winner for Porter Prizescreening purposes; (2) interviews conducted by the Porter Prize Organizing Committee; and (3)publicly available information. It is being published with the winner’s permission.
Selection Criteria
The essence of strategy is to do things differently from others. Based on this premise, the Porter Prizerecognizes those companies and business units that have chosen to compete in a distinctive way in aparticular industry by delivering a unique value proposition, based on innovations in products,
processes, and ways of management.
First-stage Selection Criteria
1. Superior profitability
2. Unique value proposition
3. Consistency of Strategy over Time
4. Innovation that Enabled Strategy

Second-stage Selection Criteria
5. Utilization of capital analysis
6. Distinctive value chain
7. Trade-offs
8.
Fit across activities

Note
In the analysis of capital utilization, the key focus will be placed on ROIC (Return on Invested
Capital) and ROS (Return on Sales). The following report of the winners includes these numbers incomparison with the industry averages. A positive difference from the average indicates that thecapital utilization of the company/business is better than the industry average. The five-year average
is calculated by aggregating the numerators divided by the aggregated denominators. Thus, thederived five-year average is not equal to the simple average of the ratio for each year. The data usedin calculating the industry average was obtained by carefully selecting truly comparable companies
among those classified as being in the same industry.

Organizing Committee

Sponsor

Hitotsubashi University Business School
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
School of International Corporate Strategy
https: //www.porterprize.org

E-mail: porterprize@ics.hub.hit-u.ac.jp

Porter Prize 2009 Winners
Organizing Committee
Graduate School of International Corporate Strategy, Hitotsubashi University
2009 Sponsors
Daiwa Securities Group Inc.
The Boston Consulting Group K.K.

◆ Single Business Category Winners

Property Data Bank, Inc.

(Software)Specializes in software services that support property management; offers high-quality services
at very low prices

POINT INC.

(Apparel Retailer)

Provides “clothes that women want to wear now” to ordinary women in their 20s and 30s on atimely basis with a short lead time

◆ Multiple-Business Company Category

Aoyama Flower Market, Park Corporation(Flower Retailer)

Specializes in “private and daily” flowers for ordinary consumers

UNIQLO, Fast Retailing Co., Ltd.

(Apparel Retailer)

UNIQLO offers high-quality, low-priced, easy-to-coordinate casual basics.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

1Selection Rationale (Recipients are addressed in no particular order):Property Data Bank, Inc.
Specializes in software services that support property management; offers high-quality services at very low
pricesIndustry BackgroundManaging real property, including land and buildings, efficiently, was not easy to carry out. This was
because the objects were often located in various places, and each one required the participation of many
parties, such as commissioned realtors at the sites and their branches and headquarters, so it was difficult togather property information in real time. Under these circumstances, the industry had not started to introduce
information technology yet.
Building maintenance firms used to help property management by providing information processing
services, while construction companies delivered relevant equipment when they built new buildings. However,as J-REIT, Japanese Real Estate Investment Trust, was formed in 2001, the securitization of real estate became
popular in Japan with the rise in corporate rehabilitations and the disposal of bad debt by financial institutions,led by foreign investment funds. Foreign real estate management funds brought major changes to theoperations of real estate management, such as: 1) the evaluation of real estate holdings based on cash flow; 2)growth in property management undertaken on behalf of owners; and 3) increased information disclosure forinvestors. All of these changes required new IT tools.
With the introduction of asset-impairment accounting in 2006, property owner companies started to
install a new information processing system in order to manage and examine their property’s financial values
and risks, and control their information in an integrated manner. Large companies were especially keen to
boost their property values, so there was a huge demand for an information processing service that helps
property management.
Property Data Bank (PDB) was established in October 2000 through an intra-corporate entrepreneur
contest organized by Shimizu Corporation. Around that time, Salesforce.com in the United States had juststarted to offer a service based on cloud computing, but it took some time before large companies introduced
it as their major property operating system.
PDB offers a cloud computing service known as @property, which is the industry standard and usedby more than 800 businesses.

Unique Value Proposition
PDB provides customers with products and services to support property management, all through@property. It is not a software product sold in the market, and PDB offers various services via cloud computing.
The customers are given the right to use those services stored at the company’s website and asked to makepayment according to their use of the services.
Property Data Bank’s service, “@Property,” covers virtually everything about the real estate
management business, which consists of the following four areas:
1) Basic information management —for the management of asset values and risks, as well as important
information related to due diligence. Basic information includes 500 items, such as address, dimensions,type of land-use, building structure, prices, construction record and related documents, blueprints andphotos.
2) Property management —for the management of leasing agreements, profits and construction investments.
© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University2This covers 1,000 items, such as stacking plans, tenant lists, budgets, income and expenses, taxationand insurance information.
3) Building maintenance —for the management of real estate and related facility equipment, and the supportof maintenance work. This covers 500 items, such as routine daily maintenance, registration of facility
equipment and components, complaints from tenants and customers, and energy expenditure.
4) Portfolio analytical function. Theas extracts and analyzes every aspect of real estate information from theabove three categories, which are useful for the assessment, management and planning of asset
strategies. These four functions are standardized, and selected according to the needs of each customer.
PDB customers aim to improve their operations easily and fast and cut down on their development andmaintenance costs by introducing information technology services. PDB accepts orders from customers who
ask for software applications which are not only fast and inexpensive but also completely fitted to theirindividually different operations.
PDB concentrates on doing business with large real-estate investment funds and major corporations
that own big corporate assets (property custodianship section). To manage their assets effectively, thesebusinesses usually rely on outside enterprises that can provide correct financial accounting and swift
information disclosure services. In this industry, however, human resource mobility is relatively high, sobusinesses need to adopt a de facto standard software to control the cost of education for new employees.
Manufacturers and other large corporations who own or lease their assets in various places (around the world)
also ask their affiliated companies to manage those assets. These property owners want to centralize theirproperty information, but asset management is not their core business, so they ask for a system that does notcost much nor has risks.
Its target customers are companies that are interested in the long-term value of real estate, not thoseseeking to make only short-term monetary gains. This is why @Property does not have an investment
evaluation function.
Customers can enjoy the following benefits: labor-saving in real estate management, the unification ofreal estate information, swift asset information disclosure, reinforcement of property management, easy
accessibility for stake holders (limited scope) and reduction of training cost thanks to the use of the mostpopular application in the industry. PDB provides other cloud computing services, including monitoring andmaintenance of equipment and systems, fault program modification and user support. All in all, PDB’s system
can offer various kinds of benefit never seen by traditional programs. For instance, the clients are all allowed
to use innovative functions and sophisticated expertise without additional investment because PDB introduces
advanced customer knowledge into its own program. A minor update is implemented twice a month and amajor one has been conducted six times ever since the company started to provide services in 2000. Also, asignificantly lower total cost of ownership; lower installation costs, with installation completed in a shorter
time, and there is no need to have a system administrator to maintain and monitor the system; it is accessible
from anywhere through a web browser; and no additional payment is required for upgrades.
PDB’s income comes from three streams. The first is software as a service (SaaS). Customers pay an
initial contract fee and a monthly fee for usage and maintenance services of the software. The monthly fee
ranges between 1,000 yen to 30,000 yen depending on the number of facilities a customer manages with
@Property. The second income stream is its customization service. In response to requests by customers, PDB
adds new functions, integrates data with customers’ existing systems, and customizes the system. The thirdincome stream is package software. The package software is integrated into customized, large systems byleading system integrators for government and public offices, local governments and large-scale companies.
Although PDB specializes in licensing the basic software (SaaS) and providing technical support, by selling
the package software, it effectively minimizes the risk of managing projects that may run on too long. The
10,000 buildings managed by 180 customers are managed under SaaS (as of March 2009), and 110,000
properties are managed by the systems that use PDB’s package software as a component.
© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University3Unique Value Chain
Support service@property is a standardized service and the users need to review and restructure their operations before
the introduction. As the service is established based on the expertise of leading businesses, the users can review
and improve their own processes. PDB offers a pay service to customers who want to restructure theirinfrastructure at the time of the introduction. By doing this, the company can promote more business andincrease their fee-based profit.
PDB standardizes @Property, and does not customize it significantly for each customer. For unmet
needs, it develops new options, which can be added without affecting the standardized part (under the modular
architecture).
Service providing using SaasSPBD operates data centers in Tokyo and Osaka, and backs up the customers’ business data at these twosites in real time. Service is provided 24 hours a day, 365 days a year, and its service is up and running 99.99%of the time except for pre-planned halts in system operation due to maintenance work.
Marketing & sales
PDB conducts sales activities targeting top executives and property owners, not the operators ofproperty management companies and building maintenance companies. Also, it targets leading companies that
require the detailed and strategic management of properties. @property is a sophisticated property
management strategy tool and its excellent usability is recognized by decision-making sections at many
companies. Customers who need strategic methods and detailed techniques to manage their property
understand this tool in particular. By dealing with major enterprises, PDB can absorb their sophisticatedproperty management knowledge and earn great trust in the industry. Also, by serving the needs of customers,
new and old, constantly, the company has successfully provided the service for as many as 110,000 buildings.
After-sales services (user support)
PDB accepts customers’ inquiries by phone at the support center. Since PDB owns the software andcan access the customers’ database, it can correct most problems without visiting its customers. But when theyown systems at their sites (development/sale-type), PDB needs to visit the users when they have problems intheir systems.
Technology development
PDB conducts unique development activities. For instance, it standardizes or optimizes functions. PDB
standardizes @Property, and does not customize it significantly for each customer. For unmet needs, it
develops new options, which can be added without affecting the standardized part (under the modular
architecture). Also, PDB updates the program quite frequently. Through cloud computing activities andservices for established clientele, ordinary users and prospective customers, the company adds new functions
and modifies old ones as least twice a month. This frequent update is carried out by PDB’s excellent
development programming. To shorten development time, it does not employ a water-fall model (or asequential model). It has come up with its own approach to software development, which is similar to agile
software development, i.e., development of a module of the software by a team, frequently introductions to themarket to obtain customer feedback, and continual improvement through frequent upgrading.
Human resource management
PDB is trying not to increase number of employees but hires a few specially selected individuals withextensive experience in real estate, IT, and financial engineering.
In order to utilize a small number of employees, PDB does not discriminate employees based on gender,
educational background, and age. Fifty five percent of the employees are females, and two out of six bucho
positions are occupied by females. Employees are evaluated based on competencies and performance. PDB© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

4

defines the required competencies unique to itself, which enables it to appreciate those actions that do not
result in performance in short term, yet strengthen the company in the long term.
Employees of the system development firms are often forced to work long hours. PDB believes thisnot only destroys their balance between work and life but also affects the quality of products, so it monitors
overtime work and the time employees leave the office, which is reported to the executive managers every
month.

Fit among Activities
By carrying out cloud computing activities, PDB provides excellent services for customers. They can
reduce their system investment and relevant expenditures to the minimum level, and PDB contains the pricesthat no software models have ever seen before. The company relies on its competitiveness entirely on these
services.
While providing introduction assistance, operation services and support activities, PDB gains businessknowledge and cultivates needs, and due to this, it can occasionally and effectively renew @property, in orderto deliver so-called evolving services. By responding to the demands from leading property managementcompanies, PDB is allowed to standardize its software applications and renew them from time to time so thatthey can work even more effectively.
As customers use @property to maintain their systems and manage their data, it is necessary for PDB
to make its services even more reliable. The company has acquired the internationally accredited ISO27001
and the Japanese government’s ASP SaaS information security and reliability certification, started to publish
its own service level agreement (SLA) with a report on the performance, and established a data backup system.
(Refer to PDB’s activity system map at the end of this report)

Innovation that Enabled Strategy•

Developed SaaS system for property management in 2000 when only the SaaS application available forbusiness use was salesforce.com from the U.S., which had just started offering the service in Japan. Evenlarge system integrators in Japan did not have much experience in SaaS development.

•@Property is the very first SaaS property management software in Japan, and became the platform forproperty management.

•

Uniquely controlled access to property management data: Managing property requires the participationof various parties as stakeholders, including the owners, administration companies, cleaning firms,
security contractors, and equipment management and maintenance companies. PDB has developed asystem that defines which property data they are allowed to access to and what authorities and functions
they are given to use.

Consistency of Strategy over Time
Since its foundation in 2000, PDB has been consistently offering systems to support existing property
management, not the ones which are traditionally introduced as part of new buildings and maintenanceoriented. (The company has been improving the systems by featuring a profit-boosting method, a multilanguage ability and an accounting function linked to property owners’ main financial systems) Also, PDB has
consistently delivered cloud computing services ever since its commencement.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

5

Trade-offs•

Does not sell software as an IT asset. Focuses on SaaS (lease) business model. (PDB pursues the cloudcomputing business and asks the customers to pay based on their use of services. The company develops
programs swiftly and updates them in a timely manner, so their maintenance cost is kept low.)•

Does not visit customers for maintenance services.

•

Does not develop software other than for property management. (PDB customizes programs based on its
software package, so that the users can establish service areas and peripheral functions. The businessflourishes despite a small number of staff and a little amount of capital.

•

Concentrates on the field of property. (Having pursued property management, PDB is now known as “theexpert” in this field.)•

Does not develop services other than @Property. (PDB uses all its business resources to improve@property)•

Does not upgrade parts of software that are mature and proven.

Profitability
Both return on invested capital and return on sales exceed industry average.

Return on invested capital (ROIC)(Unit=percentage point)
Difference fromDifference from industry average, by year
industry average
2004
2005
2006
2007
2008
over 5 year period
9.3%P
14.8%P
25.1%P
33.7%P
16.1%P
21.6%PInter quartile range (IQR)=7.4 %P
Return on invested capital= operating profit divided by (shareholder capital + long term
debt + short term debt – cash)
Return on sales (ROS)(Unit=percentage point)
Difference from industry average, by year

Difference fromindustry averageover 5 year period

2004

2005

2006

2007

2008

4.6%P

5.3 %P

6.8%P

6.0%P

9.6%P

1.5%P

IQR=3.6%
Return on sales= profit on sales divided by sales© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

6

Activity System Map of Property Data Bank, Inc.

Business activities
targeted on leading
companies

Popular platform with
the industry's leading
functions

Promotecooperation
Introduction
assistance/customer
supportStudy user
conditions

betweenObtainknowhow frommajor clientsManycustomized
options

Employ theelect few
Accumulate
property
management
knowledge

companies

Improveinfrastructure in
the property
management
industry

Promotecooperation
betweenoperators
andmanagers

Limit overtime
work

Merit-based
performance
evaluation

Frequent
versionupgrade(constantly
evolving
software)No individuallycustomized
development

Providesoftwareservices overthe Internet

Enhancereliability of the@property
systemDevelop agile
softwareHighutilization, SLA
disclosure

AcquireISO27001
certification

Backup data

Promotecooperation
between sites
and theheadquarters

Customers cancut introduction
andmaintenance
costs

Slash
maintenancecost

Cut down on
systemexpenditure

Acquire the ASP
SaaS information
security andreliability
certification© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

7

Selection Rationale (Recipients are addressed in no particular order):POINT, Inc.
Provides “clothes that women want to wear now” to ordinary women in their 20s and 30s on a timely basiswith a short lead time

Industry Background
The Japanese apparel retail industry viewed from the perspective of the value chain can be divided into
the following three categories. The first category is department stores, general merchandising stores, andapparel specialty stores that specialize in retailing; the second category designs apparel products but outsources
the manufacturing; and the third category is manufacturers/retailers that vertically integrate functions ranging
from planning and design to manufacturing.
The third category is SPAs (specialty store retailers of private label apparel) who design their own
products but outsource manufacturing. Forever 21 belongs the first category, Point is part of the second
category, and WORLD, GAP, ZARA, and H&M belong to the third category.
With regard to delivery speed, there are two categories. The first targets fashion-conscious customers,
and operates a shorter production-to-delivery cycle. The second targets customers who want basic clothes, andoperates a longer cycle. Point, ZARA、H&M、Forever 21, etc., are fast fashion, while Uniqlo is slow fashion.

Executive Summary
Point’s strategic positioning is specialization in the “fashion casual” market segment that early majority
and late majority customers want. Point quickly introduces “clothes that women want to wear now,” as desiredby ordinary women, and as the representative of “Yasukawa (reasonably-priced, cute design)” and “petite price(not expensive, but wonderful fashion products),” Points has gained high recognition and trust.
In addition, Point deploys a “multi-brand strategy” (owning 12 brands) that segments each branddepending on customer taste and store location. By opening stores with selected brands that match high growth
locations, e.g., fashion buildings in urban areas, station buildings, and suburban shopping centers, Points isable to keep pace with changes in the distribution industry.
Points introduces “clothes that women want to wear now” with a short product development time andshort product cycle. All clothes are sold at the proper price through product design with a high hit ratio,
excellent inventory control, revision after product introduction, and so on. Point is the fifth-largest in sales
volume in the Japanese apparel retailing industry, yet ranked top in terms of the average five-year ROIC andROS.

Unique Value Proposition
Point’s target customers are women in their twenties and thirties who belong to the early majority andlate majority categories, and whose priorities are expressed as follows: “I want to enjoy reasonably-priced
fashion items, and I also want to follow the trends.” They can be described as “ordinary women” and “womenwith ordinary sensitivity,” and they belong to the early majority and late majority categories as explained by
the diffusion of innovation theory. Their needs include “they want to enjoy fashion every day,” “they want towear clothes different from last year’s,” “they want to enjoy this year’s trends,” and “they want to enjoy
shopping as many times as possible each month,” and Point meets these needs. They want to buy new clothes
every season.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

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Point’s products are reasonably priced and set at prices that allow women to enjoy frequent shopping
without worrying about their wallet. Its prices are far lower and more reasonable than global brands such as
Ralph Lauren and Calvin Klein. Point’s prices are 50% to 70% lower than the prices at department store. Its
prices lie in the “middle price zone,” which is slightly higher than the price of basic, less fashionable products.
For example, a dress that sells at a department store for 12,000 yen would be sold by Point at 4,900 to 6,900
yen.
Point’s products include casual, fashionable clothes and fashionable products that are moderately
trendy. In short, their products are “not overly fashionable, but neither are they commonplace,” meaning they
are “easy-to-wear clothes” that women can wear casually every day. (Point expresses this as “fashion casual.”)In order to encourage even “ordinary women” to adopt the latest trends, Point subtly arranges its clothes withspeedy introduction to catch the peak of current trends.
Point’s brands place a strategic focus on a different target segment and different store location. Point
operates 12 brands. “LOWRYS FARM,” offering refreshing coordinates to women who lead an ordinary
lifestyle, and “JEANASiS,” focusing on materials and details with the appeal of “stylish fashion from theperspective of women,” operate stores at station buildings and fashion buildings in downtown areas. In contrast,
stores intensively operating at suburban shopping centers for brands such as “GLOBAL WORK,” which
incorporates basic, casual fashion that also follows seasonal trends, and “LEPSIM LOWRYS FARM,” which
proposes “casual, unassuming styling” with simple naturalness, target women in their 30s, who are the main
customers of suburban shopping centers.
Point realizes stores where new products are displayed at short intervals, stores that encouragecustomers to visit repeatedly, stores where customers can enjoy selecting clothes, and stores that maintain
constant freshness.

Unique Value Chain
Point’s value proposition is supported by its ability to develop the right products that can be soldwithout discounting, introduce new products at short intervals to keep the stores fresh and fun to visit often,
and maintain an appropriate amount of inventory.
Product development
Point’s product planning policy is “life-size merchandising,” which means producing clothes that
Point’s employees want to wear and not selling products that they do not understand. As Point targets ordinary
women who belong to the early majority and late majority categories, customer needs are relatively easy tounderstand. The accuracy of Point’s product planning is supported by its multi-brand strategy that clarifies thetarget customers, by unique qualification eligibility and selection method of buyers, by methods to understandcustomer needs and reflect these needs in product planning, and by the transfer of authority to buyers.
Point operates 12 brands, and it subdivides its target customers based on store location and favorite
tastes in order to clarify the concept of each brand. For example, its major brand “LOWRYS FARM”
emphasizes refreshing coordinates that are moderately trendy, “refreshing impression making parents
comfortable with their daughters’ choice of clothes,” and “cuteness from the perspective of women.” On theother hand, Point’s semi-major brand “JEANASiS” emphasizes trends that focus on materials and details, andpromotes “stylish fashion from the viewpoint of women.” Point’s buyers are not clothing professionals withspecialized skills in design or pattern making. Instead, Point seeks buyers in the same age bracket as its target
customers, buyers who are supporters of the brand and are “in-house customers,” buyers who have experience
as retail clerks, and buyers who possess the ability to grasp and express customer needs. All buyers areheadquarters employees, but they often visit stores and attend customers, and listen to the voice of customers
and the opinions of store employees. This aspect is unique to the type of work called buyers who tend to have

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

9specialized skills 1 . Customer needs are fed back quickly from store employees to the headquarters. In addition
to the monthly store manager meeting, MD meeting, and area meeting, IT infrastructure such as the TV
conference system has been developed, and store managers propose product ideas and evaluate samples. The
last is the transfer of authority, and buyers assigned to each brand have the authority to make decisions on
overall products within the range of the overall plan, such as product structure and total purchase volume basedon category, e.g., inner and outer wear. In terms of the selection of seasonal themes, product planning, andorder volume of each product, application and detailed reports to superiors are unnecessary.
F

F

Point is able to achieve a very short lead time for delivering products to its stores. Products are
displayed in stores within 1.5 to 2 months of their conception. This is due in part to the coordination process
between Point and the trading companies, developed over many years. At Point, roughly 50 buyers and trading
house staffers allocated to each brand share information as if employees of the same company, and produce
products in close collaboration. Surveying and grasping information on products that sell well and formulating
new ideas are the responsibilities of Point’s buyers, and the trading houses are mainly responsible for design
sketch drawings and material selection. Point decides on the colors, designs, and order volumes, and the trading
houses draft the specifications, and sample production begins very quickly. It takes only 1 to 2 weeks fromproduct planning to sample completion. The trading houses select the best fabrics and manage the operations
from production to delivery. After delivering the products to Point, with a seven-time weekly delivery system,
products are then quickly delivered to stores. With a short lead time, product planning can improve the ratio toreflect customer needs. In addition, the concept of “sales completion date” that sets the expiry date for eachproduct is introduced. Even though sales may be good, the sales period is restricted to three months at thelongest and products are successively replaced.
Last is revision after product introduction. Based on a two-month merchandising period, roughly 30%of the product plan is initially introduced, with additional products introduced in 2- to 3-week intervals in orderto optimize product distribution to stores. During this period, materials, colors, etc., can be flexibly revised toensure product fit with the target customers’ desire of “clothes that they want to wear now.”
Out-bound logistics
Point operates its three warehouses through its subsidiary, while outsourcing transport services. Thanks
to an automatic replenishment system, automatic selection system, and daily delivery services to all its stores,
any item sold at a store will be replaced by the delivery of an identical item to the store next day.
Point’s inventory turnover ratio was 9.6 times for the term ending in February 2009. This ratio is oneof the highest in the industry. By adopting layouts that minimize inventory, 594 stores across the nation areunable to hold excessive inventory. However, by delivering products, even if only one shirt, by the following
day, Point can prevent the loss of opportunity resulting from the shortage of products. Products that do not sell
well are shifted to Point’s outlet stores at an early stage, and this prevents slow selling products from remaining
at stores. Restricting seasonal leftover inventory to less than the designated ratio of sales is set as the in-houseassessment index for each brand and as the key sales target.
Store Operation
In order to realize attractive retail areas, the headquarters regularly compiles a visual merchandising
instruction booklet that simply explains retail area layouts and product displays through photographs and sends(e-mail) the booklet to each store. Area managers visit and instruct stores under their management control, andWith regard to establishing in-house design functions, three patterns are seen in the fast fashion(short product lifecycle) strategic category. The first pattern is ZARA and H&M, each with a levelof 100 in-house designers. The second pattern is Forever 21, which does not plan its own products
but purchases from trading houses and manufacturers. The third pattern is Point, and buyers (notdesigners) plan the products. Point concentrates its management resources to “absorb customer
needs, plan needs as products, and introduce products quickly to stores.”1© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

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store operation is maintained at a high level.
Marketing and sales
Point spends less on advertising. Instead, Point promotes its products through grassroots marketing,especially by gaining exposure in magazines, catalogues, and websites, and on shopping bags, as well as byhosting music events. In addition, employees can purchase products at lower prices, and store employees
who attend customers and sell products wear company products. In this way, store employees play the role of“walking advertisements.” Point keeps the stores fresh by putting new products in the stores often, to encouragecustomers to visit their stores regularly and buy products when available. To do so, it launches products atshort intervals. Most of its products are replaced with new designs within a month. Point also sets a sell-bydate – the date by which sales of a product will be ended, so that the same products are at the store no longer
than three months. This applies not only to unsuccessful products but also to successful products.
Dealing with customers and sales at stores is based on “careful distance,” and customers are not handledwith excessive service or a pushy attitude. Employees always think from the customer’s perspective and placeemphasis on not missing the smallest of signals, for example, “I want to know about this product.” Thecorporate message “enjoy?” has penetrated among store employees who handle customers cheerfully with asmile. Natural communication with customers not only contributes to building store patronage, but also leads
to the discovery of new customer needs. In addition, work at stores is minimized to allow staff to take sufficient
time to attend each customer. For example, inventory control and placing orders are infrequent tasks, andproduct inspection at stores is unnecessary.
Purchase/procurement activities
The “order sheet” used when buyers place orders with suppliers is standardized and systematized forall brands. In addition to improving work efficiency, this also prevents human error such as mistaken orders,
and the brand head understands and inspects the order value and order quantity by each buyer in real time.
Point constructs a stable, long-term relationship with its trading houses, but it also understands andinspects the monthly purchase volume, rate of return, and product shortage ratio of its suppliers by each brandin order to manage suppliers by not placing too much emphasis on any specific supplier and preventing
abnormal fluctuations. In addition, based on each supplier, Point manages the ratio of products that cannot be
introduced to stores due to defects or customer returns due to quality problems, and these concerns are passed
on to the suppliers. Based on designated standards, measures that include instructing suppliers or halting
business are taken. New trading houses are periodically allowed to participate in order to maintain a degreeof tension with suppliers.
Human resource management
Point employs an in-house staff recruitment system. Most of the employees start off as retail assistants.
After rising through the ranks, they become store managers. As store managers, they then have the option to
become: 1) area managers, who manage several stores and train store managers and staff; 2) buyers, who planand order new products; 3) visual merchandisers, who are in charge of store layout and display; or 4) press
officers, who work to establish the brand image externally.
When hiring and evaluating personnel, Point emphasizes the abilities “to act independently without thefear of failure and to revise quickly.”
Point assigns capable employees to important positions regardless of age. A 33-year-old woman was
appointed executive managing director in 2006. The person in charge of the JEANASiS brand (with annual
sales of 10.5 billion yen) is 31 years old, and the person in charge of the Heather brand (4.6 billion yen) is also
31 years old. Compared with other companies, its employees are young, but significant authority over overall
brand operation is given nonetheless. Eight years ago, Point started hiring qualified part-timers as employees
without asking their educational backgrounds.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

11

Store employees represent the majority of the personnel cost in the chain store industry, and Point
operates a special system to manage its personnel cost. Point not only manages the personnel cost of storesbased on value, but also allocates budget for “operation hours,” which is the total of monthly shift work
(working hours of employees and part-time workers) by store each month. Stores set daily shifts within therange of the budget set aside for operation hours. This enables optimal staff allocation for the daily sales budget
and increases the accuracy of controlling personnel costs at the same time.
Firm infrastructure
As the brand manager makes quick decisions and revisions centered on sales, purchases, and inventory
data, an information system has been developed to facilitate the understanding of the status of operation ofeach store by brand on same day.
The corporate culture of Point is to “Enjoy fashion, work and life. Enjoy through fashion.” In order toprovide enjoyment to customers through fashion, employees must also enjoy their work, and “it is essential
for Point to be a company where its employees can boast to family and friends that they work at Point.” At the“managers’ meeting,” where managers across the country gather, the overall policy is conveyed by Point’s top
executives and information is shared. This is also an opportunity to commend and praise those employees withexcellent performance who have greatly contributed to the company. The reception held on the first day of themeeting is organization by store employees, much to the excitement of all participants, including top
management. In-house newsletters, employee handbooks, and other materials incorporate a degree ofplayfulness.
Another characteristic of Point’s corporate culture is the closeness that exists between the top
management and the frontline. Instructions to subordinates are given quickly and directly. The functions of theheadquarters are concentrated, and many meeting spaces are made available to allow quick reporting, closer
contact and consultation. The top executives frequently visit stores and hold dialogue with staff employees,
and they provide on-the-spot instruction if any problems are discovered. The top executives also actively
participate in socialization gatherings, as well as frequently participate in major group training, and they
passionately speak on their expectations of employees and on the targeted direction. As a result of these
activities, the culture of “act first and revise quickly” and the cycle of sharing information, judging and acting
quickly have taken root.

Fit among Activities
Point’s reasonable price setting is a key factor in its appeal to target customers, and the reasonable pricesetting is attained by increasing the product turnover ratio without discounting. In order to sell all products
without discounting, product planning with a high hit ratio and outstanding inventory control are essential.
Product planning with a high hit ratio is supported by buyer activities to absorb customer needs, feedback fromstores on customer needs, operation method and personnel system that can select excellent buyers, and so on.
In dealing with customers, buyers and store staff absorbing customer needs also contribute to building store
patronage. In addition, the short product cycle and small lot production contribute to inventory control as wellas contribute to maintaining store freshness. (Refer to “Point’s Activity System Map” at the end of this section.)

Innovation that Enabled Strategy•

Instead of staff with special skills, such as designers or pattern makers, allocate employees as buyers who
are the same generation as the target customers.

•

Stores without any inventory space.

•

Merchandise delivered daily to stores.

•

Introduction of a “sales expiration date.” (Even for products selling well, the maximum sales period is© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

12three months, and products are replaced without question.)•

Monitoring of the number of hours worked at stores instead of personnel expenses.

Consistency of Strategy over Time•

Point began as a men’s apparel retailer called Fukudaya Yofukuten in 1953; it changed its business line toa men’s casual wear retailer (1973) and later created a chain in the same business line (1984). In this way
Fukudaya Yofukuten developed, but not without its share of problems. For example, it did not have theprice-decision right when purchasing and selling national brands; they were unable to secure sufficientpurchases depending on the area; their profit margin was low; and Fukudaya Yofukuten constantly faced
inventory problems. In order to break through this situation, Fukudaya Yofukuten began branddevelopment through its own planning, and one of the current strategic cores was formed.

•

The strategic cores developed after this included “fashion casual,” “store brand,” fresh retail area, andmulti-brands.

•“Fashion casual” meant adopting trends to its basic line. It belonged to the reasonable “middle pricezone,” and targeted the market that was neither department store nor mega store. The second “store brand”
referred to product development based on the “stores” closest to customers. It was the development of its
own brand based on the ideas of “producing clothes that we want to wear,” “not selling products that we
do not understand,” and “life-size merchandising.” These two cores have been maintained consistently
since March 1992 when Fukudaya entered the ladies’ casual retail industry with the current major brand“LOWRYS FARM” and began store brand operation.

•

The third core of “fresh retail areas” became essential as store brand operation through its own planningbegan. For store brand operation through its own planning, inaccurate product planning and order volumes
can lead to the holding of large inventories. Because of this, the “Fourth Computer System” to enable
timely analysis and verification of sales, inventory, and purchasing was introduced in February 1994,
initiating improved accuracy of merchandising management. This effort resulted in the 30~45-day productdevelopment period and the everyday delivery system.

•

In September 1994, the new store brand called “The Works (currently Global Work)” integrating men’s
and ladies’ fashion began. This was the beginning of the multi-brand strategy. As of the end of May 2009,12 brands are being operated.

Trade-offs•

Does not deal with extremely low-priced products without fashion sense and quality or products with highabsolute prices.

•

Does not have designers and pattern makers in-house.

•

Does not have its own factories. (In addition to maintaining low fixed costs, also allows flexible
purchasing based on the volume of demand, production in optimal production areas depending on thecircumstances at the time, and quick response to the market.)•

Does not carry inventory at stores. There is no space to keep inventory.

•

Does not employ mass-market advertising (i.e., does not use television commercials).

•

Does not push sales at stores. Does not aim at self-service operation. (To minimize the number of store
employees by arranging the store layout and adopting creative product displays.) (Attending customers
and conversation with customers offer clues to planning the next products. In addition, naturalcommunication contributes to building patronage at each store.)© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

13•

Keep activities other than attendance on customers at minimum in stores. (To secure sufficient time forcustomer service, e.g., attending customers, optimally allocate store staff, and operate stores efficiently.)•

Does not open a store smaller than a specified minimum store size. (To use different brands for stores
depending on the location.)•

Does not introduce products that do not match each brand’s positioning. (To prevent sameness.)•

Does not operate franchise stores. (To be able to implement flexible measures, e.g., feed-back information
obtained from communication with customers to product planning, scrap and build stores, change
operating brands, and operate multiple brands in the same store.)•

Minimizes paper-based communications such as written requests for management decisions or reports.
(To emphasize direct communication to link actual feelings and experiences at stores with productplanning and operation improvement.)•

Does not conduct activities that do not fit the corporate slogan, “enjoy?”

Profitability
Both the return o6n investment capital and the return on sales substantially exceed the industrial
average on a consistent basis, and the difference shows a tendency to widen.

Return on invested capital (ROIC)(Unit=percentage point)
Difference from industry average, by year

Difference fromindustry average
2004
2005
2006
2007
2008
over 5 years period
45.0%P
49.2%P
51.0%P
52.5%P
59.0%P
52.6%PInter quartile range (IQR)= 18.3%P
Return on invested capital= operating profit divided by (shareholder capital + long term
debt + short term debt – cash)
Return on sales (ROS)(Unit=percentage point)
Difference from industry average, by year

Difference fromindustry average
2004
2005
2006
over 5 years period
12.7%P
12.5%P
13.3%P
13.6 %P
IQR=4.6%
Return on sales= profit on sales divided by sales

2007

2008

12.2%P

16.1%P© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

14

Activity System Map of POINT, Inc.

Avoidscannibalization
among its own
brandsFun and original
shopping bag

Employeepromotion system
Penetration of thecorporatemessage “enjoy”

Clarifies the roleof each brandMusic event
Customerparticipation-style EC

Does not conductindiscriminate marketing
Develops multiple
brands based ontarget customers

Operates storesthat fully covergrowing locations

Promotes competition
among brands Laterally
introduces successful

Does not open storesat department stores

Personnel
system thatemphasizes
ability andmotivation

talented people
talented people

In-housemanagement systemthat comprehends

Fully supports abirth/childrearing system

Naturalcommunicati
on withcustomers
Feedback
to productplanning

Bold transfer ofauthorityHighinventory
turnover ratio

Real clothes
story Plans
clothes that
we want towear now

Buyers ofthe same
generation
as thetargetcustomers

Corporate
culture thattries first andrevises
immediately

Introduces a
successionof new products
based on the
52-week MD

No in-house
designers
Information
system thatenables quick
decisions

Supplier report Bclass productgeneration ratio

Automated
pickingsystem365-daydelivery systemwith own
distribution

Less store
inventory

Store layout
does notallow in-store
inventory

Seasonal
leftoverinventory
control

Sets the final
sales date

Products that
do not sell well
are quickly
shifted tooutlets

Short lead time fromproduct planning toshipment
Reasonable
prices roughly
50%~70% of
department
store prices

Does not deal
with highpriced
products orvery lowpriced
products© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

15

Staff
specialize
s inqualitycontrol

Closecollaboration
with trading
house
counterparts

Does not own its own factory

Selection Rationale (Recipients are addressed in no particular order):Aoyama Flower Market, Park Corporation
Specializes in “private and daily” flowers for ordinary consumers

Industry Background
The flowers sold most in Japan include chrysanthemums, lilies, roses, carnations, Kocho orchids andprairie gentians, accounting for more than 60 percent of the wholesale market in value terms. It shows that theflower market in Japan centers on corporate demand for gifts of Kocho orchids and other flowers, and for
funerals. As for individual demand, carnations for Mother’s Day stand out.
Flower distributors operating with many stores—though there are not many—target corporations as
their major customers. Therefore, they always keep expensive Kocho orchids and large-flowered roses andlilies in stock to respond to the demand for gifts. And they usually set up shops inside hotels to prepare for thedemand for weddings.
Small flower shops tend to have only one shop, or three at most. These shops are located in residential
areas, making it convenient for individual customers to bring flowers home. Individuals buy flowers for special
occasions, such as Mother’s Day and birthdays, and for the family Buddhist altar found in most Japanese
homes. Although demand for altar flowers is stable, it is not large enough to support a flower shop.
Consequently, flower shops must find restaurants and offices in their neighborhood that will place orders forflower deliveries. Also, these shops usually offer flower arrangement lessons inside the shop to ensure a steadydemand for flowers.

Executive Summary
Aoyama Flower Market has deployed 65 outlets in Tokyo and other metropolitan areas. It specializes
in “Private & Daily” flowers and defines itself as a service provider that offers the concept “Living with
Flowers Everyday” instead of just selling flowers. AFM succeeded in providing a variety of fresh flowers at
low prices, while maintaining its sophisticated corporate image. It also created a new product category ofreasonable prearranged bouquets that the customers can take home immediately. As a result, the company
expanded the “Private & Daily” market dramatically. As the flower market shrinks because of the economic
downturn, it still maintains high profitability and continues to show a steady growth.

Unique Value Proposition
Aoyama Flower Market’s value proposition is to make flowers a “private and daily” item. It aims torealize its corporate slogan of “living with flowers everyday” as a lifestyle choice. Hence, its target customer
is individuals, not corporate clients. This is a unique approach because none of the other flower retailers withmany flower shops would ever consider ignoring corporate customers.
AFM’s value proposition is “Living with Flowers Every Day,” not selling flowers themselves. Aoyama
Flower Market has created new strategic positioning for flower retailing, by making flowers a “private anddaily” item. AFM has positioned the flower retailing business not as the selling of “flowers” but as the sellingof an experience, in other words, “time and space with flowers,” making it a service business.
“Living with Flowers Everyday” starts at a shop where the customers buy flowers and includes a trip
back home and time and space they enjoy at home. In order to make the occasion of buying flowers a pleasantexperience for the customers, AFM dedicates itself to having new varieties in stock, taking care of the display
layout and fostering employees with a great deal of knowledge of the products.
© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University16In order to lengthen the lifespan of the flowers, AFM has developed a special jelly to prevent flowers
from drying out on the way home. It also offers a complimentary packet of a freshness-preserving formula thatwill keep the flowers fresh longer, making it possible for customers to enjoy their flowers for a longer time.
What is unique about AFM’s product lineup is that it specializes in flowers suitable for individuals tochoose for daily use. It also will not carry expensive, long-stemmed roses, which are required for making large
arrangements for restaurants, hotels, and offices. Instead, AFM carries various kinds of short-stem roses, aswell as other flowers. AFM’s does not carry potted Kocho orchids, which are the most popular arrangement
given as gifts, nor does it carry chrysanthemums, which are traditionally placed on Buddhist altars.
Another strategy that distinguishes AFM from other distributors is that it provides prearranged
bouquets for the customers to take home quickly. AFM offers pre-arranged (ready-to-go) bouquets ranging
from 350 yen to 1,500 yen, which have been developed under different concepts, such as “for the kitchen,”“for the living room,” and “for the dining room.”
When AFM started its business in 1989, it prices were about 50% lower than those charged bycompetitors. Now, the price gap has been narrowed, yet its prices are still 30% less expensive than its
competitors’. At AFM, sales revenue per purchase is about 1,500 yen, which is one-third of the industry
average.
To spread the concept "Living with Flowers Every Day" to customers who haven’t bought flowers forthemselves, AFM has opened shops mainly in busy areas such as in station precincts and at department store
entrances. In stark contrast to this strategy, most flower distributors targeting individual customers have set up
shops in residential areas, considering the convenience of taking products home and the lower cost of storeopening.

Unique Value Chain
Support service
Procurement
In order to respond to customer preferences and requirements which vary from store to store, each shop
creator at AFM places an order for flowers to be bought at the Tokyo central flower market, the Ohta Market,
selecting items from a long list developed by the headquarters in order to ensure the quality level and brandimage. Unlike its competitors, which have centralized procurement at headquarters, AFM does not have abuyer at the headquarters. Each store develops its own weekly flower campaign. The team of shop creatorsand the product development personnel at headquarters introduce various flowers as the flower of the month,working in collaboration with farmers. Each shop, however, decides its own order volume. Regarding flowers
for which demand is steady, like roses, AFM consigns production to its partner farmers.
Inbound logistics
AFM hires a transportation company specialized in the delivery of fine china to transport its flowers.
This company treats the flowers very carefully, as they would fine china. This is how AFM ensures that theflowers it sells will not be damaged during the transportation process. AFM considers that the petals of theseflowers for “every-day” use should not be damaged, because customers will be looking at them from a very
close distance.
Store operation
AFM makes shops a place where customers can go to enjoy flowers. In order to make shopping amore pleasant experience, AFM prominently displays flowers instead of placing them in glass cases, enabling
the customers to get close to the flowers and actually smell them. It displays the prices of all the flowers soldin the shop. It also makes available information about the flowers and the farmers by providing written
explanations on the blackboards and by handing out free flyers at the shops. AFM has relocated the work
stations normally found inside the shops of other retailers and put them at separate locations a short distance© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

17

from the shop, completely out of sight.
Outbound logistics
AFM provides original paper bags so that the customers can enjoy the flowers while they take themhome. At the shops in the station precincts, they pack a bouquet in a box so that it can be easily carried on the
train.
Marketing and sales
AFM does not advertise itself through the mass media. Its high-profile shops in areas with a high levelof pedestrian traffic are its main form of advertising.
Technology development
AFM is not involved in plant breeding or flower production, yet it aggressively searches for goodflower farmers who cares about product quality and try new varieties in response to customer requests. It also
invites farmers to meetings for “shop creators” twice a month.
Regarding bouquet design development, AFM conducts this process using a team comprising five shop
creators, a brand creator, and a person in charge of product development at the headquarter. AFM has in-house
shop designers, who design store façades, shelving, buckets, and vases. AFM spends 10% of its budget for
new store openings on the development of shelving and displays. AFM also develops its own scissors, knives,
knife cleaners.
Human resource management
AFM has created two separate career paths. One is for creators, and the other is for managers. Eachshop has one shop creator and one shop manager. Shop creators decide on display design and productassortments, set prices, develop communication strategies, and take responsibility for customer services. Shop
managers set annual sales targets, decide who to hire, develop work shifts, handle customer-relations
management, and take responsibility for shop profitability. At the headquarters, there is a brand creator and abrand manager.
AFM provides plenty of opportunities to improve flower arrangement skills. It also provides various
educational programs, such as training at other shops temporarily, monthly visits to flower farms, opportunity
to stay at an apartment in Paris, where employees can stay for a minimal cost to learn from the flower shops
there. Exams are conducted four times a year to determine an employee’s knowledge about the product andstore management. There is another system for evaluating managers. Part-timers with sufficient drive can sit
the exam for becoming full-time employees. The exam accesses their capabilities in financial management,
and business planning, as well as their presentation skills. Those part-timers who pass the exam will be givena “full-time employee pass,” which gives them an advantage when full-time positions become available.
Firm infrastructure
AFM delegates full authority to each shop. Shop managers have the authority to set sales targets,
procure flowers, decide who to hire, decide on the shop uniform.
With each shop having considerable discretion, shop managers can see the result of their decisions andaction to maintain motivation and properly manage profits. They can see each shop’s daily and weekly sales,
cost ratio, and ratio of personnel expenses.
Employee commissions are pegged to the operational profit of each shop, which encourages them tominimize opportunity loss and the rate of wastage. Average waste rate of AFM is about 3%, which is much
lower than that of its competitors. Shops that intensively manage loss ratio still have a loss ratio of around10%.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

18

Fit among Activities
Under the slogan “Living with Flowers Every Day,” AFM focuses on providing customers with
“Private & Daily” time and space. Therefore, it does not need to keep regular gift flowers, such as red roses,
in stock. Instead, it procures flowers in season, which makes it possible to provide them at reasonable prices.
Also, “Private & Daily” flowers are in steady demand, resulting in a low rate of disposal and enabling
reasonably-priced products.
For “Private & Daily” flowers to establish themselves as basic items, it is necessary to open many
shops in bustling areas where a high turnover of merchandise can be expected. As a result, it contributes to a
low rate of disposal and lower prices. On top of that, deploying many shops helps to cut the costs of storeopening—yet another reason for moderately-priced products.
Since the demand for “Private & Daily” flowers depends on the customer stratum, each shop is given
the authority to place orders. In addition, delegating power to decide such matters as employment and profit
management enables the optimum ordering and floor structure, ending up with less wastage. It also gives anopportunity for personnel training, which continuously helps to improve business efficiency at each store (Seethe “Activity map of Aoyama Flower Market” at the end of this section for reference.)

Innovation that Enabled Strategy•

Positioned the flower retailing business as a service business that sells “time and space” with flowers, andsupports a lifestyle of “Living with Flowers Every Day,”.

•

Offers “life-style” bouquets.

•

Transferred decision-making authority to staff in the shops.

•

Opens shops in locations with a high level of pedestrian traffic.

•

Separates the shop managers’ job from the artist by creating two positions: shop creator and shop manager.

Consistency of Strategy over Time
Since AFM started in 1989, it has stuck to the core strategy of specializing in daily-use flowers forindividual customers, even though its practice method has changed from reservation-based non-store sales tostore retailing, eventually with many stores.

Trade-offs•

Does not put air-conditioned glass cases in the shops. Lets customers have a closer look at the flowers
and actually smell them.

•

Does not have work stations in the shops.

•

Does not give flower arrangement lessons at the shops.

•

Does not respond to the needs of corporate clients (large flower arrangements and potted Kocho orchids).

•

Does not sell traditional flowers for funerals (chrysanthemums).

•

Does not conduct wholesale business for hotels (bridal flowers and large flower arrangements for parties).

•

Does not sell dried flowers or preserved flowers.

•

Does not open stores in areas with low pedestrian traffic.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

19

•

Does not open stores in areas where potential market size will not support a large enough number of shops(The new stores must offset the fixed cost of starting up operations in a new area, developing access to
the local flower market, getting to know the local farmers, and developing a distribution system.)•

The headquarters does not order flowers for the shops.

•

The headquarters does not hire shop personnel.

•

Does not aim to grow faster than it can cultivate personnel. （→If an experienced worker transfers to a
new shop, the staff level of the old shop declines temporarily. Rushing too much in opening new shops
before the existing stores get back on track leads to overall business deterioration and might put brandvalue at risk.）•

Does not operate on a franchise basis. （→ Flower distributors keep different products from different
producers throughout the year, so it takes at least one year to train new employees to learn about them. A
rash and irresponsible decision to move on to FC operation could tarnish brand value.）•

Does not pursue discounts in procurement. （→ Flower shops cannot operate without suppliers. AFM
considers its supplier an outside partner with whom it can develop a long-time relationship and growtogether.）•

Does not sell dried flowers （→Selling dried flowers could lead to a low level of awareness of productmanagement and thus to a high rate of disposal, because it gives the employees an idea that the flowersthat have lost freshness can easily be turned into dried flowers.）•

Does not sell preserved flowers

Profitability
Both return on invested capital and return on sales exceed industry average.
Return on invested capital (ROIC)(Unit=percentage point)
Difference fromDifference from industry average, by year
industry average over
2004
2005
2006
2007
2008
5 years period
25.0%P
58.3%P
51.6%P
35.6%P
23.2%P
41.2%PInter quartile range (IQR)=16.3%P
Return on invested capital= operating profit divided by (shareholder capital + long term debt +short term debt – cash)
Return on sales (ROS)(Unit=percentage point)
Difference fromDifference from industry average, by year
industry average over
2004
2005
2006
2007
2008
5 years period
4.3%P
4.5%P
7.0%P
6.8%P
4.6%P
4.1%P
IQR=2.8%
Return on sales= profit on sales divided by sales© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

20

Activity System Map of Aoyama Flower Market

Personnel
training at HQ
and shops“cho-rei”
Daily report(Cost ratio)
Service
costs

Selling knives
and knife
cleaners

Flowersthat keep
well

Delegating
authority toeach shop

Low
turnoverWork
outsideshops

Low rate ofdisposalLow costof store
openingNoadvertising
Lifestylebouquets

Reasonable
pricesHighturnover ofmerchandise

In-house
product
development
and shop
designOpening
shops in busy
areas

Sophisticatedimage

Providing“Private &Interaction
withproducers(Visits toflower farms)

Low labor
cost ratio

Daily” timeand space

No glass
cases inshops

Daily improvement at
each shop (shu-rei)Customers firsthandchoiceContractingwith atransport
company thattreats flowers
carefullyOpen
atmosphereGood
customer
service© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

21

Selection Rationale (Recipients are addressed in no particular order):UNIQLO, Fast Retailing Co., Ltd.
UNIQLO offers high-quality, low-priced, easy-to-coordinate casual basics.

Industry BackgroundIn light of the value chain, clothing retailers in Japan are divided into three groups: those specializingin the retail business, such as department stores, general merchandizing stores and boutiques; those who doplanning but outsource production; and those using a vertical integration system to control all the processes
from planning and manufacture to sales. Forever 21 belongs to the first group, Point the second, and World,
Gap, Zara and H&M the third. Giant retailer UNIQLO procures materials on its own and initiates joint fabricdevelopments, so it pursues the system more intensively than those belonging to group 3. However, thecompany asks affiliated factories, not its own ones, to produce products, so it pursues the system in a rather
unique way while taking advantage of strong ties with the production facilities.
Based on the lead-time of product development and the lifecycle of merchandize, clothing retailers areclassified into fast fashion and slow fashion. Point, Zara, H&M and Forever 21 are the former type, andUNIQLO the latter.

Executive Summary
UNIQLO has successfully established a unique strategic positioning in the apparel industry. It provides
basic items as “components” to be arranged with other components by the customers, yet offers high-quality
items at an extremely low price. For example, it has popularized existing materials that were previously usedin specialized market segments or in high-end market segments, such as fleece pullovers (sold for 1,900 yen
in 1998) and cashmere sweaters (launched in 2003), and offering these products at significantly lower prices.
UNIQLO sold 2 million fleece pullovers and jackets in 1998, 8.5 million in 1999, and 20 million in 2000.
UNIQLO’s 100% cashmere sweaters were priced between 4,900 yen to 7,900 yen in 2003, which was 20 to
30% lower than low-priced competition, while cashmere sweaters sold at department stores costs 30,000 yen
to 40,000 yen. It also popularized new, high-performance materials, such as the heat-retailing fabric,
HEATECH, in the fall and winter of 2007, by working with Toray, Japan’s leading fabric manufacturer.
HEATECH had only a limited introduction in 2003, yet after continuous improvement, it sold 20 million units
in 2007 and 28 million in 2008. One HEATECH item sells for 1,000 yen to 1,500 yen.
UNIQLO is a division of Fast Retailing, which manages other apparel brands, such as Theory and
COMPTOIR DES COTONNIERS. UNIQLO has 810 outlets with annual sales of $4.9 billion (as of August2009), far bigger than $3.9 billion, which was recorded by Shimamura, the second largest [apparel retailer] inJapan (March 2009), but the company needs to expand its business further to beat global competition (Gapsold $15.7 billion, Inditex (Zara) $14 billion, and H&M $12.3 billion. UNIQLO had 6.0% market share in theworld in 2008 and 6.5% in 2009).

Unique Value Proposition
UNIQLO does not define its target customers in terms of gender, age, or ethnicity. It targets all people.
Apparel makers often focus on specific designs to satisfy their target customers, but UNIQLO serves a wide
range of customers by offering high-quality, casual basics.
UNIQLO’s product offering is broad, which covers men’s, women’s, and children’s items. Products inthe casual category range from T-shirts, sweaters, and pants, to jackets, and even include underpants,© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

22undershirts, and shoes. The products are basic in design, and come in many colors.
The products are priced lower than those sold at department stores, but higher than similar items soldat general merchandising stores. 2 However, when the quality of materials is considered, UNIQLO is a betterbargain than those sold at general merchandising stores. Quality, style and fashion are usually sacrificed tokeep the price low, but UNIQLO sacrifices none of these to produce attractive, inexpensive products.
F

F

UNIQLO’s value propositions are: 1) apparel items treated as components (to be worn with other items
on offer, all featuring a basic design); 2) high quality with a significantly lower price; and 3) apparel proposing
new performance features, such as
With a high heat-retaining function, HEATTECH clothes can keep the wearers warm enough to nothave to put on extra clothes in winter.
UNIQLO’s value proposition of targeting a wide range of customers with low-priced, high-quality
products resulted in the hit product HEATECH, with record-breaking sales of 28 million units in 2008. Thisroughly translates as one out of four Japanese buying a HEATECH product.

Unique Value Chain
As stated above, UNIQLO makes high-quality, low-priced, easy to-combine casual basics and offers
added value to customers. To do this, the company has introduced the vertical integration system in which all
operations, including planning, material development, manufacturing, marketing and sales are integrated (tobecome a manufacturing retailer) thanks to cooperation with excellent Japanese textile suppliers, foreign
manufacturing facilities and other partners.
Technology development
UNIQLO makes use of not only popular fashion trends but also potential customer needs, to make it arule to provide valuable, inexpensive, quality products while developing fresh designs, new colors andfunctional materials.
Compared with other apparel enterprises, UNIQLO takes time to develop products. R&D at UNIQLO
centers on: 1) raw material development, and 2) product development. Regarding raw material development,
UNIQLO works closely with fabric manufacturers to develop high-performance materials that are heatretaining, help to retain the skin’s moisture, quick-drying, and antimicrobial, with elasticity and superior
thinness. It commits to a large purchase volume, which is sold at the 810 stores. It continues to improve the
new materials for several years, and when it considers these products ready for launch, the products areprominently featured in promotional campaigns. HEATECH, for example, was introduced in 2003, but was
not sold in large volumes until 2005. The product required continuous improvements. This was also the casewith brightly colored skinny jeans. Skinny jeans were first introduced in 2005. Meanwhile, UNIQLO worked
to develop better stretch fabric and colors to ensure a significant volume of sales.
The product planners carefully study the previous year’s sales performance, information from the storesand trend data gathered from around the worldF F. And, not only the product development staff responsible
for R&D and merchandising, but also those in charge of management, shop operation, marketing andproduction participate in planning sessions from the beginning. Thus, the company creates products with novel
designs and colors in order to attract even more customers.
Manufacturing
UNIQLO does not have its own factories. Worldwide sales now exceed 500 billion yen, but the makerties with only 70 long-term-partner companies that comply with UNIQLO’s quantity, delivery and cost
standards to produce products at their factories. With most of them in China, UNIQLO sends 170 of its own
2

First Retailing (FR) has a brand called g.u. which offers products in that price range.

© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

23

people to monitor and provide guidance to these factories with regard to manufacturing quality, safety, truenessto the design, and manufacturing volume. UNIQLO personnel spend three to four days a week at the partner
factories. In addition, it formed teams of craftsmen, (called “Takumis” in Japanese), who are the retirees fromleading Japanese sewing companies with over thirty years’ experience, to transfer know-how to the partner
factories. The Takumis are involved in every process conducted at the partner factories, from thread inspection
to shipment of finished products. Manufacturing quality is important for UNIQLO because its average
production lot is about a million.
In-bound logistics
Products are sent to UNIQLO’s warehouses in Japan from the partner factories overseas. UNIQLO
uses a third-party transportation service provider to ship merchandise from the warehouses to the stores.
Shop development
At first, UNIQLO opened stores along the highways to attract suburban family customers, but thenstarted to build outlets with various floor sizes – from 50 tsubo (165 square meters) to 1,000 tsubo (3,300
square meters) －in urban areas, to explore new customers there. F F Sixty percent of UNIQLO stores inJapan are road-side shops, and the overall ratio of rent to sales is low. By increasing the size of small branches
to standard or larger sizes, and the standard size branches to larger sizes, the company expanded overall floor
space. In 2008, it closed 45 stores, while opening another 55 new stores.
Store operation
Due to its “help-yourself” business model, UNIQLO can get by with fewer sales people at its stores,
and a high degree of standardization of work tasks in all stores.
Help-yourself stores are needed to arrange their sales floors in a way that customers find their necessary
items easily by themselves. The product shelves are organized to provide enough information such as added
values, functionality and fashion. Also, it limits the variety of products on display per square meter to make iteasier for customers to find products. Products being featured in sales campaigns occupy even larger areas, sothat customers can find them easily.
Marketing and sales
The marketing staff join product planning and apply the best way to promote products through various
means, including TV, the Internet and newspapers. It also uses flyers on weekends to introduce seasonal
products and to invite customers to discount campaigns run for a limited period only.
Also, television commercials are very effective for introducing UNIQLO’s strategic new products, suchas fleece in 1998, cashmere in 2003, HEATECH in 2007, and BRATOP in 2009.
The company also invests its money on not only promoting products but also generating values andcommunicating its pioneering features to the public. Also, its television commercials seek a clear
differentiation, expressing the company’s philosophy that it should be the people wearing the clothes that havecharacter, not the clothes themselves. The company works closely with creators around the world to develop“Uniclock” and other novel techniques and attract customers through the Internet, which helps boost theinnovative corporate image.
Human resources management
Noting the importance of experienced store managers, UNIQLO has created positions for them, suchas supervisor, block leader, Super-Store-Manager, Super-Star-Store-Manager, and franchise owner. Chosenfrom store managers, superstar store managers are asked to handle a large amount of stock and budget, andtheir pay varies depending on their performance. By conducting this personnel policy, the company makes surethat each shop should be the solo profit center with its manager as a hard-working merchant, not an ordinary
company employee who is supposed to do his job ordinarily. Young talented employees are always promoted
rapidly.
General management© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University24Placing the stores and their managers in the heart of its organization, the company makes decisions
based on information from them. And the headquarters becomes the store support center that provides thebranches with maximum service and sales assistance.
The company conducts competitive, streamlined operations by cutting unnecessary costs and spending
on wasteful investment projects.
The company uses the world’s most effective management measure called “global one” as its standard
to manage worldwide operations. The measure includes various actions, such as global merchandizing (unite
the product line-ups in the world without difference in countries) and global marketing (promote products in
an internationally organized way as demonstrated by the HEATTECH promotion).
The employees are asked to understand the entire operations in the company as if they are managers
and work hard to help the company grow and flourish (specific examples).

Fit among Activities
UNIQLO focuses on the limited number of designs to produce casual basics which are easily
coordinated with other items as “clothing components.” This allows the company to produce fewer, targeted
items in large quantity, improve quality and reduce costs. Because of this, the products are little affected byfashion trends while customers of all ages like to wear basic designs, so the company that serves no specificcustomers can even do fairly well. While satisfying a wide range of customers, UNIQLO strengthens its ability
to develop and procure materials and produce products. So far, the company has implemented many successful
joint developments with textile suppliers and quality improvement projects which usually take a few years tocomplete (Refer to UNIQLO’s activity system map).

Innovation that Enabled Strategy•

Became the very first apparel company to develop partnerships with factories in China, thereby enablinglarge-volume production of affordable, high-quality items. Thanks to the training provided by UNIQLO’s
experienced Takumi fabric and sewing professionals, workers at local factories were able to improve their
manufacturing technologies. They were asked to produce the same products in large volumes constantly,
so their quality went up.

•

Created exclusive alliances with fabric manufacturers to develop high-performance materials. No otherJapanese apparel retailers are large enough to do this•Established a vertical integration system thanks to cooperation from the partners. The processes ofdevelopment, planning, production and sales were all combined.

•

Product innovations, such as HEATECH and BRA TOP.

•The company, which makes HEATTECH items based on Japanese technologies and the UT (T-shirt) series
inspired by Japanese pop culture, is now called a unique Japanese corporation in the world and draws
attention worldwide.

Consistency of Strategy over TimeIn 1984, UNIQLO entered the basic/casual clothing business by offering unisex clothes of high quality
at low prices to customers of all ages. The company, however, needed to improve the products and satisfy
customer needs, and, in 1987, it installed a system in which all the business processes from planning to sales
were completely combined. Then, the firm began to expand its operation from road-side branches with a floorarea of about 150 tsubo (500 m2) to open new outlets in various sizes from 10 to 1,000 tsubo (30-3,300 m2)© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

25

in city buildings, shopping malls in the suburbs and foreign countries. Throughout these changes, the corporate
strategies have, however, remained unchanged: 1. Sell high-quality, low-priced basic/casual clothes in large
volume, and 2. Focus on the shops, control product planning, production, sales and marketing in a total way,
and build a structure to explore potential customers and satisfy their needs.

Trade-offs•

Does not own factories (To succeed in selling each of the products in large volume, the company needs
to have facilities with huge production capacity. In light of investment and management, the company
cannot produce a broad range of clothes, such as bottom, outer, inner and cut&sew, on its own. So, it asks
big factories to meet that demand.).

•

Does not sacrifice quality, performance, or design for a low price. (It continuously offers high-quality,
value-added products at the lowest prices in the market. By developing products people really want, thecompany helps create huge market demands not ever seen before, and cuts costs through mass production,
which helps lower the prices continuously.)•

Offers popular products to a wide range of customers (unlike other apparel makers). Mass marketing does
not work in a targeted business (The company aims to produce clothes that people want to wear anywhereat any time).

•

Does not undertake small-lot production of a wide variety of products.

•

Does not operate stores in a franchise or license business format. (Franchises are limited only to proven
Super-Star-Store-Managers, and this opportunity is very limited.)

Profitability
Both return on invested capital and return on sales exceed industry average.
Return on invested capital (ROIC)(Unit=percentage point)
Difference fromDifference from industry average, by year
industry average over
2004
2005
2006
2007
2008
5 year period
25.8%P
16.4%P
32.7%P
57.2%P
85.7%P
39.1%PInter quartile range (IQR)=17.2%P
Return on invested capital= operating profit divided by (shareholder capital + long term debt + shortterm debt – cash)
Return on sales (ROS)(Unit=percentage point)
Difference fromDifference from industry average, by year
industry average over
2004
2005
2006
2007
2008
5 year period
12.9%P
8.1%P
10.8%P
10.6%P
15.8%P
11.6 %P
IQR=4.4%
Return on sales= profit on sales divided by sales© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University

26

Activity System Map of UNIQLO, Fast Retailing Co., Ltd.

Improve products
every year
constantly (material
quality, function andfashionable
designs)

Select factories
and control
them through avirtual company
systemFocus on potential
customers anddevelop products
based on theirneeds

Specialize infashionable,
basic/casualclothesMake
decisionsbased oninformationfrom thestore“Global One,”and strong
employeemotivation

Mass-produce
targeted items,
improve their
quality, and keep
their prices low

Spread valueadded information
through a
sophisticatedmarketing system

Expandcoordinated PR
activities byusing TV,
newspapers
and the Internet

Develop new
fabrics incooperation withthe suppliers

Use sophisticatedadvertising methods inthe shop (pop art,
visual merchandizing(VMD))

Work with theworld’s
professionals andintroduce
advanced
technologies

Use creative
information
tools to boost
the brand
image© Copyright 2009, Graduate School of International Corporate Strategy, Hitotsubashi University27