Establishing the “Yamada model” and taking on the maker keiretsu (1984)

The strength of selling cheap becomes the next burden

The point of this shift was that the mass retailer’s selling power overturned the order of procurement and pricing that the manufacturers had controlled. Using as a foothold the geographic advantage of North Kanto, where the keiretsu network was thin, Yamada built a format that sold cheap and in volume on its own logistics and information, and rode the deregulation of the Large-Scale Retail Store Law to spread nationwide. Breaking with low prices the pricing that affiliated shops had protected, and reversing the balance of power with the makers on reaching $9.1B (¥1tn) in 2005 — that whole sequence is distilled in Yamada’s own phrases, ‘the advantage of the land’ and ‘a way through in discounting.’

Yet the strength of selling cheap and in volume becomes a burden once the conditions change. The efficiency honed with suburban big-box stores and in-house logistics does not translate easily to the cities, where land prices and customers are different. Yamada himself would later admit that ‘the Yamada model, so effective in the suburbs, … turns inefficient in the cities.’ The very thoroughness of the discounting that had overturned the keiretsu forced a rethink of the format itself in the next era of falling population and advancing urbanisation. In generating strength and weakness from the same root, this decision shows one archetype of the appliance-retail business.