Nitori
Corporate History & Strategy

In December 1967, Nitori Akio (graduated from Hokkai Gakuen University in 1966) founded 'Nitori Furniture Store' as a sole proprietorship at Kita 26-jo Nishi 5-chome, Sapporo. The founding store, commonly known as the 'Nishi Store,' had a floor area of 99 square meters, marking its start as a small-scale furniture retail shop. Nitori chose the furniture business through a process of elimination, as there were few competing stores at the planned location. The lack of credit from suppliers in the early days, which made procurement difficult, later became the starting point for the management policy of pursuing 'bulk purchasing and mass sales.'

In 1969, the second year of operation, the Nishi Store was expanded to 198 sq.m to broaden the product assortment. However, the expansion from 99 to 198 sq.m did not dramatically improve procurement negotiating power, and Nitori came to recognize the need to open larger stores and increase order volumes to manufacturers in order to improve procurement terms.

In 1971, Nitori opened its first large-format store, the 'Hokuei Store.' The store floor area was 990 square meters, approximately ten times the size of the founding store. At the time, the concept of establishing large suburban furniture stores was uncommon in the furniture industry, and the move was met with skepticism from peers. Nitori himself has recounted that 'those around me looked on with astonishment.'

However, shortly after the opening of the Hokuei Store, a competitor decided to open a large store nearby, prompting the lending bank to freeze Nitori's financing. Cash flow deteriorated rapidly, driving Nitori to the point of considering 'absconding.' This experience became one of the catalysts for Nitori's recognition that there were limits to strengthening procurement capabilities alone, leading the company to later venture into manufacturing involvement and the construction of a global procurement system.

In March 1972, Nitori reorganized from a sole proprietorship to a corporation (Nitori Furniture Wholesale Center Co., Ltd., with paid-in capital of 6 million yen), actively pursued fundraising from financial institutions, and launched full-scale business operations. In the same year of incorporation, founder Nitori Akio visited the United States on a retail industry study tour and was shocked by the living environment and furniture prices there. American furniture was one-third the price of Japanese furniture, yet was coordinated in color and design. From this experience, Nitori set the long-term goal of 'catching up with America in 60 years' and defined the business mission as delivering affordable, high-quality furniture to Japanese consumers.

Following the US experience, Nitori undertook a fundamental overhaul of its procurement system. To secure affordable furniture, the company established the procurement division as a separate entity and built routes for purchasing furniture from bankrupt manufacturers at below-cost prices. Furthermore, by 1977, Nitori had arranged for the founder to participate as an outside director at three leading furniture manufacturers, establishing a system for commissioning the production of Nitori's original furniture. This structure of a retail business dictating product specifications to manufacturers was the embryonic form of the later SPA (Specialty store retailer of Private label Apparel) model.

As stores rapidly expanded, Nitori was compelled to develop managers at an accelerated pace. As of 1981, the company had 142 employees (108 regular and 34 temporary), with an average age of 26, making it a young organization. At the time of hiring, candidates were told they could 'become a store manager in 2 to 3 years,' and in fact, by 1978 there were store managers aged 23 and department heads with only five years of tenure.

To maintain discipline in a youth-oriented organization, Nitori implemented strict personnel rules. According to contemporary accounts, the policy was 'dismissal for three late arrivals, one unauthorized absence, or two traffic accidents' and 'immediate dismissal if gambling is discovered.' It can be inferred that rigorous discipline was essential to develop young people in their twenties into store operations managers within a short period. This personnel policy became the organizational foundation for Nitori's expansion, opening several stores per year within Hokkaido.

In January 1978, Nitori announced its 'chain store concept' and accelerated concentrated store openings within Sapporo. By 1981, a total of nine stores had been opened along roadside locations (National Routes 230, 5, 36, and 12) in areas such as Teine, Shiroishi, and Atsubetsu, all as large-format stores with floor areas of 1,500 to 3,000 sq.m. During this period, no stores were opened outside Sapporo, thoroughly implementing a dominant strategy that prioritized securing market share within the region.

To improve delivery efficiency, the Sapporo Logistics Center (Hassamu, Nishi-ku, Sapporo) was established in August 1980. The system covered nine stores within Sapporo from a single logistics center, and this model of first establishing logistics infrastructure before deploying stores was subsequently replicated in the nationwide expansion as the 'logistics center first, then dominant store openings' approach.

The increased sales volume from the nine-store chain operation strengthened Nitori's bargaining power with manufacturers. As of 1981, Nitori was requiring manufacturers to establish product specifications, securing a position of dictating product planning to manufacturers despite being a retail business. Major suppliers included France Bed and Otsuka Kagu, as well as Sanyu Kogei, Daiei Furniture, and Maruai Furniture, among others. Excluding France Bed and Otsuka Kagu, the suppliers were primarily small-scale furniture manufacturers, and Nitori was likely able to establish a favorable negotiating position over its suppliers.

In terms of human resources, the company hired approximately 10 new graduates annually and operated a meritocratic personnel system that promoted employees to store manager positions within 2 to 3 years. As of February 1978, the company had 108 employees (excluding temporary staff), with a youth-oriented organization handling the chain operations on the ground. The decade of Sapporo dominance functioned as a period for building an integrated system of logistics, procurement, and talent development, forming the preconditions for expansion into Honshu.

As the yen strengthened against the dollar following the 1985 Plaza Accord, Nitori anticipated rising costs of domestic production and accelerated the establishment of a furniture production system in Southeast Asia. In 1986, Nitori entered into a business alliance with furniture manufacturer 'Marumitsu Woodworking Co., Ltd.' (headquartered in Asahikawa, Hokkaido), achieving entry into the manufacturing domain through investment in a supplier. The decision to venture into securing production facilities, despite being a retail business, was the culmination of the pursuit of 'strengthening procurement capabilities' that had continued since the founding period.

Since Marumitsu's operations were centered on domestic production in Asahikawa, the company adopted a phased approach rather than immediately transitioning to overseas finished goods production. From 1986, a system was built for importing furniture parts from Taiwan, the United States, Malaysia, and South Korea for domestic assembly, and by 1987, joint development of components with local companies in Taiwan and South Korea had begun. In 1992, local production of furniture parts commenced in China and Thailand.

The biggest challenge in importing parts from Southeast Asia was quality. In the hot and humid climate of Southeast Asia, wood moisture content reached twice that of Japan (approximately 20%), and shipping materials without sufficient drying frequently led to damage of components after arrival in Japan. Nitori addressed this by instructing local manufacturers to thoroughly use drying chambers before shipment, among other quality control measures.

In February 1989, a local subsidiary was established in Singapore, which began operations as a management base for inspection and quality control of Southeast Asian suppliers. This quality control system became the foundation for overseas production that would lead to the establishment of the Indonesian factory in 1994 and the commencement of operations at the Vietnamese factory in 2004. The phased transition of 'parts imports → accumulation of quality control know-how → local production of finished goods' was the process through which Nitori's global procurement system was formed, and in 2000, Marumitsu was made a wholly-owned subsidiary, bringing manufacturing in-house.

In October 1994, Nitori established a local production subsidiary 'P.T. MARUMITSU INDONESIA' in Indonesia. Nitori's initial equity stake was 9.0%, with the arrangement being that Marumitsu (headquartered in Asahikawa, Hokkaido), a supplier and investee furniture manufacturer, would lead local production in Indonesia. The factory began operations in 1995, commencing local manufacturing of 'finished goods' in addition to the conventional 'parts' imports from Southeast Asia.

The establishment of the Indonesian factory represented the second phase of overseas production for Nitori. The aim was to apply the quality control know-how accumulated through parts imports since 1986 and the establishment of the Singapore inspection base in 1989 to the production of finished goods. Nitori Akio stated, 'The strong yen is structural, and Japan's labor costs and raw material costs have become decisively higher compared to Southeast Asia,' positioning overseas production for cost reduction as fundamental to management.

However, operations at the Indonesian factory proved extremely difficult. Unauthorized absenteeism reached 10%, and frequent strikes prevented production from proceeding as planned. The indirect management through Marumitsu (Nitori's initial equity stake of 9%) is considered to have contributed to insufficient control over local employees.

Nitori raised its equity stake in the local subsidiary to 100%, making it a wholly-owned subsidiary in order to restructure the Indonesian factory. This experience left the lesson that indirect management of overseas finished goods production cannot maintain either quality or productivity. When establishing the Vietnamese factory in 2004, a direct management structure was built from the outset as a wholly-owned subsidiary, with the failure in Indonesia directly influencing the design philosophy for the next production facility.

In September 2004, Nitori commenced local production in Vietnam through its wholly-owned subsidiary 'Marumitsu' (renamed to Nitori Furniture in 2011). Learning from the struggles with labor management at the Indonesian factory, where indirect management (initial equity stake of 9%) was employed, Vietnam was structured from the outset as a wholly-owned subsidiary with direct management. In 1999, a local subsidiary had also been established in Thailand, advancing the diversification of production facilities in Southeast Asia.

The Vietnamese factory rapidly expanded through mass hiring, growing into Nitori's primary production facility with approximately 9,000 employees as of the end of fiscal year 2020. Accompanying this expansion, operations at the Indonesian factory were suspended in 2017, transitioning to a system that consolidated Southeast Asian furniture production in Vietnam. As Nitori Akio stated, 'manufacturing accounts for 50%, logistics for 20%, and retail for 30%,' the essence of Nitori's business is not retail but manufacturing and logistics, and the Vietnamese factory was the core facility of its manufacturing division.

With the full-scale commencement of Vietnamese production from 2005 onward, Nitori expanded its assortment of affordable products manufactured in Southeast Asia. Production leveraging Vietnam's low labor costs in a strong-yen, weak-dollar environment structurally strengthened Nitori's price competitiveness. This low-cost production system became the resource for the 'price reduction declaration' launched in December 2008, and served as the driving force behind the company's ability to implement price reductions even during the 2009 financial crisis.

Behind the ability to execute price reductions during a period of consumer spending contraction was the system of procuring directly from company-owned overseas factories. Since finished goods could be procured without going through trading companies or wholesalers, the company had significant latitude to control fluctuations in procurement costs, and Nitori secured the pricing flexibility that supported 36 consecutive periods of revenue and profit growth.

In December 2020, Nitori announced a TOB for Shimachū (61 domestic stores), a home improvement center operator. Shimachū had originally been negotiating a management integration with DCM, but the integration negotiations were abandoned when Shimachū accepted Nitori's acquisition terms. In January 2021, Nitori completed the acquisition of Shimachū, with an acquisition cost of 165 billion yen and goodwill of 31.6 billion yen recorded.

Nitori's aim was to enter the home improvement center business by leveraging Shimachū's store network. The plan called for rebranding Shimachū stores to 'Nitori Homes,' introducing Nitori's furniture and household goods while maintaining the home improvement center product assortment. The anticipated synergies combined Nitori's product development capabilities cultivated through the SPA model with Shimachū's locations and customer base.

However, the post-acquisition integration struggled. The rebranding to Nitori Homes and the introduction of Nitori products did not lead to improved customer traffic, and the Shimachū business in FY2023 posted revenue of 110.5 billion yen with segment profit of only 2.1 billion yen. In October 2023, the board of directors deliberated on 'matters related to management issues in the Shimachū business,' indicating that restructuring had become a visible management challenge.

In the fiscal year ending March 2024, Nitori decided to record an impairment loss of 9.4 billion yen on stores in the Shimachū business. An impairment of 9.4 billion yen against goodwill of 31.6 billion yen indicates that the revenue projections at the time of acquisition diverged from reality. Nitori's SPA model derives its strength from an integrated system of planning, manufacturing, and selling proprietary products through its own stores, but transplanting this to a different retail format—home improvement centers—failed to produce the expected results due to differences in assortment structure and customer purchasing behavior.

Nitori's SPA model was built on the structure of producing furniture and household goods at company-owned factories in Southeast Asia, importing them to Japan in a strong-yen environment, and selling them at low prices. From around 2023, the yen weakened sharply against the dollar, significantly deviating from the company plan's assumed exchange rate of 130 yen per dollar. The rise in procurement costs fundamentally undermined the assumptions underlying product development and pricing, making it increasingly difficult to maintain gross margins.

As of the end of FY2023, Nitori operated 822 domestic stores and 179 overseas stores, but its revenue composition was heavily skewed toward the Japanese domestic market. The model of producing overseas and selling domestically serves as a source of cost competitiveness in a strong-yen environment, but in a weak-yen environment, rising procurement costs directly compress earnings. The global procurement system that Nitori had built over many years had transformed into a structure that amplified the headwinds of exchange rates.

Nitori changed its fiscal year-end from February to March in fiscal year 2023. In the subsequent fiscal year ending March 2024, comparing against the previous year's 12-month period, the result was a decline in both revenue and profit. This brought to an end the record of 36 consecutive periods of revenue and profit growth that had continued unbroken since 1988. While the technical factor of the fiscal year-end change was involved, the fundamental earnings pressure from increased costs due to yen depreciation was the underlying cause.

The record of 36 consecutive periods of revenue and profit growth was itself the trajectory of Nitori's growth, driven by the twin engines of the SPA model and mass store openings. Its interruption suggests not merely a single-year deterioration in performance, but that the business model as a whole, designed on the premise of a strong yen, is being forced to adapt to environmental changes. With two challenges—saturation of the domestic market and structural changes in exchange rates—Nitori now faces the question of what its next move will be.