From central control to store-level response (1998)

Folding a strength before it inverted

The heart of this decision was that it located the cause of the slump not in the “outer box” of products or location, but in the “inner mechanism” of central head-office control. The head-office-led operating discipline established in 1995 was a rational way to open 50 stores a year with few people. But once store counts swelled into the hundreds, that strength inverted into a weakness that let each store’s demand differences slip through. What Yanai Tadashi learned from withdrawing from new business formats was the causal chain: add boxes, and if the inner mechanism is old, they will not sell.

It is hard to say store-level response got on track across all stores; the results were skewed toward Okinawa and Hokkaido, where temperature swings are large, no effect showed on Honshu, and problems of logistics cost and talent development remained. Even so, the decision to fold the central control that had underpinned success — while the memory of good times was still strong — and to hand authority back to the stores underpinned the surge that came right after, with the Harajuku opening and the fleece megahit. The complete sell-through system of 1995 and the store-level response of 1998 read not as opposing moves but as one continuous process in which the same strength inverts as scale grows.

Can a company recompose a strength itself just before it turns into a weakness? The more successful a mechanism, the later the decision to discard it comes. That Fast Retailing brought itself to this recomposition in 1998 is instructive as one example of the “doubt the premise while things are good” management the company repeats — including its later global expansion and brand redesign.