Japan’s Nitori takes on Ikea in Asia with new Thailand, Vietnam stores

TOKYO — At Bangkok’s Central World mall on one September weekend, about 70 shoppers queued up in front of Japanese furniture retailer Nitori’s new store — its first in Thailand. At one point it was a 40-minute wait just to enter.

The store opened in late August as part of Nitori’s Asia-focused overseas expansion, which billionaire Chairman Akio Nitori sees as a chance to maintain a streak of sales growth that has lasted more than three decades.

“Whoever controls Asia controls the world,” Nitori said. “We’re sending top talent for our store expansion.”

Nitori plans to open 77 stores this fiscal year, more than double its year-earlier tally. It has already added locations in China and Taiwan, and plans to enter six other markets for the first time, including Vietnam and Indonesia. Next fiscal year, it aims to launch more locations abroad than in Japan.

“Our rival is Ikea,” Nitori said, adding that the next five years will be decisive.

Ikea — the world’s largest furniture seller — may seem far too big for the Japanese retailer to match. The Swedish chain’s locations in Japan boast an average of 23,000 sq. meters of retail space, compared with 3,000 sq. meters for standard Nitori stores. Ikea targets 1 million to 1.5 million area people store, 10 times more than for Nitori.

Nitori has more than twice as many stores in Asia outside Japan, but Ikea’s are distributed across more markets — 10 versus Nitori’s six — and the company enjoys greater global name recognition.

“We can’t match big-box Ikea toe-to-toe,” said Masanori Takeda, Nitori’s general manager of global merchandizing. “We’re meeting consumer needs by filling in Ikea’s gaps.”

Despite their size difference, the two companies are increasingly in direct competition. Both have stores in the same shopping centers in markets such as Hong Kong and Malaysia, and Ikea is opening smaller locations in major global cities like Tokyo.

Nitori brings in 1.05 billion yen ($7 million) in sales per location, more than twice as much as Muji operator Ryohin Keikaku, and has a roughly 70% bigger net profit margin. But while Nitori’s net profit margin is about 3.5 times that of Ikea parent Ingka Holding, Ingka’s per-store sales are far higher at around 80 million euros ($85 million).

The core of Nitori’s expansion push is China, where it now has about 80 locations. The company aims to more than double its overseas network to 300 or so stores by 2025, and lift its sales outside Japan — which totaled around 30 billion yen last fiscal year — from 3.8% of its total now to 10% soon.

“It’s safe to say that Nitori has no competition among local companies,” said Sho Kawano of Goldman Sachs in Japan. “Its prices are affordable, and its products are designed to be easier to assemble than Ikea’s. It’s an easy fit for Asian consumers.”

Nitori is looking abroad as sluggish sales and currency effects hit its business in Japan, where an aggressive expansion campaign has left it with around 800 stores.

The company raised some of its prices last fall amid a drop-off in pandemic-era demand alongside high logistics costs and the weak yen. Same-store customer traffic proceeded to fall year over year for 11 straight months from November 2022. Though Nitori cut prices in April on around 500 mainstay items, including sofas and desks, there remains no recovery in sight.

Nitori’s business model of manufacturing around 90% of its products abroad — mainly in Asia — and importing them to sell has been one of its strengths in Japan. But with each 1-yen depreciation against the dollar costing 2 billion yen in annual profits, exchange rate movements dragged down pretax profit by 38.1 billion yen in fiscal 2022.

As well as insulating Nitori from currency swings, pivoting to Asian markets could also help the company tap into the emerging markets’ growing furniture demand. The shorter distance from factories to stores means lower transportation costs compared with shipping to Japan.

While the company is now focusing mostly on locations in malls overseas, “we’ll also open large-format stores similar to those in Japan,” Takeda said.

Meanwhile, Nitori is pulling out of the U.S. market this year as tariffs targeting imports from China eat into profits. “We’ll redeploy our U.S. talent in Asia,” Nitori President Toshiyuki Shirai said.

Source: Nikkei Asia


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