Ryohin Keikaku Co., Ltd is a Japanese retailer and wholesaler that has been globally expanding its MUJI retail brand, well-known for its minimalist design of conventional items sold in more than 975 retail stores worldwide across over 30 countries, and recorded a global revenue of $5.4 billion in 2020 (Hatch, 2021; Explain, 2020). They operate in Australia as Muji Retail (Australia) Pty Ltd. in Melbourne, Victoria, recorded sales of $35.8 million in 2020, 74% up from the year earlier (Hatch, 2021). Australian Muji Retail has begun to expand its stores since 2015, and now five stores are located across the country (Hatch, 2021).
The estimated annual revenue of Muji Retail Australia is currently $19.7 million, whereas the Australian household retailing industry’s revenue recorded $67,076.1 million in FY2021 (Growjo, 2021; Australian Bureau of Statistics). As trendy home-goods chains, they supply heterogeneous products: electronic appliances, furniture, stationery, clothing, skincare and cosmetics, foods and beverages (Muji, 2021). They have also launched café franchises in Tokyo, Japan, where Muji retail brands are involved in the market structure of oligopoly (Muji, 2021). Muji Retail Australia’s related industries in Australia include IKEA Retail Australia (furniture retailing industry), JB Hi-Fi (electronic appliances industry), and Kmart and Target under the same product categories, except café franchisee (Growjo, 2021).
According to the company’s annual report, there was a decrease in revenue from operations by 17.1% (Ryohin Keikaku, 2021). Such a state of affairs is justified by a number of crucial issues, like the bankruptcy of Muji Retail in the US. There is evidence that in the mentioned market, the corporation aims to restructure its operations and make a shift toward online shopping (Sundar, 2020).
Strategic Issue
As described previously, the company faces considerable revenue decreases due to Covid-19 and related shop closures. Given this, Muji has to find a way to restructure its operation to avert bankruptcy challenges as it happened in the US market. Moreover, the corporation aspires to implement an expansion strategy that seems to be inappropriate under the current circumstances. The fact that competitors such as IKEA, Sportsgirl, or GAZMAN demonstrate quite sustainable and stable strategic approaches only supports the claim that Muji has to reconsider its vision to remain competitive in Australia. Another problem in this vein is that customers in Australia may express different preferences in the color, design, and functionality of products in comparison with the Asian market in which the company is among the most successful actors.
Given the fact that the company is to restructure its operations towards online retailing, an acute issue in this regard is that this approach is costly, especially at the launching stages. A number of related challenges arise – starting from logistics and ending with a new website organization and design. Then, differences in prices between countries are apparently beneficial to an exact extent, but due to this, there is increased competition with local companies that should be taken into account. The next likely issue is the “no-brand” strategy of Muji, which can be pressing because of the shift towards the online dimension. Finally, modern reality forces all the big companies to follow the best sustainable practices to ensure environmentally friendly strategies and a good example to smaller actors.
Critical analysis of the issue (Porter’s 5 Forces)
Porter’s five forces framework implies the analysis of the following aspects (Porter, 2008). The company’s products are produced mostly from cotton, wood, and paper. The global supply of the mentioned materials seems to be stable and does not challenge Muji. One efficient approach that the corporation implemented to reduce the bargaining power of suppliers is overtaking one of its producing companies. The retail market in Australia is considerably competitive, given the presence of giants such as IKEA or successful local players such as Target Australia (Growjo, 2021). This also hinders new entrants from entering, but significant governmental support and stable political and legal dimension alleviate their burden to an exact extent. Finally, the threat of substitutes is low because Muji sells its high-quality products at low prices, and it is hard for consumers to find a similar price-quality ratio.
Critical analysis of issue (VRIO)
The first aspect that should be identified in terms of the VRIO analysis is the value of Muji’s resources and capabilities. It would be reasonable to state that the company offers valuable products to customers in Australia, given significant sales and revenue rates in the country (Hatch, 2019). Then, these products cannot be considered completely rare, given the presence of other retail firms and big actors. However, the price-quality ratio that is inherent to the company – in the context given – provides Muji’s offers with an exact extent of rarity. Unfortunately, despite a good organization of the processes and operations, Muji’s resources and capabilities cannot be viewed as inimitable because the mentioned price-quality ratio and the related strategy can be copied by the rivals. Hence, the VRIO analysis has shown that Muji possesses a temporary competitive advantage.
Within the scope of Porter’s diamond model, Muji’s strategy, structure, and rivalry in Australia can be identified. The company has quite a standard structure – with classical shareholders meetings, a board of directors, a board of auditors, etc. This provides the firm with stability and consistency in terms of decision-making and operations. It is essential to the core “no-brand” strategy that is aimed at global expansion. Such an approach implies harsh rivalry worldwide, and Australia is not an exception. Then, in the country, domestic suppliers are recognized global players, and Australian investment funds and a favorable regulatory framework mean the significant related and supporting industries for Muji. Moreover, there is a considerable size of domestic market, as well as an active and demanding customer base. The latter factors imply great demand conditions for Muji in Australia. Finally, this country possesses greatly educated human resources, developed infrastructure, and advancement in terms of technological development. These aspects mean that Australia offers excellent factor conditions for the company.
Key findings from the analysis
According to the key aspects of Porter’s five forces analysis, the crucial macroeconomic threats for Muji are harsh competitive rivalry and the high bargaining power of buyers. This implies the necessity of a sustainable business strategy and diversified offers for a customer. The VRIO analytical framework allowed assuming that now, the company has a temporary competitive advantage, given the absence of inimitable resources or capabilities. Then, Porter’s diamond model demonstrated that in Australia, there are great conditions for the business of Muji – starting from demand conditions and ending with the related and supporting industries. The conducted analyses give the opportunity to provide Muji with a number of recommendations that will be presented in the following slide.
Recommendations & advice
The conducted investigation showed that the company is under the pressing conditions of the Covid-19 pandemic. The case of bankruptcy in the United States affirms the severity of the mentioned issue. It was argued that the shift towards online retailing is an appropriate restructuring affair for the firm. However, the increase of the online presence may be hindered by the fact that Muji is implementing the “no-brand” strategy (Explains, 2020). In this vein, it is vital to create a proper marketing and advertising campaign that will first produce and then enhance the recognizability of Muji’s brand. Then, there were a number of factors that showed that the Australian market offers great conditions for the company. Hence, this market might be a notable key target for Muji.
The latter statement is founded on the fact that the firm is to undertake the restructuring and conduct a new marketing and advertising campaign. This means considerable expenses, as well as time- and effort-taking processes that Muji’s leadership should implement (Ramírez and Heijden, 2012). Thus, Muji can dedicate its affairs to the development of the inimitability of its resources and capabilities in the Australian market. It will contribute to the appearance of sustained competitive advantage, which is essential for any business.
The final point is related to the cultural and social peculiarities of Australians as clients of Muji. The top management is to take into account the fact that the customer segment in Australia differs from the one in Asia – in particular, in Japan (Logue, 2019). Most Australians belong to high-income families, and they are very active in terms of creating demand for Muji’s offers constantly. However, their requirements for quality are high as well, so it is critical for the company to abandon its global expansion approach and appeal to providing the best quality products (Marquis, 2020). This is a crucial prerequisite to remaining competitive and successful in the country in the long run.
References
Australian Bureau of Statistics (2021) Retail trade, Australia.
Bruin, L. (2016) VRIO: From firm resources to competitive advantage.
Expert Program Management (no date) Porter diamond model.
Explains, K. (2020) Muji: The brand with a no-brand strategy.
Growjo (2021) MUJI retail competitors, revenue, alternatives and pricing.
Hatch, P. (2019) How Japanese cult brand Muji is winning over Australians.
Logue, D. (2019). Theories of social innovation. UK: Edward Elgar.