Big in Japan
CEO Shoichiro Iwata speaks to OPI about Askul, the Japanese mail order giant
There is no bigger name in the Japanese OP catalogue business than Askul. With annual sales of ¥190 billion ($1.7 billion), Tokyo-based Askul has imposed its business model on the market, sidestepping the complicated system of wholesalers and secondary wholesalers that used to dominate and adopting a more direct-to-market approach that ruffled more than a few feathers amongst Japan’s traditional players.
In 2007, Askul CEO Shoichiro Iwata embarked on an ambitious three-year plan to transform the company from a pure OP player into a general products and services procurement destination for Japanese businesses.
OPI visited Iwata at his company’s headquarters during this year’s ISOT show to find out how his plan is progressing.
OPI: Last year you announced a new three-year strategy to transform your business model. What was the rationale?
Shoichiro Iwata: The world is constantly changing and businesses must change, too. What we did a couple of years ago before we came up with a strategy was to make a conscious decision to look at and understand the major trends that are expected to influence our society in the coming years.
We identified four mega-trends:
Firstly, from 2011 we will live in a connected society with the convergence of technologies such as the internet, TV and mobile phones. Therefore we decided to shift from a traditional catalogue-based model to a multimedia model.
Secondly, as in other developed economies, an increasing number of companies in Japan are focusing on their core competencies and there is a trend towards outsourcing of secondary functions. Our aim is to become an outsourcing company for Japanese businesses.
The third trend is the role that customers play in the purchasing process. With the development of Web 2.0, consumers themselves are becoming more influential through peer evaluations and recommendations.
And finally, the fourth trend is the environment. As we can see from the G8 summit in Toyako, the environment is at the top of the agenda for many governments. In our business delivery trucks and packaging, for example, are a cause of pollution and we must make efforts to be more environmentally responsible.
With these four mega-trends we have now changed our business model.
OPI: And Askul decided to move away from being a pure office supplies company?
SI: We want to become an outsourcing company and this means a transition away from catalogue sales to a centralised corporate e-procurement business.
A key part of this is our SOLOEL business procurement platform which offers large companies the possibility to order all of their maintenance, repair and operations (MRO) supplies from a single source. This is a potentially huge market of ¥30 trillion ($273 billion), about 20 times the size of the office supplies market.
The system was officially launched in April 2008 when we started with major Japanese brewing company Asahi – they purchase their direct materials themselves, but all their MRO supplies purchasing comes through SOLOEL.
OPI: Everything is supplied by Askul?
SI: No, there are different suppliers for different product categories but everything is centralised in an online catalogue that contains one million SKUs.
We handle logistics, sales and billing on behalf of customers and also offer procurement consultancy services.
OPI: Are deliveries consolidated?
SI: We are not there yet, but this of course is the objective from both an environmental and efficiency perspective.
OPI: The platform is obviously still in its early stages – what are your ultimate goals?
SI: By May 2009 we plan to be using the service with four major groups that account for over 80 companies in total. The target for May 2011 is to have 1,000 companies signed up. That’s when we expect SOLOEL to become accretive to earnings.
OPI: So you’re asking your shareholders to be patient?
SI: Our vision is a long-term one, yes, and that does require our shareholders to hold a long-term view as well. We informed them last year that we would be making significant capital investments over the next three years in software and logistics. We also told them that because we would be re-investing profits back into the project, Askul’s share price was likely to be affected in the near term.
OPI: Turning to the Japanese OP market, how do you see the current state of affairs?
SI: There has certainly been an economic slowdown in Japan as in many other developed countries and this is putting pressures on jobs. Raw material as well as finished product prices are going up and companies are trying to reduce costs. This, of course, has an impact on our business.
However, because our SOLOEL platform actually helps businesses reduce their costs, I do see this as an opportunity for us in the current economic climate.
OPI: Where do you think growth – if there’s any – will come from?
SI: There is still enough room for us to grow in our traditional catalogue business. For example, we have been introducing speciality catalogues to cater to different types of customers.
Our medical catalogue is now in its third year. As well as office supplies it also contains specific products for the medical and healthcare sector such as uniforms.
We started this catalogue to meet the needs of our hospital clients because distribution in the hospital sector is a little behind other industries, so this helps them in their procurement of supplies and other equipment.
The internet is also an area we are putting a lot of effort into. With our Askul Arena web ordering system for larger companies, we exceeded our target of 10,000 customers by over 300. Now almost ¥30 billion in sales are generated through this system.
We launched our Pochitto internet site for individual customers in December 2007 and in March 2008 we introduced a service known as Oshigoto Support. The latter helps general services and administrative personnel with tasks such as making travel arrangements, booking restaurants, etc.
We are also looking to grow outside our traditional Japanese market for the first time.
OPI: Can you provide more details?
SI: We are at an advanced stage of commencing office supply operations in Shanghai. The market is flat in Japan, there are huge opportunities in China and we already have a trading office based in Shanghai. We have produced a sample catalogue, have recruited local staff and are planning to launch in the near future.
OPI: Going back to the Japanese market… the global office supply companies are either absent from Japan or have had a hard time making a big impression. Why do you think that is?
SI: Foreign companies entering Japan must look at what makes them unique in the market. There are global brands such as Amazon, McDonald’s and Starbucks that have succeeded in Japan because they introduced something that Japanese people had never experienced before.
But when it comes to office suppliers, Japanese consumers cannot see any difference between them and the Japanese players, so this could be a hindrance to their development.
In the retail sector, land and labour costs are very high, so it is often difficult for the global big boxes to adapt their model to the Japanese market.
OPI: You have a strong private label policy – around 12 percent of sales. Is this something you are looking to develop even more in the future?
SI: If we include our own copy papers, the figure is over 20 percent, and we are aiming to increase this to over 30 percent over time.
We want to differentiate ourselves through our private label products and we work with brand manufacturers to create innovative new products.
For example, we have created a pen with Pentel that is made out of recycled PCs – the names Askul and Pentel both feature on the packaging. We have also developed a product with a leading Japanese chemical company which features its brand name and adds value to the product.