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Muji seems to have outgrown Japan

Retailer tailoring playbook as it expands, even becoming diner, hotel

TOKYO -- Ryohin Keikaku, the operator of the Muji chain, is quickly shifting from a Japanese retail chain to a multinational brand that caters to design-conscious crowds around the world. In July, overseas Muji stores exceeded the number of those in Japan.

With its expansion, Muji has begun to tailor its offerings -- from cleaning and washing products to kitchenware -- to better suit local needs. Nowhere is this more relevant than in China.

Muji's playbook in China includes banking on Japan's reputation for safety and cleanliness. As such, it opened its first full service restaurant, Muji Diner, in its Shanghai flagship store. The restaurant serves organic vegetables and uses other health-conscious ingredients. It also helps keep customers in the store a little bit longer.

The diner came in June. Later this year, Muji will open its first hotel, also in China.

The Nikkei recently interviewed President Satoru Matsuzaki about the company's overseas strategies.

Ryohin Keikaku President Satoru Matsuzaki

Q: Muji seems to be growing quite strongly overseas, especially in China.

A: The number of our overseas openings is now significantly outpacing that of our Japan openings. We plan to increase the total number of outlets, including restaurants, to 1,200 from the 870 we have now by 2020. Overseas, we have already opened stores in Asia, Europe and the United States, as well as Middle Eastern countries such as the United Arab Emirates and Bahrain, and the stores are in about 30 countries and territories. We hope to also be in Vietnam by fiscal 2018.

After we set up global flagship stores in Chengdu and Shanghai, Muji's name recognition increased. We began opening outlets at a faster pace around 2008, which brought the total number of those in China above 200. In the next four years, we will open stores at a pace of about 30 stores a year and renovate about 20 of our older stores annually.

Q: What are the renovation plans for China outlets?

A: The standard shopping floor area is 700 sq. meters. We want to expand this at stores that we think can boost sales. Due to regulatory restrictions, the number of items sold at each store is about 4,000, which is just about half the figure for Japanese outlets. But we think we can significantly boost sales of furniture and cosmetics. Japanese cosmetics are popular for their high quality.

Q: The number of total overseas outlets increased in the year through February, but overseas operating income decreased 8% to 15.7 billion yen ($142 million). What happened?

A: You get a negative figure when you convert into yen, which is stronger, but sales in China are good. We make many of our products at overseas plants, so when the yen goes up, the products become cheaper, which helps boost profitability for the domestic operations. So if you look at our consolidated accounts, the negative impact of a stronger yen is canceled.

For us not to be affected by foreign exchange fluctuations, this fiscal year we introduced a system to enter longer-term currency forward contracts. We now have locked-in exchange rates for the next three years. This means that even if actual rates differ from target rates, the impact on earnings will be mitigated. When we go to a new country, it is difficult to turn a profit in the initial fiscal year because we must spend to build computer systems and logistics centers. But once we get things rolling, as in China, we can achieve large margins.

Q: As the chain expands, how important is it for Muji to cater its products to different markets?

A: Until now, we had stocked more or less the same selection of merchandise anywhere in the world. But going forward, we know we need to select items suited to the specific needs of each region's lifestyle. For example, the water bottles designed for the Japanese market tend to be too small for the Chinese market. The same goes for rice cookers. Even if product development is done in Japan, we need to reflect the views of our Chinese employees. We are building a structure where that kind of input is reflected into product creation.

Q: You are getting into the hotel business in China, which will also allow you to showcase Mujirushi Ryohin bedding and other home products.

A: For us to be able to propose a better lifestyle requires that we be in the hotel- and travel-related business. We will not operate the hotels ourselves, however. We'll team with companies that understand Muji's values. Room rates vary between locations. Hotels will be opened in Beijing and Shenzhen. In spring 2019, the first Japanese hotel will open in Tokyo's Ginza district.

Interviewed by Nikkei staff writer Kosuke Tsunoda

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