Cosmos Berry’s: Yamada Denki’s way into the senior market

Yamada Denki is the dominant consumer electronics retailer with 25% of the market. The company faces pressure from declining sales due to market saturation, and has begun diversifying into new businesses as a result. But it has not given up on expanding market share yet, and already has 8,000 independent stores signed up as franchisees.

Yamada Denki has not yet given up on expanding its domestic market share in consumer electronics. It already has 25% of the market and consumers are increasingly satiated with gadgets, reducing spending as prices increase, and competition from lower cost online retailing isgrowing. Although the market is now full, Yamada thinks it sees at least one way to continue to expand domestic share.

In 2005 it tied with a 40 year old independent CE business in Nagoya and turned it into its own franchise chain leader called Cosmos Berry’s. By 2010, the system had some 2,500 member stores onboard, giving them access to Yamada’s loyalty points scheme and wholesale supply of many products from its own ranges.

By April 2014, Cosmos Berry’s had increased the number of member stores to 7,915, a quarter of all CE stores in operation in Japan, adding to Yamada’s 1,000 stores. It now plans to break 10,000 independent members by February 2016, offering both voluntary chain and franchise options. For the former, stores remain almost entirely independent, and for a fairly small monthly fee, get access to Yamada’s supply network. The newer, more sophisticated franchise system includes store branding, ordering systems, and far more sales support in return for higher royalties. Cosmos Berry’s acts as wholesale intermediary between Yamada and its member stores. In FY2013, it had sales at retail of some ¥30 billion, but this is expected to double over the next few years.

Independent CE stores are still found in many neighbourhoods and are particularly popular with senior consumers who like the personal touch and service. Historically, manufacturers like Panasonic, Hitachi and Toshiba all used these stores as an exclusive sales channel, called “keiretsu” chains. The high cost and uncompetitive nature of the system meant that keiretsu retailing has been declining for the past 20 years, although many surviving independents are still in the system. Those that survive do so by providing the same, community focused service that Yamada is keen to leverage.

Unlike the old ‘keiretsu’ method, Yamada allows member stores to source products themselves outside the system when not available through Yamada’s supply chain. Cosmos Berry’s members look after their own bottom lines – and, anyway, with Yamada’s wholesale prices, members still make better margins even when undercutting tithed stores. Yamada also supplies non-electronics items from its ranges of toiletries, books and even foods, and some stores also act as sales agents for Yamada’s budding house building and refitting business.

The Cosmos Berry’s system allows small stores to be price competitive with the big chains while having less risk on excess stock. Less inventory allows  extra space for computer and even cooking classes, and senior customers are naturally the main target.

For Yamada, the huge new network provides additional sales volume to move stock and command even larger buying volumes, as well as leveraging its loyalty points card, while providing access to small communities in areas where one of its large stores wouldn’t be economic, and where the high service approach of these small stores can still win orders.