Japan's department stores
Although small merchants may fear large department stores, the department stores may not be as big a threat as they might seem. This is because department stores are more like a collection of smaller shops operating under the aegis of the department store.
Most of the goods in a typical Japanese department store are not owned by the store. They are products that the department store sells on consignment from wholesalers or manufacturers.
In fact department stores often don't even bother selling the products on their shelves. Although the Japan Fair Trade Commission frowns on this, manufacturers often place their own employees on the department store floor to answer questions and sell products. This not only gives manufacturers a chance to push their products, it also helps them to gather useful information.
Through this arrangement department stores avoid the risk of buying inventory and hiring employees. But there is a price for this. They avoid risk but give up the chance for large profit margins.
In contrast to the cautious department stores, a growing breed of risk-taking retailers is appearing in Japan.
By using a sophisticated system of point-of-sale scanners, inventory control software, and precise delivery schedules, 7-11 Japan generates profits much greater than its rivals. Even though over 40 percent of its products are perishable, 7-11's have reduced the average number of daily deliveries from 34 to 12 over the last decade.
Although 7-11's are small convenience stores, they are different from other small shops because they are not willing to pay to have the privilege of returning unsold goods. Their inventory control systems accurately predict demand so they do not need the luxury of returns. The 7-11's prove that small stores do not need the returned-goods system.