Why Nitori can make products so cheaply – “First-class hotel pillows for 1990 yen
Nitori Holdings, the leading manufacturer and retailer of furniture and interior goods, posted a net profit of 21.849 billion yen (down 19.0% from the same period last year) for the most recent third quarter (August 21, 2021 to November 20, 2021), a rebound from a large profit increase in the previous fiscal year, which was boosted by nest egg consumption.
However, this was a decrease in profit caused by “excessive sales in the previous fiscal year. Nevertheless, the company is still generating enough profit to make its underlying strength frightening. In the past, Nitori has achieved the highest profits for 34 consecutive fiscal years, and its stock price has increased 57 times in three and a half decades, according to calculations by the Nikkei newspaper. What is the secret of Nitori’s strength?
The reason why Nitori is so well accepted in Japanese society is, as Nitori’s advertising says, its relentless pursuit of “more than just a price. I have visited Nitori more than 10 times, and what has left the greatest impression on me is the “Nitori Constitution” set forth by Akio Nitori, Chairman of Nitori Holdings.
Nitori Holdings Chairman Akio Nitori’s “Nitori Constitution”: “First, low price; second, low price; third, low price; fourth, quality; fifth, coordination.
This is the Nitori Constitution. Nitori’s persistence is evident in the fact that the first three words are “low price. The easiest way to improve quality is to raise the price. But that would mean that the product would no longer be “affordable to everyone. That is why the first three parts of the constitution are all about affordability. The top priority is “cheapness. On top of that, the company is determined to raise quality to the highest level. Because it is so simple, it can be understood by both employees and customers. To answer this question first, the Nitori Constitution is the secret of Nitori’s strength.
Looking at Nitori’s “Nitori’s Best-Selling Products of 2021,” the “Hotel Style Pillow Standard (N Hotel 2)” ranked first in the pillow category for the year. The price is 1990 yen. It is, after all, in compliance with the Constitution. In the description of the product, the buyer’s appeal point is “High quality sleeping comfort at home, just like in a first-class hotel! It is a PB product of the company.
Since this is a PB product of the company, it cannot be compared to other companies’ products with the same performance and quality, but a product called “fluffy pillow that makes you feel like a hotel” is sold on chocho (Rakuten Ichiba) for 2,490 yen.
The fact that this product proudly claims to offer the sleeping comfort of a first-class hotel, and that it has been accepted by consumers, shows that this product is the epitome of “more than just a bed price.
So what is the secret behind Nitori’s continued success in creating products that are “more than reasonable”? The secret lies in the fact that they are a “manufacturing and logistics retailer.
For example, let’s say a consumer buys a wooden table from a non-Nitori store on Rakuten Market. Before the wooden table arrives at the consumer’s hands, it requires a forester (to cut the wood), a manufacturer (to plan the product and make the table), a seller (the store), a platform (Rakuten), a delivery person, and a logistics hand to transport the goods. The fact that each vendor is disparate tends to result in high costs.
Nitori, on the other hand, is responsible for product planning, manufacturing, sales, and even distribution. On top of that, Nitori strives to reduce costs thoroughly in each of these areas. One of the major advantages of integrating all of these functions is that the sales and distribution departments can directly inform the manufacturing department about what is currently selling and what is likely to sell.
Nitori ranks its products in order of best-selling, A, B, C, and so on, and has a strong management policy of never running out of the best-selling A products.
Only Nitori, with its integrated production and sales operations, can carry out this policy. As for the pillows I mentioned earlier, Nitori’s employees are under the supreme command to never run out of a product once it has become a hot seller.
Mr. Nitori shared his secret for increasing sales of Covid-19 Damages as follows.
＜Nitori’s secret for increasing sales in the face of the Covid-19 disaster was that the company was recognized as a “destination store” (a store that is ultimately chosen by customers). Normally, customers would go from place to place to compare products and prices, but when they have to refrain from going out, they go straight to the store that has the best selection, price and quality. I think that many customers chose Nitori as a destination store for housing-related products” (President, October 2, 2020)
Consumers believe that if they just go to Nitori, they can find everything they need at low prices and high quality. The fact that consumers have a deep-rooted perception that if they go to Nitori, they can find everything they need at a low price and with high quality, and that they will never run out of products is also contributing to the increase in sales of Covid-19 Damages.
Keisuke Hamane, deputy chief researcher in the research and consulting division of NRI and a specialist in management strategy, said, “Nitori is procuring many of its highly profitable PB products by fully utilizing its own factories, which it has been building in Southeast Asia since the 1990s. ＜Nitori will probably develop a growth strategy to achieve its mid-term goal of 3,000 stores worldwide and sales of 3 trillion yen by 2032,” he said, pointing out that its business will not be a one-time event.
On a global scale, Wal-Mart has acquired online companies, and Amazon is focusing on physical stores by acquiring grocery giant Whole Foods. Nitori, too, will need a corporate strategy that transcends the boundaries of the past.
However, Nitori is not lax in this area either. Nitori has launched a series of new strategies, including the M&A of Shimadada. Nitori has been expanding its business from furniture to home appliances, and more recently to online shopping and restaurant management.
Nitori is now vigilantly gathering the strength to stand up to global companies such as Amazon and Wal-Mart.
Reporting and writing： Kenichi Ogura
Director, ITOMOS Research Institute