Everything for sale at Don Quijote.

In the manner of the Spanish writer Miguel de Cervantes' hero, Don Quijote in Japan has come to represent a heroic tilt at the "windmill" of established thinking in the retail sector. The fight has involved a fierce struggle with established norms of doing business, but judging by the support of shoppers and stock investors, this is one company which isn't going to be knocked off its horse on the road to better sales. And it plans to import a better class of products.

For years, Japan was a nation whose social identity centred on "shotengai," or shopping streets. Narrow, lined with Mom and Pop operations, the shotengai was a place to meet and a place to linger. A simple purchase of a block of tofu or a ballpoint pen provided an occasion to chat with the friendly shop owner, to catch up on neighborhood gossip.

There was no need to hunt for discounts, because if a given item was available at more than two shops, it was almost certainly being offered at the same price in both. Distributors, and there were plenty of them, made sure of that.

Impact consumerism.

In the 1980s, prices in the shotengai shops were among the highest on the planet, but the Japanese were not complaining. This was the way it had always been, and besides, the country was in the middle of a period of unprecedented economic growth and people had money. What a quaint, halcyon time that was.

Fast forward to more recent times.

As the Japanese economic engine began to sputter in the 1990s, convenience stores, supermarkets, and large retail chains such as Toys 'R'Us from the US, became the engine of retail. In these shops, Japanese consumers now had a wider range of products to choose from, and their money went further.

And as Japan moves through a new decade, a new force is emerging - Don Quijote.

Don Quijote Co Ltd is basically a discount chain store operator, originally established in 1980, whose business took off when it went public five years ago. In 1998, Don Quijote operated 10 shops in Japan, but by late 2003, that number rocketed to 80. In the last three months of 2003 alone, Don Quijote opened seven new shops.

Jungle of products.

Many investors have made a small fortune on Don Quijote stock, and the company continues to see climbing sales.

Shopping at Don Quijote is a no-frills experience. The merchandise is stacked floor to ceiling (the theme song, always playing, happily describes the in-store atmosphere as a "jungle").

The shops are open all night, some skirting local ordinances by closing from 8 am to 10 am each morning. The aisles are narrow, and the checkout lines are long. But you can get almost anything you want at Don Quijote, from canned meat to Chanel perfume; from a fishing pole to a folding bicycle. Again, people want selection, and they want low prices. Don Quijote delivers.

Household "jungle" for the shopper

Household items at inexpensive prices.

Household Goods account for 24.1% of Don Quijote revenues, with clothing and fashion accessories coming in at 23.6%. Electronic products bring in 22.5% of revenues, with food, then sports and leisure goods and other items filling out the sales picture.

Each Don Quijote shop operates in a semi-independent manner, explained a spokesman from the company's public relations department. "The responsibility for selection, stocking and marketing of goods is given to the person in charge of each store. These people negotiate with what we call 'partner companies,' which could be producers or distributors. We are always trying to make an 'everybody wins' relationship between producers, distributors, and Don Quijote."

The Don Quijote spokesman (who asked to remain nameless and have his comments attributed to his department - a common practice in Japan), said there are many opportunities for foreign companies to deal directly with Don Quijote:

Imports from China going upmarket.

"We sometimes visit trade fairs abroad to look for new goods and goods with cheaper cost prices. We are making efforts to import high-quality and unique goods which is not inferior to national brand products based, this based on our 'Customer Comes First' policy."

A common stereotype is that Japanese consumers demand excessive customer service and packaging, but Don Quijote is proving this untrue. People will gladly search for what they want, and pack their own bags if they can leave the shop with more money in their wallets. Did Don Quijote help effect this change in Japanese consumer consciousness?

"We understand that the role of retail trade is to provide service and a good selection of goods which please our customers," replied the Don Quijote spokesman. "Our company style, with late-night operation, dense displays and so on, is the result of reading our customer's needs and psychology. We did not change the customers' consciousness, we just responded to their needs."

No frills experience

CD opportunities growing.

Unlike the Fast Retailing approach, which brought Uniqlo's simple but tasteful clothing into favour with young people in Japan, Don Quijote emphasizes the shopping experience rather than the products it sells. Don Quijote president Takao Yasuda has said he wants to create an atmosphere of unbridled discovery (hence the "jungle" allegory), where budget-conscious shoppers can indulge in some fun impulse buying.

Actually, familiarity with particular products is proactively discouraged at Don Quijote - whole departments are regularly moved to different areas of a store, so that when a shopper heads to what was yesterday's dog food display, they may well discover a rack of camping equipment has taken its place. Then, maybe they'll think about driving to the mountains next weekend, and where else but Don Quijote to get outfitted on the cheap?

Don Quijote indeed took its name from Cervantes' literary character of the same name, an old knight who embarks on a romantic journey of chivalry, and "tilted at windmills," with often tragicomic results.

"We chose the name," said the Don Quijote spokesman, "with the hope that our company will be able to smash the established system and keep moving forward with our ideals, even when fighting alone against a huge 'windmill'."

Plush toys are cheap.

Branded hats in demand.

Don Quijote is now involved in an assault on one of the last vestiges of Japan's retail stores protectionism, the right to sell medicine.

Not only prescription drugs, but many sorts of "over the counter" medication can only be sold at drugstores in Japan, and the hours of these establishments are strictly limited. Arguing that people get sick at night, too, Don Quijote started selling medicines in early 2003, but the Japanese Ministry of Health, Welfare and Labor (MHWL) moved in to stop the company.

Encouraged by support from Tokyo Governor Shintaro Ishihara, who said the MHWL was "out of touch with the realities of urban life," Don Quijote set up a video consultation service in its stores, so customers could consult in real time with a pharmacist who would then recommend appropriate medication. The MHWL was still unconvinced, so Don Quijote found another way around the regulations - if it was forbidden to sell medicine at night, then it would give medications away. This, of course, made headlines.

Yasuda, who is not known to back away from a challenge, said: "I will fight against the Ministry even if my company faces bankruptcy."

Bankruptcy has not arrived and it doesn't look likely any time soon. In 2002, Don Quijote showed net sales of 115 billion yen (over US$1 billion), up 22% from the previous year. The company's stock has also hit an 11-month high on those bullish earnings.

Narrow aisles means more display space.

Logo makes a difference.

from special correspondent Monty DiPietro, Tokyo

Contact:
Don Quijote Co Ltd
4-14-1 Kitakasai Edogawa-ku, Tokyo 134-0081, Japan
Tel: (81) 03-5667-7511 (General Information),
03-5667-7563 (PR Department)
Web: http://www.donki.com/e/index.html