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Why Did REI Fail in Japan?

photo of Japanese flag, mt fiji, and lakeR.E.I (Recreational Equipment, Inc), is such an awesome brand. Ever since I moved to Seattle in 2005 and climbed the pinnacle at their flagship Seattle store, I’ve admired their brand. Through free and paid classes, I’ve learned navigational skills and bike maintenance. I’ve bought camping, biking, and hiking gear, and gifts there over the years. I’ve stood in line for hours for two of their REI garage sales, and I remember the days when the downstairs of the Seattle REI store held all their used gear for sale.

Plus, the company has a unique business model: they’re a co-op, and give a portion of profits to their co-op members each year as a “member dividend.” Then there’s the fact that REI does some cool campaigns like donating to help build trails around the United States, and letting all employees take Black Friday off to spend the holiday with their families. So then why does such a strong and successful brand in the United States not expand internationally?

In fact, REI did give international expansion a try, back in 2000-2001. The co-op opened a store in a brand-new shopping mall in a suburb of Tokyo, Japan, but it didn’t last more than 2 years. According to REI’s history website, as well as a Seattle PI article, REI had chosen Japan for its first international market due to the strong interest from Japanese customers from their catalog sales. In the 1990s, there was a frenzy of interest in outdoor gear among Japanese shoppers. So REI sought to capitalize on the market, and built a 30,000 square foot store, which, much like the Seattle REI store, had a climbing pinnacle, a MTB test trail, and an oversized fireplace. At first, it seemed like things were going well. REI’s chief executive Dennis Madsen said, “The shopping experience was exceptional and true to REI, the staff was fantastic, and we created a new style of retailing in Japan.”

However, the co-op struggled to meet sales expectations and profitability faltered. A spokesman for REI, Michael Collins, blamed two important factors on the failure of REI Japan: interest in outdoor gear had waned in Japan, and the shopping mall was too far outside of Tokyo. Plus, the costs of building the new store were high, making the cost of doing business difficult. Another important factor was due to high price sensitivity of Japanese customers. Premium outdoor gear was a hard sell in Japan.

According to Hofstede’s cultural dimensions’ analysis of Japan, Japan has a very “masculine” culture and a high degree of Uncertainty Avoidance. This means that Japanese culture tends to value competitiveness, assertiveness, and power (Hofstede’s definition of “masculine” culture), and that the society has a low tolerance for uncertainty and ambiguity. In other words, and specifically for e-commerce, Japanese people appreciate competitive prices and a clear understanding of the product and its value. For an un-known foreign brand like REI, it may have been difficult to break past that uncertainty avoidance barrier.

hofstede-japan

 

Does this mean that REI, or a similar company, could not have or should not try to enter the Japanese market? Of course not. If REI had had enough capital to pour into their Japanese store, or if they had entered the market with a keener pricing strategy, or if they had chosen a store location more central to the city, their story might have been very different. REI might be an international brand today, as well known as Wal-mart in countries beyond the US. But not every strong and successful brand has to expand internationally in order to achieve success. Many brands do well within the scope of their chosen territory (In-N-Out, in only California and a few other states, comes to mind). Regardless, it’s interesting and useful to examine the successes and failures of major brands when they expand – or attempt to expand – internationally.

Even just in terms of building an international website, there are a lot of important things to consider. You need to think about whether to have multiple websites, or do you want to stick with just one? For REI Japan, they used a separate ccTLD domain, rei.co.jp. But for smaller companies, a separate website might not be the best solution. Also, do you need to translate your website, or only a few pages? Which languages should you support? There are a lot of questions you need to think about – check out my international SEO services page here.

 

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