China Consumer

Muji loses mojo

Tougher times for Japanese retail brand in China


Time for a rethink?

Back in June, there was news that Miniso, a Muji-lookalike in China that sells a range of no-brand, no-logo lifestyle and household goods, was looking to raise as much as $1 billion in an IPO.

Founded in 2013, Miniso has a strategy that prioritises sales volumes over profit margins. It recorded revenues of Rmb17 billion ($2.5 billion) last year and has been expanding rapidly, with more than 3,500 stores across 80 countries, including China, the US, Brazil and Russia.

Private equity firm Hillhouse Capital and Tencent both invested Rmb1 billion in Miniso in 2018, valuing it at $2.2 billion. Muji – its Japanese inspiration – is worth about $5 billion.

But though Muji initially offered a model for Miniso, the Japanese firm has actually been going through a rough patch in China. In mid-July, Beijing’s market quality watchdog listed six furniture products from the Japanese brand (as well as two from Swedish retailer IKEA) as substandard. It is the fourth time Muji has been accused of quality shortfalls in China – state-run broadcaster CCTV also accused it of selling prohibited foods from radiation-exposed parts of Japan (i.e. near Fukishima) in 2017.

Earlier this year, Muji’s oat crunch biscuits were pulled from shelves after studies in Hong Kong suggested that they contained carcinogens. But this time around, the substandard products were said to include hangers, dining tables and chairs, which weren’t made from the materials claimed, according to the Beijing regulator’s report. For instance, three Muji products marked as “walnut” goods were actually made of “black walnut” or “plywood”.

“Anybody who knows a little about furniture knows that solid wood and wood-based panels are very different. Essentially, it is hanging a sheep’s head but selling dog meat,” Huxiu, a news portal, thundered.

Since 2012, Muji has been opening stores in China at a rate of between 30 to 50 outlets a year, reaching 256 shops across the mainland (it also has 20 stores in Hong Kong and 48 in Taiwan) versus 420 outlets in its home country. It now has two flagship stores in China, compared with just one in Japan, and the China market contributed Rmb4.8 billion in sales last year, or about 18% of its global revenue.

In April – before the most recent reports of substandard products – Muji’s parent company Ryohin Keikaku reported a drop in same-store sales in China, down 2.1% compared with a year ago. The reduction is a reflection of greater competition. Muji’s prices are considerably higher outside of Japan due to taxes and tariffs: a plastic storage box priced at 1,200 yen in its homemarket was sold for Rmb135 in China (about 80% more). Startups like Miniso and NOME have seen the opportunity, launching businesses that sell products with a similar Japanese aesthetic but at a lower price.

The new entrants have forced Muji to cut some of its own prices in a bid to shore up demand. “Judging from Muji’s recent price cuts, it is clear that the company is sensing the urgency in the China market. But compared with a lot of local brands, Muji is still way beyond the reach of many Chinese consumers,” National Business Daily reckoned.

Huxiu believes that the Japanese brand became complacent. “Many years ago Muji’s positioning and pricing strategy wasn’t problematic because there were no similar brands in the Chinese market. Muji was unique and consumers were willing to pay up. However, local brands are now emerging, offering products with very similar styles and lower prices. So, why buy Muji? Not paying attention and not respecting Chinese consumers could see it eliminated in the China market,” the news portal predicted.

Shares in Muji’s parent Ryohin Keikaku have declined nearly 40% in the past year, reflecting some of the challenges from lower-priced competitors. One response is shifting production to cheaper locations and designing goods specifically for Chinese consumers (traditionally it has sold the same goods overseas that it sells in Japan). Another is brand extensions: Muji opened its first hotel in Shenzhen in January last year, and another in Beijing five months later.

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