it must be noted that Japan is finally emerging from a 30-year streak of deflation, a bitter period that repositioned the country from one of the world’s most expensive Westernised tourist destinations to a rallying point for luxury shoppers and tourists alike who can enjoy the country’s food and retailing for much the same cost now as they might have in 1990. During the past year or so, Japan is recording inflation, fuelled by rising international commodity prices and labour costs.  “Deflation is really bad,” explained Yoshida. “Look what happened to the Japanese GDP – it is number three [globally] now and its position is significantly lower [thanks to] the environment of the deflation. You know, we were the only country who suffered from deflation for so many years and we are part of the global economy. So, relatively speaking, our competitiveness was stolen, whereas with inflation, if things go well, that means at least the wages are going to catch up with the consumer price index or relative measurements.  “After 30 years, so many people forgot how to deal with inflation.” Deflation left Don Quijote ‘hamstrung’ In the era of deflation, PPI was hamstrung in responding to market changes, he continued. “It’s a price war, basically. Today’s dollar is less than the dollar last year or yesterday. That’s the definition of deflation.” In contrast, during a period of inflation, a retailer’s selling, general, and administrative expenses (SGA) and procurement costs are increasing, so you have options over your pricing. “The only way of [adjusting] pricing during deflation was to lower it. But now, you have extra choices. And if you choose wisely, you can win this game. That’s why I think inflation is not bad at all and you shouldn’t be afraid.” As Yoshida explained, the choices are to maintain your pricing strategy despite the increase in procurement costs, or add the extra costs to the price. “We took the latter option,” he said. “It is a more honest way to approach the customers: Sorry, we are going to increase the price. But simultaneously, we will offer alternatives and that’s where our private label fits. So compared with 2018, our private label sales have doubled.” That 30-odd-year economic period was tough for Japanese retailers, marked by significant industry consolidation, especially in the food and grocery sector and now enduring in the department store category. PPI was founded in 1989 as Don Quijote and now boasts about 700 stores globally, 600 of them in Japan. It launched in Southeast Asia in 2017 under the Don Don Donki brand and in 2020, the company bought the Japanese supermarket chain Uny, which divorced from the FamilyMart convenience store business. That deal saw PPI become Japan’s fourth-largest retail group. The company also owns Tokyo Central, Marukai, and US premium grocery retailer Gelson’s Markets.  Yoshida said that the retailers that survived the past 10 years did so because they were more competitive, and this, in turn, has made the whole Japanese retail sector more competitive. “The Japanese retail industry – the shops, the merchandising, the marketing – are fantastic. But, the problem is, there were just too many stores, and too many players before. It was a very congested market,” he said. “Because of the current environment, it’s more difficult for so many players to exist. Therefore, those who survived this period ended up being stronger players.” PPI has increased its sales almost every year since its founding, despite challenging economic conditions and enduring inflation. However, there were many discount groups when it launched and Don Quijote lacked a strong market presence and store network to build from. Most of its rivals back then have disappeared leaving PPI as a big force.  “One of the fundamental differences between the big boys and ourselves is [that we have] a very small headquarters. So we always had a significant advantage in SGA,” Yoshida said. A significant factor in the company’s success was the evolving attitude and behaviour of consumers – especially their desire for value. “We were very adaptive to these changes. Notably, by store, we have different pricing, we have different merchandise and these were some of our core strengths,” he added. Empowering staff Yoshida said that Don Quijote was founded as an almost anti-chain store chain store: “We were so small, we had to give autonomy to our own teams. That was the only way we could survive.” Even today, with 700 stores, internal teams are authorised to change prices without seeking approval. Yes, a company whose turnover is nudging 2 trillion yen annually (US$13 billion) is run “by empowerment by the management and autonomy of the employees”. After the takeover of Uny – a large company with centralised merchandise and pricing oversight – staff there were astonished that PPI allowed store management such free reign. “After we acquired Uny, we realised its system did not allow employees to change the price. We were puzzled. ‘How come you can’t change your price if your neighbouring store – your competitor – is changing the price down, and you need to match that?’ But [at Uny] they had to wait until headquarters said yes,” he explained.  Retail, Yoshida said, is a people business – in PPI’s case more than 90,000 of them. “Legally speaking, full-time employees and part-time employees are different, but we don’t differentiate. For us, they are the same … and if they do well, they are given more responsibility and responsibility usually lies with procurement, shelf picking, merchandising and even pricing.” A pureplay (offline) position After the arrival of Covid-19 in early 2020, Don Quijote’s sales dropped by around 10 per cent due to the lack of inbound travellers combined with lockdowns and social distancing which saw fewer people on the streets, reducing impulse buying.  “We were severely hit. Our profit went down by about 60 per cent. We were lucky to have just purchased Uny, so as a group, we were able to sustain our growth,” Yoshida said. Yoshida, now 59, assumed the role of CEO at PPI just six months before Covid broke out, after a long career with the retailer dating back to 2007 when he was appointed to head the US business. However, he saw an opportunity in the pandemic: “Because we stopped growing, we began to reflect on our productivity. We began to think about the way we use marketing.” A key initiative was expanding its app which has grown from around 3 million members in 2020 to 14 million today. Yoshida credits the app with driving traffic into stores and promoting products, deals and events.  “Proudly” brick-and-mortar only with no e-commerce site, PPI nevertheless understands the importance of engaging with customers outside stores, as it recognises it would be almost impossible to recreate its unique in-store experience online. In place of a transactional online site, the app creates what Yoshida describes as a bridge between the digital and the analogue, allowing the brand to engage with customers outside its stores, but only sell to them offline.  A key feature is a review process where consumers can praise or criticise its products, which often drives changes to the products – and drives a program where the retailer drops the price of up to 300 popular products voted by consumers.   “Customers are encouraged to share any thoughts they have,” Yoshida said. “Anything. You can speak ill of us. That’s the whole point of it.”  Such engagement is a key strategy of PPI moving forward, even as it grows domestically and abroad. Yoshida said the company is committed to remaining a discounter and to being “a people’s business”.  “For the past five years, it’s been tough, but we have doubled our profit, and we have the highest profitability to date. So as a company, we will be strong, and finance-wise, we want to be bigger.”  But, Yoshida concluded, the pathway to achieving that is for the company and its staff to always put themselves into their customers’ position “so we get the most convenient and most valuable store experience we can offer the customer”. Naoki Yoshida was a speaker at the NRF Big Show 2024 Apac edition held in Singapore last month.