Company Overview

2. Business Content, Market Trends, and Competitive Comparisons

Joshin Denki <8173> has become a single business of retail trade in consumer electronics and related industries. In the following, I would like to discuss sales channels, sales by product category, sales by prefecture, and store opening strategies, and differences from other major electronics retailers.

(1) Sales Channel (Response to the Home Appliance EC Market) When looking at the company's sales by channel in the 2024 fiscal year, in-store sales account for 82.1%, internet sales account for 16.0%, and other sales account for 1.9%. The company opened the internet shop "Joshin web" in October 2000 and has been actively engaged in EC sales from an early stage compared to other competitors. Looking at the company's internet sales ratio (EC ratio), especially in the 2021 fiscal year and 2022 fiscal year, when the number of customers visiting physical stores stagnated due to the COVID-19 pandemic, the EC ratio as a proportion of the company's revenue increased significantly to 18.5%, and in the 2024 fiscal year, with the return of customers to physical stores due to the end of the pandemic, it decreased slightly to 16.0%. The company aims to expand its long- and medium-term EC business by implementing measures such as the launch of a new stage program in the loyalty program, expanding the number of items handled (aiming to expand to 750,000 items in the 2025 fiscal year, compared to 700,000 items in the 2024 fiscal year), and improving the after-sales service to customers, as well as the start of operation of the new logistics center and the expansion of specialized personnel such as buyers. Regarding the numerical aspect, the company had set a specific target of raising the EC ratio to 25% in the 2031 fiscal year in its medium-term management plan, but since high value-added products are difficult to sell in EC, the rise in the EC ratio leads to a decline in the gross margin rate, so the company has shifted its policy towards not setting a specific target for the EC ratio. Home appliances have a high unit price, and consumers tend to carefully consider prices by visiting physical stores and EC, and since the specifications are standardized, it is easy to compare them from product model numbers and the like. It is important for home electronics retailers to have contact with customers on both the store and EC sides and aim to enclose them, with the most emphasis on expanding high-value-added services in physical stores, which the company is good at, while promoting the expansion of sales utilizing the convenience of EC. In the future, they seem to aim for further integration of physical stores and EC.

Looking at the revenue by sales channel for the company's 2024 fiscal year ending in March, in-store sales accounted for 82.1%, internet sales for 16.0%, and other for 1.9%. The company established an internet shop called 'Joshin web' in October 2000, and has been actively pursuing EC sales earlier than other competitive companies. Looking at the change in the company's internet sales ratio (EC ratio), the EC ratio in the company's revenue has significantly increased to 18.5% during the 2021-2022 fiscal years when visits to real stores were stagnated due to the pandemic, and slightly decreased to 16.0% in the 2024 fiscal year as customers returned to physical stores due to the end of the pandemic. In order to expand the company's EC business in the medium to long term, it is executing various measures such as the operation of new logistics centers, expansion of specialist staff such as buyers, strengthening of after-sales services to customers, introduction of a new stage program in the loyalty program, and expansion of the number of items handled (targeting expansion from 700,000 items in the 2024 fiscal year to 750,000 items in the 2025 fiscal year).

Regarding numerical aspects, the company had set a specific goal of increasing the EC ratio to 25% by the 2031 fiscal year in its medium-term management plan, but as high-value-added products are difficult to sell in EC and an increase in EC ratio leads to a decrease in gross profit margin, the company has changed its policy to not set specific targets for the EC ratio. Consumer electronics have a high unit price, and consumers tend to consider prices carefully while commuting between physical stores and EC, making it easy to compare from product model numbers, as the specifications are unified. It is important for consumer electronics retailers to have contact with customers on both in-store and EC sides, and to enclose them. The company is focusing on expanding high-value-added services in real stores, which it is good at, while promoting expanded sales utilizing the convenience of EC, and is preparing for further integration of physical stores and EC in the future.

On the other hand, the home electronics EC market in 2022 was about 2.5 trillion yen, with an EC rate of 42.0% (Ministry of Economy, Trade and Industry "Survey Report on E-commerce for FY 2022"). This includes sales channels other than home appliances retailers, and it is difficult to make a simple comparison with mass merchandisers. It is presumed that ECs such as Amazon are leading the expansion of EC market. In addition, since the EC rate for the entire retail trade is only 9.1%, it can be said that EC utilization is very advanced in the home electronics industry, where the EC rate exceeds 40%.

On the other hand, when looking at the efforts of each competing household appliance retailer to enter EC, many companies have an EC ratio of around 10% or less due to the difficulty of creating a website that can beat early entrants and the lack of focus on EC by brick-and-mortar stores. However, although accurate data cannot be obtained because it is not listed, Yodobashi Camera Corp. is believed to have an EC rate of nearly 40% due to the provision of customer service such as product explanations by sales personnel by using actual stores as showrooms and building a system that allows users to purchase either at the actual stores or the official online shop as well as stocking food, books, daily necessities, and other merchandise at a level comparable to Amazon. Among the listed household appliance retailers, the company is one of the most aggressive in tackling EC, and its recent EC ratio of 16.0% is relatively high compared to other industry peers such as Big Camera Corporation <3048> and Yamada Denki Holdings <9831>. On the other hand, the trend of lower EC ratio household appliance retailers such as Yamada Denki Holdings and K's Holdings <8282> falling clearly behind high EC ratio household appliance retailers like the company is not visible even in recent years, and it should not be forgotten that strengthening service power at brick-and-mortar stores is also important, not only relying on EC measures for sales expansion. Nevertheless, with the increase in EC users triggered by the COVID-19 pandemic and the further functional enhancement of IoT home appliances due to the proliferation of generating AI, the company believes that it will become increasingly important for household appliance retailers including itself to cater to the needs of consumers who want to listen to product explanations at the storefront before purchasing, have contact with customers on both storefront and EC sides and capture them.

With the advancement and expansion of EC, there has been a phenomenon referred to as 'showrooming' where consumers receive explanations about products from clerks at physical stores, but do not purchase those goods there; instead, they buy the same products online where they are cheaper. Conversely, the phenomenon called 'webrooming', where consumers check goods on websites and then confirm and purchase them at physical stores, has also been observed. Especially with household appliances, in which consumers strongly want to buy them after seeing the products in reality, both showrooming and webrooming are higher than other high-priced consumer goods such as furniture. Therefore, responding to showrooming is the key to management strategy, even though it requires higher prices. For instance, in the United States, Walmart is expanding the scale of its digital department, 'Walmart Labs', and Best Buy, a leading household appliance retailer, has been expanding its revenue through implementing dynamic pricing for online sales. Among them, Best Buy started introducing electronic shelf labels in 2017. Currently, in Japan as well, almost all household appliance retailers including the company have introduced electronic shelf labels.

Electronic tags that can change price information in bulk and display inventory information in conjunction with core systems and POS. They centrally manage work that had previously required time and personnel in the operation of traditional paper shelf labels.

(Author: Hiroki Nagao, FISCO guest analyst)