Tough Hurdles Ahead
Can success last? Last October, when DoCoMo launched third-generation wireless Internet servicesso-called 3G services that allow for faster transfers of graphics to mobile phonesTOL started providing customers real movie clips. But 3G is still clunky and expensive, even in Japan, and the service has yet to really take off. The potential growth in broadband Internet access also worries Tsutaya's top executives, who say it could upset the cozy relationship between Tsutaya's online and offline operations by making it easier for customers to simply download music and movies from home, bypassing their i-Mode services altogether. (See "Trouble On the Line.")
And then there's the Japanese recession. Corporate restructuring is driving Japan's jobless rate to new highs: In December, the latest month for which data is available, unemployment hit a record 5.6 percent. Some retailers, like supermarket chain Daiei Inc., are facing bankruptcy.
But Masuda isn't too concerned. "Taking a family to the movies in Japan costs ¥5,000 ($37)," Masuda says, "but renting a DVD from us costs ¥300, or roughly $2.25. We thrive in a deflationary environment."
He may be right, at least for now. One recent evening in Tokyo's futuristic Shibuya neighborhood, Tsutaya's six-story store was hummingliterally. Deutsche Bank's Goto calls the store an example of Tsutaya's expertise in lifestyle marketing. Packed with a mobile phone retail outlet, a Starbucks coffee shop, rows of listening booths and boxes of electronics, the showcase store combines the messy feel of a fraternity house with the high-tech buzz of the classic 1982 film Blade Runner. Young Japanese with variously dyed hair and camouflage pants crowd each other in the aisles as the latest pop music blares from hidden speakers. Says market analyst Goto: "They've got it right. Their brand image is well-established. They're catching people on the go and getting them into the stores at the same time." Masuda credits mobility. "The technology is now there to track your customers 24/7," he says. "The possibilities are endless."
ALEXANDRA HARNEY writes for the Financial Times, most recently from Toyko. Comments on this story can be sent to firstname.lastname@example.org.