• About
  • Winners
  • Ceremony
  • Target
  • Selection Process
  • How to Apply

Winners

Nakagawa Masashichi Shoten Co., Ltd.

2015 15th Porter Prize Winner Manufacturing, wholesale and retail of craft goods
First company to apply SPA business model to Japan’s traditional crafts industry.
Nakagawa Masashichi Shoten Co., Ltd. was the first company to apply the SPA (specialty store retailer of private label apparel) business model to the industry for traditional Japanese crafts. The company's directly operated retail shops specialize in household items that feature Japanese craftwork. The company produces mainly cloth products, centered on its traditional business of manufacturing hemp cloth.

It has retail shops under three main brands, and directly operates all 43 shops. Yu Nakagawa specializes in textile products that combine traditional materials, skills and designs with a contemporary feel (16 shops as of February 2015). Nakagawa Masashichi Shoten carries many functional and beautiful "tools for living" rooted in the home and daily life (21 shops). Nipponichi offers crafts from various parts of Japan, as well as products that incorporate the motifs of local Japanese souvenir craft items (6 shops).

Nakagawa Masashichi Shoten's vision is to "revitalize Japanese crafts." For the company, "revitalization" means that craft makers and their local production bases can become financially independent (i.e. no longer having to rely on subsidies), and feel renewed pride in Japanese monozukuri (workmanship in manufacturing). To realize this vision, the company provides consulting services to craft makers, helping them to improve their management and planning. This ultimately leads to a broader selection of merchandise at the company's shops. The company is also contributing to the revitalization of a "travel souvenirs market" for crafts, by making local crafts available to local souvenir shops. This makes it possible for locally produced crafts to be consumed locally.

In 1990, the craft industry in Japan had 26,000 companies, with a volume of production valued at 500 billion yen. In 2005, the industry had shrunk to 13,000 companies, with a volume of production valued at 190 billion yen.

Nakagawa Masashichi Shoten was founded in 1716 in Nara (incorporated in 1983). The company, with 305 employees, reported annual sales of 4.3 billion yen in the fiscal year ended in February 2015. The following is the company's composition of sales: retail shops (70%), wholesale (20%), and online sales (10%).

Unique Value Proposition

The stores the company operates carry mainly household goods that feature traditional Japanese crafts, i.e., crafts that are made using traditional skills and designs. Although these items have a traditional charm, they also fit in well with a contemporary lifestyle. The company's best-selling Hanafukin (dishcloth) is made of the sheer cotton fabric used in mosquito nets. Another best seller is porcelainmugs, produced in the town of Hasami (Nagasaki Prefecture). Customers enjoy the various nuances of the carefully crafted pieces, which are long-lasting and have a subtle charm that grows over time with continued use. Shop staff members who are knowledgeable about the products provide customers with extensive background information and other details. Customers also enjoy learning about the history of the local craft community, the uniqueness of the techniques used, and the corporate vision of Nakagawa Masashichi Shoten to "Revitalize Japanese crafts." There are not many retail shop chains that carry only Japanese crafts. The merchandise carried at the company's shops are much lower priced than the expensive craft pieces sold at department stores. The company's target customers are female shoppers of all ages.

The company's other target customers are the craft makers themselves. In order to realize its vision of revitalizing Japanese crafts, the company provides consulting services to craft makers, advising them on ways to improve management, conduct manufacturing with more of a mind for business, and implement operational reforms. Because Nakagawa Masashichi Shoten aims to help craft makers achieve independence, the company does not guarantee that it will purchase crafts from these consulting clients. However, it does provide a sales channel by inviting craft makers to take part in a crafts exhibition that the company organizes, an event called Dainipponichi. (This event is important because it is attended by distributors.) If the company's brand managers give their approval, Nakagawa Masashichi Shoten will agree to carry a craft maker's products in its stores, thus providing a retail outlet. It will also undertake long-term consulting services (for a duration of one to two years on average). The consulting services, therefore, are not just a one-time shot at helping a craft maker with product development. The success of craft makers the company has advised generates a ripple effect that triggers a kind of chain reaction among other companies within the region. The company had its first big success with Maruhiro, a leading producer of Hasami ceramics (including porcelain and pottery), based in the town of Hasami, in Nagasaki Prefecture, an area that has a 300-year history of ceramic tableware production and wholesale. Other craft makers that were inspired by this success story have since become No.2 and No.3 in the same area. Meanwhile, Maruhiro has begun collaborating with the producers of Arita porcelain, located in the town of Arita, in Saga Prefecture. (Arita is one of the largest porcelain-producing centers in Japan today.) Through this move, Maruhiro's impact has extended beyond its local craft community in Nagasaki prefecture to the neighboring prefecture of Saga. The consulting fee that Nakagawa Masashichi Shoten charges is not expensive, but the company receives a margin on retail sales if the products are sold at one or more of its stores, and also gets paid a distribution support fee by crafts makers on orders received at the Dainipponichi event.

The third group of customers are local souvenir shops and the tourists that visit these shops. The company undertakes product planning, and asks local craft makers to produce the products that have been developed. Nakagawa Masashichi Shoten then purchases all the finished products, and advises souvenir shops on how to sell these products. (The company calls participating souvenir shops "nakamamise" -- lit. collaborating shops.) This enables local craft makers to minimize their inventory risk. The other benefit for craft makers is that they can see their products being sold at local stores. This helps the craft makers to take pride in their craft and contributes to a wider appreciation for monozukuri (workmanship in manufacturing). Souvenir shops can enjoy growth and improved profitability by selling more value-added products, while instilling renewed pride in local crafts. The company charges the souvenir shops a consulting fee. In return, souvenir shops are able to see sales stabilize over the long term. Currently 80% of the travel souvenir market is made up of food products, while 20% consists of other merchandise. For many years, food products and other merchandise hadeach accounted for 50% of the market. The size of the travel souvenir market is estimated to be 3.5 trillion yen.

Unique Value Chain

As an SPA, Nakagawa Masashichi Shoten's value chain can be viewed as separate but connected value chains for manufacturing, wholesaling, retailing and consulting. In addition, there are functions shared by all these value chains. Rather than provide an exhaustive list, below we will focus only on the unique features.

Manufacturing
The company employs craft-based manufacturing, which requires both a degree of a skill and extra care, with production conducted in small- or medium-size batches. (The company does not undertake mass production.) This is because the company puts an emphasis on the subtle texture of its cloth products. The Hanafukin (lit. flower dishcloth), the company's long-seller, is woven using a traditional shuttle loom, and the operation of this loom requires delicate adjustments. Sewing is done on a sewing machine, one piece at a time. This is the secret to the product's long-lasting, high-quality finish.

Sales of in-house manufactured products
The company organizes the Dainipponichi event three times a year. The company's network of distributors attend this event and place orders. This event is a major sales channel for the company, along with the shops that it directly manages. The company also encourages craft makers for whom it has provided consulting services to participate in this event. The event affords these craft makers a specialized sales route, and this unique service is only available through Nakagawa Masashichi Shoten.

Merchandising for the retail shops
The merchandise sold at Nakagawa Masashichi Shoten's retail shops consist of: 1) the products made by craft makers for whom the company has provided consulting; and 2) the souvenir products for which the company has undertaken planning. (Production of these souvenir products is consigned on an OEM basis.) In recent years, the number of craft makers has been decreasing rapidly due to the aging of workers and the contraction of the market. For a company that operates retail shops specializing in craft-based household goods, it is critical to ensure a stable supply of products.

Firm infrastructure of retail operations
The company assigns a designated brand manager to each store (Yu Nakagawa, Nakagawa Masashichi Shoten, and Nipponichi). Brand managers are in charge of product planning, store operation, and management.

Sales and marketing
At the stores, sales staff explain to customers the company's vision, communicating Nakagawa Masashichi Shoten's commitment to craft-based monozukuri (workmanship in manufacturing), and sharing information regarding the background of each product.

The company does not advertise. It does, however, make extensive use of publicity. The company's unique vision, activities and performance have attracted much media attention, and the company has benefitted from extensive media coverage. In addition, the president, Jun Nakagawa, has brought attention to the company by publishing books on the company's turnaround story and his theory of brand management. Another reason that the company enjoys so much exposure is the fact that its directly operated retail shops (43 shops in total) are located at high-traffic spots inside commercial retail facilities. Their prime location helps to raise brand awareness among consumers.

R&D
The company is able to articulate its product planning know-how, and has developed this know-how into a system that can be taught. This systematized approach minimizes the variability of the content when consulting services are provided by different people, and improves the overall performance of the company.

Human resources management
The salary level at the company is not as high as the salaries offered by leading retail companies, but Nakagawa Masashichi Shoten can attract employees who share its vision:"Revitalize Japanese crafts."Participation in consulting services is considered to be part of employees'training.

Fit among Activities

Nakagawa Masashichi Shoten's activities are chosen to realize its vision, "Revitalize Japanese crafts." The activities can be categorized primarily in three groups. The first group focuses on monozukuri (workmanship in manufacturing). Consulting services and the Nipponichi Project belong to this group. The second group is centered on distribution, and includes the directly managed retail shops and the Dainipponichi event. The third group concerns human resource development, which supports all the company's activities. All of these activities have a good fit as a system. The Nipponichi Project improves the financial situation of local craft makers by leveraging their craft skills, but requires Nakagawa Masashichi Shoten's involvement in product planning, and the company is responsible for bearing the inventory risk. The products manufactured by the craft makers for whom Nakagawa Masashichi Shoten undertakes consulting will be included in the merchandise handled by the company's shops, and will contribute to the company's overall competitiveness. The shops that the company operates and the Dainipponichi event provide distribution routes to the craft makers for whom the company undertakes consulting. The majority of sales at the stores operated by the company come from the products that Nakagawa Masashichi Shoten manufactures itself. Consequently, the retail business enjoys higher profitability than the shops that rely on purchased goods. (Please refer to Nakagawa Masashichi Shoten Co., Ltd.'s activity system map, which appears at the end of this report.)

Innovation that Enabled Strategy

  • Creation of select shops that specialize in craft-based household goods, with an emphasis on quality and design.
  • Creation of a platform that helps craft makers to become self-reliant and supports their growth.
  • A project to strengthen the position of crafts in the market for travel souvenirs (The Nipponichi Project).

Trade-offs

Trade-offs made to revitalize Japanese crafts
  • Does not develop a sales channel if that channel comes with unfavorable terms.
  • Does not sell products on consignment. The company carries the inventory risk.
  • Does not try to buy from craft makers at a price below the product's value. Does not ask for a limited design (to be featured in the company's retail shops) without paying for a design fee.
  • Does not mass-produce craft items. Does not automate the production process for the sake of achieving larger production volumes. Does maintain a commitment to quality, willingly spending time and effort for ensuring quality, and limiting production to a small- or medium-sized batches is a priority.
Trade-off for protecting the uniqueness of craft makers
  • Does not seek to develop nationwide sales channels for craft-based products that can be produced only in small batches. Preserves the craft's local charm.
  • Does not invest in the craft makers for whom the company provides consulting services.
  • Does not support craft makers in ways that have only a short-term impact. Aims to help craft makers become self-reliant.
  • Does not make craft makers conform to the company's taste and preferences.
Trade-offs for maintaining a unique positioning in the household goods retail industry.
  • Does not overly rely on purchased products that the company does not manufacture itself. Purchased products have a shorter lead time and can be put in stores within three months after orders have been placed. However, an over-reliance on purchased products could make the shops too similar in terms of the merchandise carried. For the products that the company manufactures itself, the time required takes nine months from planning to manufacturing. The longer the lead time for planning, the more risks involved. Such risks include unexpected changes in the weather and changes in the external business environment.
  • Does not narrow down the items to be sold in the shops. It is not easy to achieve such a broad product line without relying on purchased merchandise.
  • Does not carry Western-style craft-based household goods. There is a larger market for such products, but the competition would also be more intense.

Consistency of Strategy over Time

Nakagawa Masashichi Shoten's strategy began when Jun Nakagawa, the current president, joined the company in 2002 and started to change the company from a manufacturing wholesaler to a manufacturing retailer (SPA). Jun Nakagawa says it was a change "from selling goods to selling a brand." This strategy had two core components: 1) the establishment and development of the original brand; and 2) the operation of retail stores (only Yu Nakagawa stores in 2002).
In 2007, the company articulated its vision with the slogan "Revitalize Japanese crafts," and in 2008, Jun Nakagawa was appointed as the thirteenth president of the company. In 2009, the company started providing consulting services to the makers of Japanese crafts. In June 2010, the first successful client project of the consulting service emerged: the "HASAMI" brand, created by Maruhiro, a producer of Hasami porcelain based in the town of Hasami, Nagasaki Prefecture.
In 2013, the company launched the Nipponichi Project, which revitalizes local craft makers and local travel souvenir shops through the local consumption (sales) of travel souvenirs.

Profitability

The five-year average return on sales exceeds the industry average by a wide margin. Note that the variability of ROS in this industry is extremely small. The interquartile range (the difference between the upper and lower quartiles) was 0.7 percent point. The group used for comparison is made up of listed companies involved in one or more of the following activities: the manufacturing, wholesale, and retail of household goods. (Profitability analysis was conducted by PwC Japan.)

According to a survey conducted by the Ministry of Economy, Trade and Industry, the average return on sales of retailers of textiles, clothing, and household goods was 4.6% in 2014, while this figure for wholesalers of similar items (clothing and household goods) was 3.3%. Nakagawa Masashich Shoten's return on sales was 8.5% in 2014.

Activity System Map

Winners PDF

PAGETOP