Winners / Selection Rationale

Workman Co., Ltd.

2019 19th Porter Prize Winner Operates a specialty retail franchise that sells workman’s clothes, gear, etc.
Workman’s specialty retail franchise consists of both WORKMAN and WORKMAN Plus stores, which carry clothing and work-related items required by construction workers and other blue-collar workers. Workman is clearly the leading retailer of workwear clothing and gear, with 837 shops nationwide (at the end of March 2019), operating in 45 out of Japan’s 47 prefectures. The company sells more than 1,700 items, with 9,000 SKUs. The workwear items, which offer professional-level protection against water, wind and cold temperatures, sell at extremely low prices. Workman’s merchandise has a long product life, and the company does not practice discounting for the purpose of selling out its inventory completely. The company has maximized operational efficiency by standardizing product merchandising and store layouts nationwide. The company responds to diverse customer needs, which vary by geographic region. Workman also meets the specific needs of individual stores by frequently replenishing the merchandise, with deliveries made to retailers 6 days a week. The company will even arrange for the delivery of one unit of a single product, if necessary. Franchisees also enjoy high profitability, because only two people are required to operate a WORKMAN store. In recent years, WORKMAN stores have been increasingly attracting more general consumers. The company has redesigned its product lines, incorporating the taste of outdoor wear and sports apparel. Since the debut of these new products, WORKMAN stores have seen steady growth in sales to general consumers, like bikers, individuals who enjoy outdoor activities and have a need for clothing that offers a professional level of protection against the elements, and people looking for athleisure wear.
This report has been written by Professor Emi Osono based on: (1) the materials submitted by the winner for Porter Prize screening purposes; (2) interviews conducted by the Porter Prize Organizing Committee; and (3) publicly available information. It is being published with the winner's permission.

Background Information about the Workwear Clothing Market in Japan

img_2019_04_p1.jpg The market size for uniforms in Japan was 525.4 billion yen (US$4.8 billion) in 2018 (on a value of shipments basis), according to Yano Research Institute. (*28) In the past five years, the market has shown a slight year-on-year increase, growing by 1% to 2% a year, from 494.9 billion yen (US$4.5 billion) in 2014. The work uniform segment (Workman's target segment) accounted for 54.4% of the total uniform market. The work uniform segment includes workwear for factory workers and construction workers, but excludes the uniforms worn by workers at food processing plants.

Some companies have stopped supplying work uniforms, citing the sluggish economy and reduced investment in construction work during the world financial crisis that followed the "Lehman Shock" in September 2008. Workers at such companies now must buy their own uniforms. According to Workman, 70% of the work uniform market was BtoB (selling to companies and government offices), while the remaining 30% was BtoC (sales to individuals and small businesses). Companies that buy work uniforms prefer a simple and basic design. In contrast, individuals look for more stylish uniforms. (Individuals tend to want bold colors and the design elements of outdoor wear, sportswear and athleisure wear). The shortage of young blue-collar workers has been exacerbated by the growth in construction work projects ahead of the 2020 Tokyo Olympics, in addition to a protracted decline in construction workers and an increasingly aging workforce in Japan. As a result, the management at construction sites and in companies are showing a willingness to accommodate young workers' needs and preferences by accepting workwear in a variety of designs. In response, the market has begun to show more variety in the work uniforms being offered. (*29)

(*28) Uniforms comprise four categories: 1) School uniforms (both school and gym uniforms); 2) work uniforms for factory workers (excluding food processing plants) and construction workers; 3) office uniforms; and 4) service uniforms (restaurant services, cleaning services, white hospital lab coats, and food processing plants). Yano Research Institute, https://www.yanoresearch.com/en/press-release/show/press_id/2194 . Accessed on Nov. 1, 2019.
(*29) The number of construction workers, which peaked at 4.6 million in 1997, has since declined to 3.3 million in 2018 (according to the "Labor Force Survey" conducted by the Statistics Bureau of the Ministry of Internal Affairs and Communications, as analyzed by the Ministry of Land, Infrastructure, Transport and Tourism; on a calendar-year basis). Construction workers are the manual laborers employed at construction sites, specifically those individuals who possess the necessary skills. In the Labor Force Survey, the total number of construction workers comprised: (1) individuals directly involved in building operations in the construction industry; (2) workers at construction and excavation sites; and (3) operators of transportation services and industrial machinery. In contrast, engineers manage construction projects, and they do not undertake manual labor. (Source: The Ministry of Land, Infrastructure, Transport and Tourism report released on March 20, 2018, entitled: "Gino rodosha no ichizuke ni tsuite, (lit. "The Positioning of Construction Workers") http://www.mlit.go.jp/common/001227160.pdf . Accessed on November 1, 2019.

Unique Value Proposition

Workman focuses on the retail business for work uniforms, and does not operate in the BtoB market segment, even though this segment accounts for 70% of the total market. As of March 31, 2019, the company had a total of 837 stores operating in 45 of Japan's 47 prefectures, and the majority of these were franchise stores. The company' sales in fiscal year 2018 (ended March 2019) came to 67 billion yen (US$609 million). Sales of workwear comprised 30% of this total, with sales of work shoes, work tools, rainwear, and outdoor wear accounting for the remainder. Assuming a market size of 85.7 billion yen (US$779 million) for the BtoC workwear segment, Workman held more than a 20% share of this market in fiscal year 2018. Over 2,000 retail shops sell workwear in Japan. (*30) Among chain stores, Workman has the largest number of stores, followed by Muhoumatsu, the second largest with 50 stores, and Prono, the third largest with 43 stores (as of October 31, 2019). (*31)

Workman's target customer is blue-collar workers, mainly individuals who work at construction sites. The company calls such customers its "pro customers." Workman's second target customer is general consumers. Bikers, campers, and people who enjoy outdoor activities are attracted by the high functionality of Workman's products, which are flame-resistant, water-resistant, and provide protection against wind and cold temperatures. Moreover, these products are offered at prices that are far lower than those of national brand products. In September 2018, the company demonstrated its commitment to general consumers by opening a WORKMAN Plus store in an easily accessible shopping center. The new WORKMAN Plus stores will help Workman to heighten brand awareness among general consumers.

Workman's first value proposition is a low price. Specifically, high-performance products that sell for a low price. Since its establishment, the company has been working to realize low-cost operations under its management policy: "Be profitable, despite the low price." In 1992, the company was able to negotiate the supply of merchandise at a lower price by promising manufacturers that Workman would not return any unsold merchandise. Until then, Workman had been following the industry's standard practice of returning unsold goods to suppliers. Suppliers would normally agree to accept any unsold goods because costs associated with returns was incorporated in the wholesale price from the beginning. Next, Workman developed a line of private-brand merchandise to replace the strongest-selling national brand products. In the process of switching over to a private brand, Workman improved functionality, product design, and price competitiveness. Private brand products now account for 40% of the company's total sales revenue. Workman sells at regular prices, and does not offer discounts. The only exception is the discount on irregular sizes, such as "Small" and "5L (Plus Size)," when the company discontinues a product line. Workman monitors the number of SKUs (stock keeping units) on discount, and keeps the SKUs of merchandise on discount below 2%.

The second value proposition is ensuring a time-efficient shopping experience for pro customers, by enabling them to find the products they want in a short time. Depending on the type of worksite to which they have been assigned, pro customers may be required to work at various worksites arounds the country. Consequently, they end up having to shop at many different WORKMAN stores. Pro customers tend to buy the same products that worked for them in the past, and they know what they want to buy. They do their shopping on the way to work, or else after work, and spend only 5 minutes inside the store, on average. Therefore, it is important for them to be able to easily find the products they want. It is for this reason that Workman has opened a large number of stores, standardized its merchandising, and adopted the same store layout in every store nationwide.

Workman commenced online sales at its own website in 2013. When online sales first started, corporate clients were the main customers shopping online. In recent years, there has been a steady rise in the number of individuals placing orders online. Sixty-six percent of purchases are picked up at Workman stores, which are ubiquitous throughout the nation. By ordering online and picking up merchandise at the store, customers can avoid paying a delivery fee.

The third value proposition is a broad product line. WORKMAN stores carry more than 1,700 items (9,000 SKUs). For items that sell less frequently, Workman carries on the shelf only one unit of a single item, and such items account for seventy percent of SKUs. At the same time, the company tries to avoid running out of stock for those items that pro customers use on a daily basis. Pro customers expect that the products they use most regularly will be readily available to them. From experience, they know which clothing items and tools are easy to use, and which afford adequate protection. Moreover, they know well the extent to which workman's clothing and gear impact their productivity, quality of work, and personal safety on the job. Workman delivers merchandise to its stores 6 days a week (once a day, during the over-night hours). The company will deliver even one unit of a single item to ensure that a product can be back on the shelf within 48 hours.

Workman's primary customers are pro customers, and 90% of pro customers are regular customers who visit Workman stores once a month. In terms of actual numbers, about 2 million customers purchase work supplies once a month and work apparel four times a year. (*32) Supplies include work gloves, towels, and work footwear. Such items are strategically important for getting regular customers to visit a WORKMAN store more frequently. For this reason, Workman makes it a top priority to raise the competitiveness of such products to an exceedingly high level.

(*30) According to Workman.
(*31) Muhoumatsu stores are operated by Hosoi Corporation (mainly in Kyushu and Yamaguchi Prefecture). The number of stores is based on information taken from Muhoumatsu's website, http://www.muhoumatsu.jp/007_shoplist.php?tdf=all , accessed on November 1, 2019. Prono stores are operated by Hamure Co., Ltd. (mainly in Hokkaido and the Tohoku region). The number of stores is based on the information from Prono's website, https://www.hamure.co.jp/prono/search/ , accessed on November 1, 2019.
(*32) According to company data.

Unique Value Chain

The unique features of Workman's value chain are product development, supply chain management, and data-driven management.

Product development
Product development teams are organized for each product category. The team is made up of company employees hailing from the design, data analytics, and production control departments. The company has increased the number of employees working on product development by 2.5 times over the last three years (fiscal years 2016−2018).

Workman requires that its private-brand products demonstrate the ability to maintain a competitive advantage over several years. This requirement is the necessary result of the company's policy to maintain product prices at a fixed level (i.e., refrain from offering discounts) and guarantee the supply of those private brand products for several years. Consequently, the goal of product development is to: (1) make only those products that have a "wow" effect on customers (hereafter "WOW" products); (2) sell products that represent "a new standard in terms of functionality and price"6; (3) carry products that offer superior functionality, meaning that followers would not be able to catch up for several years; and (4) include only those products that can compete against those items selling on e-Commerce sites at fixed prices (without any discounts). Such products will attract customers to WORKMAN stores, and help the company to build a base of repeat customers. The goal is to have repeat customers and regular customers comprise the majority of customers visiting WORKMAN stores.

Workman is able to develop products that offer both outstanding functionality and a low price because the company collaborates with overseas fabric suppliers from materials procurement stage. In addition, large product volumes are possible because of the company's ability to guarantee the availability of its products for several years. For example, Workman has sold more than 4 million units of its G-Next series workwear, which is often adopted as the uniform at small companies. Workman guarantees the availability of this workwear for 10 years. As a result, the company is able to sell this two-piece set, consisting of a jacket and pants, for the low price of 3,000 yen (US$27.00). Competitors have already withdrawn from this price range.

Workman invites social media marketing influencers with many followers on their social networking site (SNS) to join the company's Product Development Advisory Board and take part in product development. Workman's outdoor clothes are more price-competitive than the outdoor gear sold by national brands. Large production volumes (i.e., 100,000 sets of outdoor wear, which consist of a jacket and pants) is what makes this price competitiveness possible. Naturally, demand for this product is strong among pro customers. However, the company's products with a taste of outdoor wear or sportswear are now attracting general consumers. Sales to general consumers accounted for 15% of the company's total sales at the end of March 2019.

Supply chain management
Workman has pursued thorough standardization, as evidenced by the fact that 97% of Workman's merchandise is the same nationwide. This merchandise is supervised by the analytics team within the merchandising division. The remaining 3% is managed by region. This is handled by an analytics team within the sales division, which manages merchandising by dividing up stores into regional clusters. In order to avoid running out of merchandise on the shelves, which might happen given the high degree of standardization of its merchandising operations, Workman makes deliveries to stores 6 days a week from two distribution centers, and the company will make a delivery for even just one unit of a given product. Considering that Workman sells and replaces its stock of goods four times a year (this is otherwise known as the inventory turnover rate), it could be thought that making deliveries 6 days a week might be too frequent. However, Workman believes that such frequent deliveries make possible the high degree of standardization in its merchandising while enabling the company to effectively meet the diverse needs of its customers. (*33) Workman owns the distribution centers and equipment, but outsources the actual operations. Deliveries are handled by a charter trucking service.

The company has developed its own Demand Projection System. The data analytics teams within the supervisory department, the logistics department, the online sales department and the merchandising department decide on: (1) the optimal product selection and quantities to be put on display racks; (2) the order volumes for private brand products; (3) the optimal assortment of colors and sizes; and (4) the optimal amounts to be shipped to distribution centers, based on the company's demand projections. Workman's Demand Projection System has achieved a high level of accuracy, attributable to the fact that the sales data is free of "noise" (because the company does not give any discounts). A team of five designated data analysts monitor the accuracy of projections, and adjust the algorithms weekly. The team simultaneously works on the development of the next-generation demand projection system that will eventually replace the current one.

Workman has a buy-outright type of VMI (vender managed inventory) arrangement with its domestic suppliers. Under this arrangement, suppliers decide the quantity of the products to be delivered to Workman's distribution centers. Workman commits to buying all the inventory that is delivered. Workman helps suppliers determine the appropriate quantities by sharing the company's own: (1) demand projections; (2) data on in-coming and out-going quantities at its distribution centers; (3) the inventory and sales data of each store and each region, as well as the nationwide sales and inventory figures. The 31 participating suppliers account for 87% of the merchandise purchased domestically. Workman does not complain about short-term increases in inventory or stock-outs at distribution centers. Actually, because of their access to sales trend information via other channels, the vendors are able to determine the amount of merchandise to be ordered with a high degree of accuracy. Since the introduction of the buy-outright type of VMI, Workman has reduced the out-of-stock ratio and improved the inventory turnover rate at its distribution centers. This arrangement also eliminates the company's need for an order placement process, and greatly simplifies Workman's business operations.

Workman has been using the same domestic suppliers for the past twenty years. Workman has continually shown respect to these manufacturers, which have complied with Workman's request for direct sales since the company's early days. This practice, which marked a departure from the industry's standard practice, has made possible a stable, long-term business relationship that benefits both parties. The suppliers take on risk, by having to trust that Workman will buy outright all the merchandise that is supplied. However, through VMI, suppliers can level off their production volumes, and thereby improve efficiency. They level off production volumes by generating their own estimates, taking into account the amounts that Workman ordered in the past. With regard to its overseas suppliers, Workman has been dealing with the same suppliers for the past 10 years, as the relationship has proven beneficial for both parties. Workman believes that the switching costs for changing suppliers would be larger than the cost savings it would enjoy by switching to less expensive suppliers.

Sales promotion
Workman's sales promotion relies on SNS (social network services). For the past three years, the company has been using a product launch event, targeting the mass media and social media influencers, to introduce its new products. The product launch event for the 2019 fall and winter products was a recreation of extreme weather conditions that included heavy rain, snow and wind on the fashion show runway. News of this event was widely reported by the media. The product launch event being planned for the 2020 fall and winter products will focus exclusively on products developed in collaboration with the influencers.

Workman makes little use of traditional sales promotion methods. The company distributes fliers four times a year to introduce its seasonal products. The fliers do not offer any price discounts.

Store development/Franchise operation
Workman launched its very first store under a franchise agreement. When recruiting franchisees, the company used to look for individuals who had strong ties with the local community. Now, Workman opens new stores as company-owned stores. When a store reaches a certain level of sales, the company subcontracts its operation to a local business person. When the store achieves a sufficient level of sales--generating enough profit for franchisees to take on inventory risk--the company will turn over the store to the local business person through a franchise agreement. Franchisees have the option of returning to a subcontracting arrangement, in which case they would not be required to take on inventory risk. To date, hardly any franchisees have chosen to return to a subcontracting arrangement. There is a 100% correlation between the franchisee's income and the store's sales. Franchisees are extremely satisfied, and almost all of Workman's franchisees have been renewing their contracts every six years, except in the case when a franchisee chooses to retire. More than 50% of franchisees want their children to take over the store, and there are some third-generation franchisees.

Workman opens a store in locations with a population of 100,000. Store locations do not require a high level of visibility because the store's customers tend to be repeat customers, but more likely regular customers. The company has standardized the layout of its retail space--all stores have a floor space measuring 330 square meters, although the shape of the store may vary, with some stores long and narrow, and other stores wider.

Workman has introduced an automatic order placement system. Franchisees can decide for themselves whether they would like to accept the "Recommended Order List" that is automatically generated by the in-house developed automatic order placement system, and is based on the company's Demand Projection System. The new system was introduced in 2017. By the end of March 2019, 265 out of 837 stores had introduced the system. Franchisees who had introduced the automatic order placement system were able to reduce the work involved in the placement of orders. Moreover, they report that sales had grown by 3-5%, compared with the stores that did not introduce the system.

Operation of a WORKMAN store is a very simple process. Workman provides the store layout, following a standardized format. There is no need to change price tags and price displays because there are no discounts. Pro customers rarely require product explanations because they are so knowledgeable about Workman store merchandise. Also, the automatic order placement system is now available. Franchisees try to stock the shelves after the morning influx of pro customers and before the general consumers show up, which is sometime after 10:00 a.m. Shelf stocking is usually finished by 10:00 a.m. Cashiers are asked to close up the cash register once at 2:00 p.m., to reduce the amount of tasks to be completed after the store's closure. It is possible for franchisees to open the store 5 minutes after they arrive, and to leave the store 5 minutes after the store closes. The store's business hours are 7:00 a.m. to 8:00 p.m. Therefore, two workers assigned to two different shifts are needed to operate one store. A WORKMAN store usually can be operated by just two workers.

Human resource management
Workman has new employees commence training by working first at a company-owned store. The aim is to give new employees the chance to develop their communication skills. In addition, all employees are given data analysis training. Afterward, each employee can chose whether to focus on developing data analysis skills or design skills.

Workman recognizes that data-driven management is the key to success for the new WORKMAN Plus stores, which attract general consumers as well as pro customers. Two years prior to the introduction of BI (business intelligence) software, Workman began having employees undergo data analysis training, starting with the supervisory department. The general managers and higher-up executives are required to demonstrate a willingness to: (1) transform the company's operations; and (2) incorporate data analysis in their managerial activities, to motivate other employees to develop their own capabilities. Following the introduction of BI software, the company monitored how many times each employee accesses the software in a single day. Infrequent users are given some coaching to help them increase their use of the software. Finally, "data analysis teams" have been created in the supervisory department, the logistics department, the online sales department, and the merchandising department. (Data analysis team activities are to be undertaken concurrently with regular work assignments.) The team members receive training about how to create new analytical tools, and are required to present the results of their efforts in an internal competition.

Personnel evaluations include providing employees with 360 degree appraisals (i.e., evaluations conducted by one's immediate superior, five or six colleagues from other divisions, and subordinates).

General management
One of Workman's most important management principles is to cultivate good and stable relationships with stakeholders. The company aims to create relationships with customers, shareholders, suppliers, franchisees, and employees, so that all stakeholders will feel happy to be doing business with Workman.

The company has selected operating profit per employee as its most important key performance indicator, with the aim of becoming No.1 in the retail industry. Workman is able to maximize operating profit per employee by standardizing operations and making business operations extremely efficient. Workman pays much attention to the number of customers, and believes the cultivation of repeat customers to be of greater importance than the achievement of sales volume targets.

Workman takes a hands-on approach. Most executives and employees do not come to the headquarters, except on Mondays. Most decisions are made on a Monday.

The company's practice of data-driven management is what enables it to make decisions only on Mondays and to realize improved efficiency in decision making. BI software is used extensively in all operational areas, specifically for: (1) making sales comparisons by region and by individual store; (2) identifying potential products; (3) determining the smallest amount of items that can be put on display; (4) developing a product lineup for groups of stores that experience similar weather conditions; (5) deciding on production volumes for private brand products; (6) maintaining appropriate inventory levels at distribution centers; and (7) devising delivery plans.

In its "Medium-Term Management Plan for Business Reform (2014-2018)," the company has identified two growth strategies, one focusing on WORKMAN Plus stores, and the other targeting online sales. Workman made a commitment to ensuring low prices for customers, a higher dividend payout for shareholders, and a 1 million yen (US$9,190.00) increase in each employee's salary, to be achieved in the fifth year of the Medium-Term Management Plan (in addition to the regular pay raise).

At the same time, the company declared its commitment to work-style reform. Workman reduced the total work load, improved employees' efficiency, and helped them to upgrade their skills. On top of that, the executive team told employees that they could extend their deadlines or delivery dates if doing so would reduce overtime and would not pose a problem for customers or franchisees. For example, by delaying the announcement of its financial results by a week, Workman halved the amount of overtime worked by the accounting department. It sent a clear signal to employees about how serious the leadership team is about achieving comprehensive work-style reform. This goes against the nationwide trend to push for earlier announcements of financial results, a move aimed at improving communication with shareholders. Workman's leaders believe that if they want to make changes, they must be ready to face head-on the tough decisions that go along with making trade-offs. Again, the leaders thought that it was more important to reduce overtime than to realize the company's Medium-Term Management Plan in five years. Of course, the leaders are still committed to achieving their goals even if the deadline for the project's completion is extended. The individuals in charge of each project are required to stay in their current position until their goals have been achieved. This persistence and tenacity has become part of Workman's corporate culture. In fiscal year 2018, the company's number of regular holidays was increased by five days over the preceding fiscal year. The average amount of overtime worked decreased by 84 hours a year, and the attrition rate fell by 2.6%.

(*33) If the company were to make deliveries only twice a week, it would be able to save hundreds of millions of yen a year, according to Workman.

Fit among Activities

Workman has made four core strategic choices that are central to its competitive strategy: (1) develop only "WOW" products; (2) undertake thorough standardization and streamlining; (3) cultivate long, stable relationships with stakeholders; and (4) implement full-fledged initiatives for work-style reform. (Please refer to the Workman's activity system map, which appears at the end of this report.)

The policy to focus product development exclusively on "WOW" products is supported by: (1) collaboration with overseas fabric manufacturers; (2) the involvement of influencers in the product development process; (3) the company's discontinuation of the practice of selling products at a discount several years ago; (4) large sales volumes, supported by a strong base of regular customers; and (5) the contribution of both pro customers and general consumers to these large sales volumes.

The pursuit of thorough standardization and the streamlining of operations is what enables the low cost, which is underpinned by the exclusive focus on "WOW" products in new product development. This is accompanied by the company's commitment to a thorough standardization and streamlining policy, which entails the standardization of merchandising and the store layout nationwide; a 6-day-a-week delivery schedule that enables stores to receive even just a single unit of a product; discontinuation of the practice of selling merchandise at a discount; and the implementation of "data-driven management," which involves the introduction of an automatic order placement system.

Long-term, stable relationships with stakeholders enable on-going collaboration with fabric manufacturers, which makes possible the company's commitment to focusing exclusively on the development of "WOW" products for its private brand. This long-term, stable relationship with stakeholders is what allows the company to practice the buy-outright type of VMI (vendor managed inventory), another practice that contributes to thorough standardization and the streamlining of operations.

"The implementation of full-fledged initiatives for work-style reform" has been supported by the management's policy of prioritizing (1) the reduction of overtime work, and (2) the thorough standardization and streamlining of operations, even if it means that deadlines will have to be extended. As indicated above, the four strategic choices and the activities that support those choices are well matched, and a mutual strengthening can be seen.

Innovation that Enabled Strategy

  • Created Japan's first vender managed inventory (VMI) program, in which the inventory is purchased outright. Participating domestic vendors (the "suppliers") make decisions regarding the products to be delivered to Workman's distribution centers, and the quantities of those items. Workman buys outright all the merchandise that is delivered to its distribution centers. Workman shares with suppliers its demand projections, as well as inventory and sales data, to help suppliers determine which products, and the quantities to be delivered.
  • Created a new market segment that features high-performance products, and makes these available at a low price in the outdoor wear market. Workman's outdoor wear benefits from a cost advantage, in that the company's outdoor wear can also be sold to pro customers as workwear. The company produces at least 100,000 units of a single product, and such large production volumes significantly reduce manufacturing costs. This balance between price and performance has never been seen in the outdoor wear and sportswear market before.

Trade-offs

  • Workman does not sell to the BtoB market segment, which accounts for 70% of the total workwear market. Although selling to corporate customers would generate larger sales, the sales process is more complicated, as it entails bidding, estimates, and accounts receivable. Also, supply chain management would become more complex, too, because corporate customers require frequent deliveries in small batches. The entrance barrier to the BtoB market segment is high, with leading wholesalers enjoying an oligopoly. Workman makes active efforts to sell its products to small companies with less than 20 employees. Workman accepts only those companies that are willing to make their purchases at a WORKMAN store, and can make immediate payment.
  • Does not form franchisee agreements with corporations. Does not have a multiple store franchise arrangement. The company believes that individuals are better franchisees because the success of a store directly leads to the success of the individual. In this way, Workman and franchisees prosper together.
  • Does not seek higher profitability from private brand products. Workman has set its cost of sales ratio at 63% for all products across the board. Of course, the company is in a position to set a higher price and a higher margin for its low-cost, high-performance private brand products because of their competitiveness. However, Workman has decided to keep the prices of its private brand items on par with those of national brand products. The company uniformly applies a mark-up rate (gross profit margin) of 37% on all of its private brand products. Knowing that pro customers often do not even check the price tag when making a purchase, Workman does not want to risk losing the trust of pro customers over discrepancies in pricing. Furthermore, by uniformly applying the same mark-up for all products, the company can minimize the time and energy spent on product pricing.
  • Does not sell expensive tools. Selling expensive tools would involve providing customers with detailed explanations. Franchisees would be required to have an in-depth understanding of the product. Furthermore, such items sell less frequently, and franchisees would be required to pay higher inventory costs. Workman limits its merchandising to the apparel worn by pro customers and other frequently selling items, so as to minimize the inventory risk for franchisees.
  • Does not sell at a discount. The company's private brand products are developed to meet high standards. These products are setting a new standard in terms of both performance and price. As a result, these products are highly competitive in the market, and will sell out only on their SNS reputation. The company also carefully controls production volumes, starting out with small production volumes in the first year of the product's launch. In subsequent years, production volumes are determined using the company's quite accurate Demand Projection System, which has a margin of error of only 10%. Even when the company has to carry over the inventory of seasonal products to the next year, Workman does not sell the left over items at a discount. The company believes that discounting will damage pro customers' trust in the company's pricing, and increase the workload of franchisees (by necessitating the changing of price tags, etc.).
  • Does not become an apparel company that follows fashion trends. All of its private brand products are developed for use by both pro customers and general consumers, with the assumption of a five-year product life, on average. Although pro customers want the same old products in the same store layout, general consumers, in contrast, want stimuli, such as "new products" and variations in the store layout. The company responds to general consumers' needs by changing up a product's colors and patterns. However, Workman will not change the product's design, to keep added costs at a minimum.
  • Does not employ outdoor specialists, despite this being a new field for the company. Instead, the company invites influencers, who know how the products are to be used at camp sites and other outdoor settings, to join the Product Development Advisory Board. The company then incorporates their input in product development.
  • Does not open stores outside of Japan. The company serves customers outside of Japan through online sales.
  • Does not endeavor to create a perfect information system. It starts out with a minimum of functions, and will later add only those functions that are recognized as being indispensable. The company can reduce its costs by refraining from developing any unnecessary functions.
  • Does not set work quotas for employees. Employees have their own performance targets, but they do not have workload quotas. By standardizing the work and developing a work manual based on data analysis, the company has sought to create a work situation in which anyone can complete the workload.
  • Does not promote individuals to senior positions if they are unable to reconsider their views regarding a specific matter. Workman is trying to strengthen the company's data-driven management approach, and defines "a good boss" as someone who can change his or her mind after data analysis has been completed. Under Workman's personnel evaluation system, subordinates are given the opportunity to evaluate their superiors.
  • Does not hold companywide events. The company develops employees' communication skills and fosters a network of employees through job training, rather than through the hosting of corporate events. For example, the evaluation criteria for newly hired employees include: "shows kindness to others," "possesses the desire to improve oneself through learning," and "demonstrates flexibility." Job training focuses on developing employees' communication skills and instilling in them a "service" mindset, by having them work at a company-owned store for the first two years of their career. Workman wants employees to be able to complete all their work assignments during the regular business hours. Finishing on time would enable them to spend more time with family and friends, or make time for themselves, so that they may come back to work feeling refreshed.

Consistency of Strategy over Time

Workman's competitive strategy was developed to meet the needs of pro customers, primarily construction workers who must frequently change their job sites, depending on their work assignment. The company has selected its value proposition to meet the pro customers' need for: (1) highly competitive products (in terms of both price and quality) with overwhelming product appeal; and (2) accessible stores that are easy to navigate and offer a large selection of the kinds of products they use regularly. In order to realize this value proposition, the company has undertaken the thorough standardization and streamlining of its operations. In addition, Workman commits to stocking the same product for several years without any discounting, and pursues collaborations with its long-term suppliers. The following is an explanation of how these activities came about.

Workman opened its first store on September 30, 1980. Since the beginning, the company has emphasized low-cost operations, with the goal of "being profitable, despite the low price." The company started buying directly from manufacturers, which goes against the industry's standard practice of procuring merchandise through wholesalers and agents. In 1992, Workman stopped returning unsold inventory to suppliers (another standard practice in the industry), and started purchasing outright the full load of merchandise delivered. Workman was able to reduce its procurement costs by assuming the risk of unsold stock. In 2000, Workman committed to offering "everyday low prices," while simultaneously launching a new initiative to reduce its costs and prices. In 2010, the company began developing private brand products for items that sold in the largest volumes. The introduction of private brand products resulted in both higher profitability and improved price competitiveness.

Workman is noteworthy for its ability to maintain the consistency of its competitive strategy even when it began serving a new customer segment (i.e., general consumers). The company did this successfully, without hurting its ability to cater to its core clientele, the "pro customers" (i.e., construction workers). Rather, by leveraging its strength, Workman was able to meet the needs of an entirely new customer segment. Workman's specific competitive strategy: (1) take advantage of economies of scale in the selling of workwear, to reduce inventory procurement costs; (2) sell out the entire stock at a fixed price, while maintaining a policy of "no discounts"; and (3) offer a standardized product line and store layout, while simultaneously simplifying store operations. Meanwhile, the company introduced a "unit control system" as its inventory control system, and implemented data-driven management. In addition, Workman has developed a new store chain (WORKMAN Plus), which caters to both pro customers and general consumers. In summary, the company developed the organizational capabilities required for serving this new customer segment.

In 2014, Workman introduced its Medium-Term Management Plan for Business Reform, which was originally envisioned to be completed in 2018. In this plan, the company specified two key growth strategies: (1) the addition of a new customer segment (general consumers); and (2) the development of a new sales channel (online sales). In preparation, the company began providing data analysis training for its employees in 2012. Workman then launched its unit control system project in 2013. Next, Workman introduced BI software, and started analyzing the data obtained by the unit control system in 2014. The company launched a new product brand with a taste of the "outdoors" in 2016, by grouping together private brand products that are competitive in terms of functionality, design and price. In September 2018, the company opened a new store, WORKMAN Plus, in a shopping center that only sells products appealing to general consumers. WORKMAN Plus stores carry only 320 items, while the company's total product line consists of 1,700 items. The new store has successfully attracted general consumers by enhancing the shopping experience. (For example, the company has begun using mannequins and spotlights, which have not been used in WORKMAN stores.) In November 2018, the company opened a hybrid type of WORKMAN Plus store, which sells to both pro customers and consumers and carries a much broader product line than the WORKMAN Plus stores in shopping centers. Since then, all subsequent newly opened stores have been hybrid WORKMAN Plus stores.

Profitability

Workman's five-year averages for the return on invested capital (ROIC) and the return on sales (ROS) exceeded the industry average by a wide margin. (Profitability analysis was conducted by PwC Japan.)
Profitability

Activity System Map of Workman

活動システム・マップ

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