The Toys “R” Us executives were eager to enter one of the world’s toughest retail markets, Japan. The eagerness was triggered by the Japanese market for toys. Japan was a great market for toys and so much so that it was the second largest toy market in the world right behind the United States. However, the company would have to face tremendous hurdles given the structure of Japan’s retail industry that made it difficult for new foreign retailers to establish themselves in the market. In addition, the Japanese toy industry was grounded on the position of distributors who served as the middlemen between manufacturers and retailers. Thus, business was dependent on personal commitments as opposed to competitive terms. For this reason, foreign companies could not generate enough scale in manufacturing and retailing. However, Toys “R” Us was determined to establish itself in the Japanese toy industry with the plan of dispersing in the discount market, creating large-scale stores, and maintaining low prices by negotiating with manufacturers.
The specific structure of the Japanese retail proved to cause much difficulty for the Toys “R” Us company. Japan consists of lots of small shops or outlets that employed five or less people. The Japanese distribution system and the retail structure was a reflection of the Japanese culture, which included preference for small items and small quantities of goods to purchase. There was also fragmentation in the part of the retailers and the wholesalers. The manufacturers sold their product at a suggested price to the wholesalers. Consumers enjoyed the benefits employed by the manufacturer including repair or replacement service. Toys “R” Us would have to overcome the issue of the retail structure, which consist of retailers dealing with a number of middlemen because Toys “R” Us is used to dealing directly with manufacturers