Topic 1. Characteristics of the Japanese distribution system

In Japan, a manufacturer or importer almost always needs to rely on intermediate multi-tiered wholesalers* or agents. For overseas manufacturers, such intermediaries are typically distributors or agents that have a capability in importing, logistics and doing business in English.  

The core of Japanese distribution system is a wholesaler distribution model where wholesalers play a crucial role providing a business solution to both manufacturers and retailers by taking on all logistic transactions, promotions of goods and financial risks.

For those exporters that are new to this market, below explains the background of the system and how important it is to understand it before entering the market.

<Great number of wholesalers and retailers>

Japan is home to over 311,000 wholesale dealers and around 880,000 retail outlets (Approximately 25 wholesalers and 70 retailers for every 10,000 people – see Table 1) , which probably is the highest per-capita density in the world.

 

1. Important role played by wholesalers

The services provided by wholesalers are indispensable in linking together manufacturer and retailers. This is true not only for consumer goods but also for capital goods.

We explore the reasons why the existence of wholesalers is beneficial to parties on both sides.

1) Retailers prefer to deal with wholesalers

Due to limited space and dense urban populations, small retail stores have been and remain predominant points of consumer sales. Consequently, retailers like to keep their inventories low and the frequent small-lot deliveries made by wholesalers make this possible while manufacturers and importers, in contrast, tend to accept only relatively large orders.

2) Manufacturers (importers) prefer to deal with wholesalers.

A manufacturer or importer will gladly pay a percentage of wholesaler margin (approximately 12%**) if it means avoiding the time and expense associated with frequent low-volume deliveries to numerous retailers. In addition, the wholesaler performs many valuable services including sales promotion and bill collection, which helps reduce risk.

The Japanese distribution system may appear to be complex but a highly rational response to the conditions in Japan, offering great benefits to those who take the time to learn how to use it. By appreciating system and adapt the business strategy to the way the local businesses do, foreign companies will find it much easier to access the Japan market.

 

* Multi-tiered wholesale structure involves large trading houses, primary (large-sized) wholesalers, secondary (medium-sized) wholesalers, tertiary wholesalers and retailers.

**Margin percentage depends on the industry or product.

 

<Table 1  Comparison of Retail and Wholesale Businesses >

	Japan	Britain
Number of retail outlets	880,000 (2021)	324,995 (2024)
Number of wholesale dealers	311,000 (2022)	107,100 (2021)
Number of retail outlets per 10,000 people	70	48
Number of wholesale dealers per 10,000 people	25	15
Population (2022)	125.1 million	67.79 million

 

Reference:

Journal of Japanese Trade & Industry

EU-Japan Centre for Industrial Cooperation

International Trade Administration