INTEGRATIVE CASE 2

Bookoff, Amazon, and the Japanese

Retail Bookselling Industry1
Charles E. Stevens
Fisher College of Business,The Ohio State University

In the Japanese retail bookselling industry, where discounting is banned by a cartel formed by
incumbents, two new entrants, Bookoff and Amazon Japan, have successfully established
themselves recently.

The Japanese are voracious readers. With annual

sales approaching $10 billion, the Japanese retail
bookselling industry is approximately as large as the
US bookselling industry on a per-capita basis as of
2008.2 Despite the fact that the population of Japan
is only half that of the United States, Japan has
approximately 17,000 retail book stores compared
to the 11,000 book stores in the United States.3
Most of the largest book stores in Japan have been
in existence since the World War II era, if not
earlier—Maruzen (www.maruzen.co.jp [Japanese]
or www.maruzen.co.jp/corp/en [English]), one of
the largest booksellers in Japan, has been in business
since 1869.

However, the competitive environment in the
Japanese retail bookselling industry differs in many
respects from its US counterpart. First, whereas the
United States is dominated by a small number of large
retail chains (principally Amazon, Barnes & Noble, and
Borders), Japan is characterized by a large number of
relatively small stores. For example, while Maruzen’s
2006–2007 sales of $850 million are impressive by
Japanese standards, they pale in comparison to the sales
figures of Amazon ($14.84 billion), Barnes & Noble
($5.44 billion), and Borders ($4.24 billion) in the same
period (see Exhibit 1).4 Likewise, Maruzen’s 30 stores
© Map Resources
and 1,000 employees are greatly overshadowed by
Barnes & Noble’s 800 stores and 51,000 employees.
Additionally, while the American book market has
shown steady growth in the past decade, the Japanese
market has shrunk—industry sales have dropped by
20% over the last decade.5 As a result, several thousand
booksellers, mostly small “mom and pop” operations,
have been forced out of business.

1
This case was written by Charles E. Stevens (Fisher College of Business, The Ohio State University). © Charles E. Stevens. Reprinted
with permission. Yen has been converted at a rate of US$1 = 117 Yen (based on the average exchange rate from 2006-2007).
2
The Japan Times: “Why have Japan’s bookworms turned?” (January 6, 2008).
3
JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006, US Census.
4
Yahoo! Finance, Yahoo! Japan Finance.
5
JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.
387
 388 integrative case 2 Bookoff, Amazon, and the Japanese Retail Bookselling Industry

EXHIBIT 1 Net Sales of American and Japanese Bookstores ($ millions)

$16,000 $14,840

$14,000

$12,000

$10,000

$8,000
$5,440
$6,000
$4,240

$4,000

$1,282 $1,009
$2,000 $849
$458 $456 $395 $321 $98

$0
Amazon Barnes & Borders Amazon Kinokuniya Maruzen Bunkyodo Yurindo Bookoff Junkudo Heiando
Noble Japan

Sources: Yahoo! Finance, Yahoo! Japan Finance, Company web pages and annual reports. Sales figures are for 2006–2007.

This case introduces the competitive forces shap-
ing the Japanese retail bookselling industry, with an
emphasis on interfirm rivalry and two new entrants,
Bookoff (www.bookoff.co.jp) and Amazon Japan
(www.amazon.co.jp), both of which successfully
created unique strategies to succeed in an otherwise
stagnant industry.
Industry Dynamics
Suppliers
Book retailers usually buy their books from wholesalers
and sometimes directly from publishers. Competition
in the area of book distribution is very low. Nippon
Shuppan Hanbai (www.nippan.co.jp) and Tohan
(www.tohan.jp), both founded immediately after
World War II, traditionally control between 70% and
90% of the book wholesale market.6 Also, there is a
system called the Itaku Hanbai Seido (“Consignment
Sale System”) in place that allows retailers and whole-
salers to return unsold books to the publisher free of
charge, reducing risk and inventory levels for wholesal-
ers and especially retailers. Because retailers can return
unsold books free of charge, they carry book inven-
tories larger than what would normally be considered
efficient. As shown in Exhibit 2, many publications end
up being returned (the return rate for books is nearly
40%).7 Consequently, publishers and wholesalers prefer
to supply larger retailers first—the large sales volumes

6
Hoover’s Online: http://hoovers.com/.
7
JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.

Openmirrors.com
integrative case 2 Bookoff, Amazon, and the Japanese Retail Bookselling Industry 389

EXHIBIT 2 Percentage of Published Materials Returned to Publishers

45.0%

Books
Magazines

40.0%
39.9%
39.4% 39.1% 38.8% 38.7%
Percentage returned

37.7%
36.7%
35.0%

32.9%
31.7%
31.0%
30.0%
29.6% 29.4% 29.4%
28.9%

25.0%
1999 2000 2001 2002 2003 2004 2005
Year

Source: JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.

at the larger stores result in fewer books returned to
publishers, leading to higher profits for the large retail-
ers (because they have preferential access to the newest
and most popular books) and publishers (because they
do not have to worry as much about returned books
by supplying larger retailers first) alike.
Although the publishers’ policy of supplying large
retailers first has helped the bottom lines of the large
retailers and the publishers, small retailers are increas-
ingly going out of business because they are unable
to stock their stores with the newest bestsellers.8
Customers, in turn, must go to larger retailers since
customers are unable to find the books they want at
their neighborhood book stores. Thus, small retailers
are confronted with the following paradox: Publishers
will not supply them with the most lucrative bestsellers
because of the small retailers’ declining sales and the
risk of returned books, but the small retailers’ declining
sales are due in large part to the fact that publishers will
not supply them with the most lucrative bestsellers (!).
Buyers
The rise of the Internet has had a profound effect on
the bookselling industry in Japan. While the Japanese
used to lag behind other developed economies in
terms of Internet penetration several years ago, they
have now closed the gap. In 2002, 40% of Japanese
were Internet users compared to 60% of Americans. In
2007, the figures were 68% and 70%, respectively, for

8
The Japan Times: “Why have Japan’s bookworms turned?” (January 6, 2008).
 390 integrative case 2
Japanese and Americans—a virtual tie.9 The Internet
as a substitute form of entertainment has been cited
as a cause for the overall drop in book sales in Japan,
but others note that despite similar Internet use in the
United States, the American publishing industry remains
strong.10 One advantage of the rise of the Internet,
however, has been the accompanying increase in
online book sales. Whereas few Japanese booksellers
had websites for e-commerce at the beginning of the
decade, most now have websites where customers can
order books. In 2005, over $80 million in book sales
were conducted over the Internet in Japan—a 50%
increase from 2004 (!).11
Several aspects of Internet usage are relatively
unique to Japan. First, the use of mobile phones to
access the Internet is much higher in Japan than the
United States. Japanese users not only purchase books
using their phones, they also read books on their
phone. This has even given rise to a new book genre
created to take advantage of this unique medium—the
so-called “cell phone novel” that tends to be shorter
in length and also incorporates graphics and anima-
tions.12 Also, while Internet usage has increased in
Japan, e-commerce continues to lag behind relative
to the United States. This is due to the aversion of
many Japanese to credit card use and fears of identity
theft—Japan is still largely a “cash society” despite the
recent increase in the use of credit cards and even cell
phones to make purchases. Given that credit cards are
the primary payment method for online transactions,
this mentality has understandably hampered e-commerce
in Japan.
Interfirm Rivalry
As noted earlier, interfirm rivalry in this industry is
characterized by large numbers of relatively small
booksellers. While the American bookselling indus-
try is dominated by the triumvirate of Amazon,
9
Internet World Stats: http://www.internetworldstats.com/.
10
The Japan Times: “Why have Japan’s bookworms turned?” (January 6, 2008).
11
JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.
12
JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.
13
M. Kotabe & K.W. Wheiler, 1996, Anticompetitive Practices in Japan (p.86), New York: Praeger.
Openmirrors.com
Bookoff, Amazon, and the Japanese Retail Bookselling Industry
Barnes & Noble, and Borders, the Japanese market
has no dominant bookseller or booksellers that have
cornered the market (see Exhibit 1). One of the key
reasons that no significant industry consolidation
has occurred is the unique price-fixing system that
makes it illegal for larger and potentially more effi-
cient booksellers to use price competition to drive
out small competitors. Since 1980, laws have allowed
publishers to fix the price of new books, music, and
newspapers in the bookselling industry. In other
words, if the publisher sets the price of a book at
5,000 yen (approximately $45), all retailers are obli-
gated to sell that book to the consumer for exactly
5,000 yen. The fixed price means that retailers are
unable to compete on price.
These price-fixing laws are known as the Saihanbai
Kakaku Iji Seido (“Resale Price Maintenance System,”
commonly known as the “Saihan system”). Despite
anti-monopolistic legislature in Japan, cartels are
illegal only if they substantially restrain competi-
tion “contrary to the public interest.”13 Supporters
of the Saihan system have successfully argued to
the Japanese government that cartels in the book
publishing and retail industry neither run contrary
to the public interest nor substantially restrain com-
petition. They argue that the Saihan system increases
the number of publishers and booksellers, giving
consumers a greater choice of reading materials and
booksellers. Combined with the ability of retailers
to return unsold books, this encourages booksellers
to take a chance on giving shelf space to the works
of lesser known authors. Thus, even though book
sales have been decreasing over the past decade, the
number of new titles has indeed been on the rise (see
Exhibit 3).
While it is true that the number of booksellers,
publishers, and book titles are comparatively higher
in Japan since the introduction of the Saihan system,
this has not translated into higher sales. Stagnation in
integrative case 2 Bookoff, Amazon, and the Japanese Retail Bookselling Industry 391

EXHIBIT 3 Japanese Bookselling Industry: Declining Sales, Increasing New Titles

78000 9.5

76000

74000 9

72000

70000 8.5
New titles

68000

66000 8

64000

62000 7.5

60000 New Titles

Book Sales

58000 7
1997 1998 1999 2000 2001 2002 2003 2004 2005
Year

Source: JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.

sales along with the steady increase of costs over time
has reduced the profitability of both large chains and
small stores. This has led industry analysts to predict a
coming wave of mergers and consolidations.14
A book available in multiple book stores is an
undifferentiated commodity. Consequently, competing
on price would be a normal competitive strategy for
new entrants. However, because of the Saihan system,
which makes discounting illegal, it would appear that
the already oversaturated Japanese retail booksell-
ing industry would be an inhospitable host for new
entrants. Nevertheless, there have been two recent
entrants, Bookoff (founded in 1991) and Amazon
(which entered Japan in 2000). Both have threatened
to revolutionize the bookselling industry in Japan in a
surprisingly short time (see Exhibits 4 and 5). Despite
the difficulty of entering a saturated and largely undif-
ferentiated industry, Bookoff and Amazon each used
dramatically different strategies to succeed. The next
sections will consider each company separately, and
chronicle their successes and setbacks.
Bookoff
Over the years, Bookoff has been accused of unfair
competition, cheating authors out of royalties, repre-
senting a threat to Japanese culture, single-handedly

14
The Japan Times: “Why have Japan’s bookworms turned?” (January 6, 2008).
 392 integrative case 2 Bookoff, Amazon, and the Japanese Retail Bookselling Industry

EXHIBIT 4 Sales Trends in Japan

$1,400

$1,200

$1,000

$800

$600

$400

Amazon Japan
Bookoff
$200
Maruzen
Bunkyodo
Kinokuniya
$0
2001 2002 2003 2004 2005 2006 2007

destroying the nation’s book industry, and corrupt-
ing Japanese youth.15 However, Bookoff is not a
“foreign invader.” It is entirely Japanese owned. The
reason why competitors spit venom when they hear
founder Takashi Sakamoto’s name, and the reason
why Bookoff has grown from one store to become
one of Japan’s largest retailers (with almost 900 stores
as of 2008) in only a decade is simple: Bookoff uses
a loophole in the Saihan system that enables it to be
the only major bookseller that can lower the prices on
their merchandise. The same Saihan system that sup-
ported the bookselling cartel for decades is the same
system that is now handcuffing the industry leaders.
Bookoff has taken advantage of the situation, seeing
its sales soar to almost $400 million in the 2006–2007
fiscal year—doubling its performance in five years.
The reason Bookoff can lower prices is due entirely
to the fact that it is a used-book store. Used books are
a major exemption to the Saihan system, as are books
published outside of Japan (such as English language
titles imported from the United States). It should be
noted that Sakamoto prefers to call Bookoff a “new-
used” book store. Due to several new technologies
that Sakamoto has championed, Bookoff is able to
“rehabilitate” used books, using techniques that clean
book covers and grind down dog-eared pages to make

15
TIME Asia Online: http://www.time.com/time/asia/magazine/article/0,13673,501030217-421071,00.html.

Openmirrors.com
integrative case 2 Bookoff, Amazon, and the Japanese Retail Bookselling Industry 393

EXHIBIT 5 Financial Performance of Three Japanese Industry Leaders

and Amazon
B OOKOFF M ARUZEN B UNKYODO A MAZON
Stock Price $4.42 $0.91 $3.93 $72.96

EPS $0.90 $0.39 -$0.75 $1.12

Price/Earnings 4.96 2.46 -5.22 64.97

ROE 19.76% 73.92% -25.89% 58.48%

ROA 8.00% 9.49% -1.96% 7.55%

Source: Yahoo! Finance, Yahoo! Japan Finance, data from February 18, 2008.

a used book look practically new. In other words,
Bookoff is able to sell books at new book quality
and used book prices—and because of the Saihan
system there is nothing competitors can do about it!
Additionally, Bookoff stores are as large, clean, and
bright as the stores of large retailers like Kinokuniya or
Maruzen. The only visual difference between Bookoff
and its competitors is the price tag (!).
Another difference between Bookoff and its com-
petitors is the organization of the company. Unlike
most bureaucracy-laden Japanese companies, Bookoff
stores are all franchised, and owners and employees are
encouraged to act like entrepreneurs. Additionally,
unlike traditional used-book stores, Bookoff has a
simple buy-back policy: it buys books from the cus-
tomers at 10% of its list price and sells them at 50%
of their list price (the list price is the price “fixed” by
the publisher that the other booksellers must sell new
books at). In other words, Bookoff would buy a 5,000
yen book for 500 yen and then sell that book, once it
has been cleaned, for 2,500 yen.
At first glance, it may seem miraculous that a used-
book store has had such great success in Japan, a country
that is traditionally image-conscious. However, Japan
has been in and out of recessions since the early 1990s,
and consumer buying trends are reflecting financial
hardships. Economic realities are reshaping values, and
attitudes toward used goods are becoming favorable.
Consumers are becoming more focused on the effi-
cient use of a good instead of simply the possession of
it.16 A “new-used” book store such as Bookoff is an
acceptable compromise for the still image-conscious,
but increasingly thrifty, Japanese consumer.
Young people in particular are getting on the
Bookoff bandwagon. Forty percent of students in
Japan now prefer these new-used stores to new
stores.17 The entire used-goods industry in Japan is
increasingly being referred to as the “recycle indus-
try” by its members, emphasizing the environmental
benefits of “recycling” older goods, such as books
and CDs, instead of simply throwing them away.
As Japan moves away from its bubble economy and
kaisute (buy-and-throw-away) mindset of the 1980s
and 1990s, and as Japanese youth grow increasingly
vocal in voicing their discontent toward the low
priority the environment is given by the govern-
ment, this has become a smooth marketing move
that has paid off for the self-styled “recycle stores.”
People can make a few yen selling back their old
books, save a few by buying new-used ones, and
come out feeling frugal and environmentally con-
scious without suffering a drop-off in the quality of
their books. It appears to be a win-win situation for
consumers and for stores like Bookoff.

16
Ion Global – Japan Internet Report: http://www.jir.net/jir9_02.html.
17
The Book & the Computer: http://www.honco.net/os/index_0302.html. “Student” is defined as students from elementary school
through college.
 394 integrative case 2
Amazon Japan
By the end of 2000, Amazon had already established
itself as one of the three main booksellers in its domestic
market, along with the much older Barnes & Noble
and Borders. Amazon’s success in the United States
was based on its price advantage and wide selection, as
it was able to offer a greater variety of books at a lower
price than its bricks-and-mortar competitors. The less
concentrated Japanese bookselling industry—the larg-
est Japanese bookseller, Maruzen, was only one-fifth
the size of Amazon’s largest American competitor,
Barnes & Noble—seemed ripe for the taking. When
Amazon opened the “virtual doors” on its Japanese
subsidiary on November 11, 2000, it appeared to be
in a position to exploit a first-mover advantage and
feast on a Japanese bookselling industry characterized
by a large market but small competitors. However,
optimism soured quickly when Amazon Japan’s 2001
sales were a disappointing $150 million—a drop in
the bucket compared to Amazon’s worldwide sales of
$4 billion. Amazon’s struggles were puzzling given its
great success in the United States.
Not surprisingly, the primary source of Amazon’s
troubles lay with the unique Saihan system of Japan.
For Amazon, whose primary competitive advantage
rested on its ability to offer the lowest prices, the Saihan
system was a critical roadblock. While this could have
spelled doom for Amazon, by the end of 2007 Amazon
stood on top of its Japanese competitors, raking in
approximately $1.3 billion in sales (almost ten times the
sales volume of 2001). In 2001, Amazon’s sales in Japan
made up only 4% of its global sales. By 2007, Amazon’s
Japan operations accounted for over 10%.18
How did Amazon do this? First, even though
Amazon was not the first online bookseller in Japan, it
was the first to sell a wide variety of products besides
books. Seven months after opening its Japanese store,
Amazon added music, DVDs, and videos to its selec-
tion of books. In October 2001, Amazon began selling
computer software and video games. By 2005, the soft-
ware and gaming division was Amazon’s second-largest
source of sales after books. Games are not regulated
by the Saihan system, which allows Amazon to give
18
Amazon does not separate its international sales by country, so sales figures here are from estimates by industry experts (for example,
CNET Japan: http://japan.cnet.com/news/media/story/0,2000056023,20089876,00.htm).
Openmirrors.com
Bookoff, Amazon, and the Japanese Retail Bookselling Industry
its customary 20%–30% discounts for these products.
Between 2001 and 2008, many more products were
added, including electronics, kitchen appliances, toys,
sporting goods, and health and beauty products. By
2005, book sales made up less than half of Amazon
Japan’s total sales, a clear indication of the growing
breadth of Amazon’s product lineup. By this time,
Amazon’s online sales presence was nearly as large as
that of Yahoo!’s Japanese site and Rakuten, the Japanese
equivalent of eBay. Unlike books and music, many
of these products are not under Saihan regulations,
allowing Amazon to offer a large variety of products at
discount prices. Even though Amazon was unable to
sell books, music, and a few other core products at dis-
count prices, it was able to differentiate itself by offering
a larger selection of products than its competitors.
Second, Amazon adjusted to the unique cultural
environment of Japan. As mentioned earlier, a fear
of fraud has made the Japanese comparatively more
hesitant to make Internet credit card purchases. In
response, Amazon Japan started a service in April 2006
that allowed its customers to make payments at any of
over 70,000 convenience stores and ATMs through-
out the country, enabling customers to avoid the
risk of online fraud (as of 2007, Amazon Japan is the
only Amazon subsidiary to offer this service). Also, in
Japanese book stores there is a long tradition of tachi-
yomi (standing-and-reading), where customers will
pick up a book or magazine and stand to read it for as
much as an hour or two. Following in the footsteps of
its US online store, in November 2005 Amazon Japan
began to offer the “look inside” option for many of
its books, allowing customers to read excerpts and pas-
sages from books before they purchase them.
Finally, Amazon used clever methods to bypass
the Saihan system to indirectly offer products at lower
prices. First, Amazon offered free shipping on pur-
chases over 5,000 yen (approximately $45). Later, the
minimum amount was lowered to 1,500 yen (about
$13)—lower than the $25 minimum offered by its US
online store (as of 2008). Free shipping put Amazon
on par with its bricks-and-mortar competitors, but
gave it an advantage over other online stores that by
and large did not (or could not) offer this service. Late
integrative case 2 Bookoff, Amazon, and the Japanese Retail Bookselling Industry
in 2003, Amazon Japan opened a Japanese version of
its highly successful “Amazon Marketplace,” where
third-party users sell both new and used products to
each other. This allowed Amazon to indirectly sell
books and music at prices below Saihan-mandated
prices as third-party users. These third-party users,
who are not bound by Saihan laws, officially made
the transaction, not Amazon. Finally, Amazon started
using a points system that allowed customers to accu-
mulate points based on the price of items purchased
that could be redeemed for a gift certificate. Even
though Amazon could not discount the prices on
each item directly, the one-to-one correspondence
between the price of items purchased and redeemable
gift certificates created a nearly identical result. Several
Japanese publishers have vehemently protested the use
of this point system as a violation of the Saihan system
of price fixing, but other retailers have followed suit,
making the point system a common practice in the
Japanese bookselling industry.19 Despite a slow start,
once Amazon adjusted its strategy to the unique insti-
tutional environment of Japan, its sales took off and
allowed the company to enjoy the same success it had
gained in its home US market.
Future Trends
The main defining characteristic of the Japanese
retail bookselling industry is the unique institutional
context. The Itaku Hanbai system that allows retail-
ers to return books to publishers free of charge and
the Saihan system that allows publishers to fix the
price at which retailers can sell their books to the end
consumer have been in place since 1980, and have
dramatically affected the competitive dynamics of this
industry. Although there have been several attempts at
reform, the government has not been able to garner
19
JETRO: Nihon no Shuppan Sangyo no Do-ko- 2006.
20
Japan Entrepreneur Report: http://www.japanentrepreneur.com/200302.html.
395
enough support or motivation to pass anything yet.
However, Japanese antitrust laws are currently in a
state of flux, and with the “unfair” success of Bookoff
and Amazon Japan in getting around aspects of the
Saihan system, the clamor for reform (if not out-
right repeal) of the system has dramatically increased
both within and outside the industry.20 Although the
Japanese government has historically been slow to act,
given the general malaise of the Japanese economy and
the government’s desperation to jump-start it, many
see open competition as inevitable. Booksellers world-
wide eyeing Japan must continue to focus on this situ-
ation. Any change that occurs in Japan will radically
alter how domestic and foreign booksellers approach
this large and potentially lucrative market.
Case Discussion Questions
1. Why is the profitability of large Japanese retail
booksellers relatively poor and their scale rela-
tively small?
2. The Saihan system serves as a price-fixing cartel to
deter entry. This practice, often labeled “collusive”
and “anticompetitive,” would be illegal in many
countries such as the United States. What are the
benefits for individual companies and the industry
to participate in this system? What are the costs?
3. Draw on the industry-, resource-, and institution-
based views to explain the success of Bookoff and
Amazon Japan.
4. What is going to happen if the Saihan system
dissolves?
5. If you were a board member of Barnes & Noble
or Borders, would you approve a proposal to open
a series of book stores in Japan now? Would you
change your mind if the Saihan system dissolves?