How Do You Say "Cool" in Japanese? Tsutaya

The vendor of youth culture is growing at breakneck speed

When the PlayStation 2 was set to go on sale in Japan two years ago, Ken Kutaragi, chief of Sony Corp.'s (SNE ) video-game operations, knew exactly where he wanted to stage the countdown to the launch. He picked the hip Tokyo flagship store of Tsutaya, the country's largest purveyor of movies, recorded music, and game software. Last November, Microsoft Corp. (MSFT ) Chairman William H. Gates III selected the same eight-story emporium, located in the youth-oriented district of Shibuya, to unleash the Xbox game machine on Japan. Why did two of the biggest names in the game world choose the same location? According to Kutaragi, it was because "Tsutaya symbolizes the fashion and culture that appeal to Japanese youth."

That's just what former fashion exec Muneaki Masuda had in mind when he founded the Tsutaya chain in 1985, under the corporate name Culture Convenience Club Co. Although he started out renting videos, Masuda's dream was to build an empire by selling "culture" in the form of film, music, and books. Today, CCC oversees nearly 1,100 Tsutaya shops--many of them operated as corporate franchises--that handle an average of 3 million transactions a day. The most popular outlets offer movie theaters and Starbucks coffee; they symbolize all that's cool today in Japan. The chain ranks as the nation's largest retailer of music CDs. It's also biggest in film and music software rentals, No. 3 in game software sales, and fifth in book retailing--and gaining fast. Moreover, CCC boasts 16.4 million card-carrying members, 35% of whom are in their 20s. And its Tsutaya Online Corp. ranks as one of Japan's top e-commerce sites.

Don't look for the Japanese recession at CCC. "This downturn has only helped us grow," says the 51-year-old Masuda, who credits his two college-age children with helping him to stay focused on youth trends. "Instead of going out, people are staying home to watch movies and listen to music." In fiscal 2001, CCC expects to earn operating profits of $35 million, up 47% over the previous year, on a 7% increase in sales, to $808 million. "This is a growing company with a strong brand and a very large following," says Masanobu Kuboi, an industry analyst with Ichiyoshi Research Institute in Tokyo. "One out of every five or six adults carries a Tsutaya card."

Masuda says he owes much of his success to an early bet on information technology. CCC was one of the first Japanese businesses to install an electronic system to keep track of inventory and customers, back in the 1980s. CCC operates a database that's a treasure trove of buying habits. The system can analyze trends hourly at each store. It also tracks demographics, consumer tastes, and other data in every major urban district--information that helps CCC decide what software to stock or where to open a new outlet.

Nothing has done more to boost Tsutaya's image as a vendor of youth culture than its online service, launched in mid-1999. Tsutaya's site is the most popular destination on the mobile Internet service i-mode, run by NTT DoCoMo. Some 2.4 million users regularly log on to conduct searches and order movie and music titles. CCC sends out discount coupons on the online service to help boost store sales. "We have seen sales jump by as much as 21% in a two-week period after sending out coupons," says Tsutaya Online CEO Takehiko Ogi.

Masuda, a native of Osaka, hasn't always called the right shots. His biggest blunder was investing heavily in a joint venture with the U.S. satellite broadcaster DirecTV; the venture went out of business two years ago. Masuda now pledges to stay true to his core business. His goal is to build Tsutaya, via mergers and acquisitions, into a chain of 3,000 shops with some 30 million members. Last year, he bought three chains, and he has since closed many of the money-losing shops and transformed others into Tsutaya outlets.

That's just in Japan. As Masuda sees it, the rest of Asia is ripe for culture convenience. CCC is stepping up its investment in Tsutaya Thailand, a chain of 90-plus shops that it hopes to expand to 130 by the end of 2002. If Masuda succeeds, Tsutaya could become Japan's next export success story.

By Irene M. Kunii in Tokyo

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