The purpose of this article is to clarify the reorganization of the hand-tool industry brought about by hardware wholesalers dealing with new markets, focusing on the hardware wholesalers and handtool manufacturers in Sanjo City, Niigata prefecture.
Many hardware manufacturers and wholesalers are located in Sanjo City, one of the hardware production and distribution centers of eastern Japan. During the past two decades, the distribution channels used by hardware wholesalers have shifted from the petty and small hardware retailer market, the main channels before the 1970s, to large-scale DIY (do it yourself) supermarket chains dealing in hardware, housewares, etc.
With the shift of market channels, DIY markets have become an important distribution channel for hand tools. Before the first half of the 1970s, hand-tool manufacturers mainly exported their products to North America through ‘
shosha’ in Kobe. In other markets, their connections were hand-tool manufacturers in Osaka, and machinery and tool ‘
shosha’ in Tokyo. In these transactions, the manufacturers acted as subcontractors making low technology hand-tools. Since the oil crisis of 1973, hand-tool manufacturers' exports have decreased drastically because of the higher value of the yen. Consequently they have tried to find other market channels. Thus selling to DIY stores through hardware wholesalers became their main new market, replacing exports.
The author analyzed the following three points: 1) the reaction of hardware wholesalers to the DIY market; 2) the changing relation between hardware wholesalers and the hand-tool manufacturers; and 3) the reorganization of the hand-tool industry under this changed relationship. The following was clarified in this study.
Hardware wholesalers, in order to enter into the DIY market, must meet the following conditions set by DIY stores: 1) maintaining a large range of goods in stock; 2) supplying goods to DIY stores on a ‘Just in Time’ (JIT) basis; and 3) reducing the unit price of goods. The leading hardware wholesalers that were able to meet these conditions started trading exclusively with DIY stores, and became so-called ‘
Shusanchi Tonya’, purchasing hand-tools from manufacturers not only in Sanjo City, but in Osaka and Southeast Asia to supply goods to DIY stores. However, they must rely on the manufacturers in Sanjo City in order to deliver goods to DIY stores on a JIT basis and in order to discount the unit prices of hand-tools. To cope with DIY store requests, it is important for them to reorganize their business relationships with manufacturers in Sanjo.
In the distribution of hand-tools, some hand-tool manufacturers and hardware wholesalers have formed an ‘agent system’-like ‘
Keiretsu’, in which manufacturers designate leading wholesalers as agents. Under this system, manufacturers are able to protect themselves from drops in price on the one hand, and on the other hand agent wholesalers can guarantee a reliable supply of hand-tools com pared with non-agent wholesalers. However, under this system agent wholesalers make lower profits on hand tools and cannot meet DIY store demands for flexibility.
Agent wholesalers have devised strategies to resolve these problems: 1) obtaining rebates from manufacturers by purchasing hand tools for cash; and 2) placing orders with manufacturers for privatebrand goods for which the agent wholesalers can determine the price. The manufacturers have had to comply with these changing business relations, although the ‘agent system’ was obsolate from their strategies, since they were afraid of losing trade with agent wholesalers which could compensate for the decrease in exports. As a result, agent wholesalers have been able to reduce unit costs in their transactions with DIY stores and obtain the usual profits.
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