SELLING AMERICAN TO THE JAPANESE : Japan Sees Revolution in Retailing : Sales: Discount stores, including Toys R Us, promise to transform what has been a land of high prices and limited inventory.

INASHIKI, Japan —  Hundreds of miles from Tokyo, in the suburbs of Ibaraki to the north and Matsumoto to the west, the seeds of a retail revolution are slowly beginning to sprout.

In Ibaraki, America’s biggest toy store has won a three-year battle to enter the $6-billion Japanese toy market, the world’s second largest. Toys R Us has brought its low, everyday prices and vast selection to this store and a second one near Osaka, which President Bush inaugurated amid much fanfare last week.

A four-hour drive west in the mountainous region of Matsumoto, Genichiro Nishimura has opened a two-story discount store stocked with everything from color television sets to cat food at prices 40% lower than normal. Inspired by a trip to the United States 20 years ago, Nishimura’s sales have doubled in the last year and he is now applying to expand his store.

Thanks to a new law passed under U.S. pressure in 1989, other retailers are expected to jump into the large-scale discount game and “the competition will become fierce,” Nishimura predicted. Already, more than 90 large shopping centers are scheduled to open in Japan this year, and the number of malls are expected to double to 3,000 by the end of the decade.

The trend promises to significantly transform what has been a land of astonishingly high prices, brand snobbery and limited inventory. That may be bad news for Japan’s small merchants. They call Toys R Us the “Black Ship” of American large-scale retailing--referring to 19th-Century traders who first forced open Japan’s markets. The shopkeepers warn of dire consequences--from bankruptcy to suicide.

But it’s most definitely good news for Japan’s long-suffering consumers, people such as Mika Arai, 32.

On a recent Saturday, she braved the three-hour drive from Tokyo to Toys R Us in Ibaraki and was shocked to find priced at $48 the same Lego products that cost her $75 at a Tokyo department store during Christmas.

“We think it’s great,” Arai said as she scooped up packages of Lego castle sets for her sons, ages 3 and 5. “Toys are so expensive in Japan, especially brand products like Lego and Fisher-Price. They should have many more stores like this.”

Arai should get her wish thanks to the 1989 revisions in Japan’s retail law. Previously, the law shielded small merchants from competition by allowing them to delay large retailers from opening stores for as long as 10 years. As a result, Japan’s 1.6 million small merchants account for more than half of all retail sales, compared to 3% in the United States.

After U.S. pressure, however, the Japanese government shortened the process to about 18 months. Toys R Us was the first foreign firm to take advantage of the change. Despite numerous obstacles, its opening day in Japan on Dec. 20 was the firm’s most successful in history, drawing 17,000 customers. Employees finally had to lock the doors to prevent a stampede.

Toys R Us stocks about 8,000 items, ranging from Huffy bicycles to Nintendo video games, compared to about 2,000 items at other Japanese toy stores. The firm plans to open 100 stores throughout Japan.

Larry Bouts, international division president, said one sticking point was trying to bypass Japan’s wholesalers and suppliers and cut direct deals with toy makers. Although he won’t disclose details, Bouts said the firm was able to use the leverage of its purchasing power--Toys R Us is the No. 1 customer for many Japanese toy makers--in order to strike deals when many predicted that they wouldn’t be able to nail down one.

“It’s an example of how there has been some progress to open the market from the retail sector,” Bouts said.

“Japan as a country should see this in a positive light,” he added. “Now that it’s transitioning into a world power, it should be confident enough to allow others to participate in its market.”

Hideyuki Tanaka is inclined to agree. A manager of the small and cluttered Fancy & Toys a few blocks away, Tanaka said he originally believed that trying to compete with Toys R Us was like “trying to fend off a B-29 with bamboo spears--impossible.” Indeed, the week before Toys R Us opened, his business dropped by 30%, and he was sure that he would starve.

But since then, business has increased 15%, and some of his old customers are returning with complaints about Toys R Us. No service, they say. No staff to explain how toys work, or what are the new trends, or what would be the best gift for a 3-year-old. Sensing an Achilles heel, Tanaka said he intends to fight the toy Goliath with superior service. In three months, he hopes to see a resumption of his sales.

Whether the Japanese consumer, regarded as the most finicky and pampered in the world, can really be satisfied by cut-rate service is a question that has crossed Nishimura’s mind. He says they can--for now.

“Japanese used to buy only brands. It was the value that if it’s expensive, it must be good,” Nishimura said. But he said that value has begun to diminish for two reasons. First, consumers have became more educated, able to make their own judgments on quality without blindly following a brand. And second, many products have become almost commodities, with no significant difference between various brands of, say, televisions.

In such an environment, a good price looms larger in importance than department-store type service, where salespersons hover around to assist, explain, recommend or critique, Nishimura said.

Aiming to prove his hunch, Nishimura opened his store, Nishigen, last April in Matsumoto. Relatively low land prices are the reason such large retail stores are opening in outlying suburbs. Matsumoto land prices, for instance, are 30 times cheaper than in Tokyo.

Like Toys R Us, Nishimura keeps his prices down by striking several direct deals with manufacturers. His firm is also virtually free of debt, eliminating interest charges, and he pays for goods on a cash basis.

He was first inspired by a trip to the United States 20 years ago, when he was shocked by the variety of retail outlets--from first-class Tiffany & Co. to cut-rate discount shops. Japan is now entering a similar era promising a far greater variety of retail options, he said.

But the wily merchant is already thinking 10 years ahead. As more large retailers follow suit and cut service in order to offer a better price, Japanese consumers will start missing the old pampered treatment, he predicted. That’s when he intends to introduce a consulting service for a fee, giving consumers the choice of low prices or good service in the same store.

For now, however, low prices are still captivating consumers. Akira Onuki, 14, has visited Toys R Us three times since opening day, spending $240 on video games. His buddy, Kazushige Murakami, 14, has $250 in New Year’s gift money burning his pockets, and he is trying to decide which software to buy. Neither boy needs explanations; indeed, they probably know more about the latest video games than the adults.

“The location is a little inconvenient, but this place is the cheapest in town,” Onuki said. “So everyone will keep coming.”

How Toy Prices Compare

Here is a comparison of Japanese and U.S. prices for toys checked by the Associated Press at the Toys R Us store that President Bush visited in Japan and at a suburban Washington outlet. The Japanese prices, in yen, have been converted to dollars:

Toy Price in Japan Price in U.S. Nintendo Game Boy $71.38 $89.99 Crayola 72-crayon set and case $6.25 $9.99 Monopoly $15.44 $9.99 My First Barbie $12.19 $9.99 Mattel Hotwheels cars $1.21 $0.99 Lego Basic tote pack 525 $13.41 $9.99