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Article | Retail Business Finance

With weak performance, MUJI has adopted three strategies: price cuts, ecosystem building, and sideline businesses. However, it still failed to improve the core problem.

MUJI’s “coffee story” has been expanded a bit.

Not long ago, the first coffee pop-up store in China was unveiled in Suzhou. At the same time, Café MUJI's first store in Shenyang officially opened. One is the first pop-up store, and the other is the first store in the city. Due to the "scarcity", both stores have staged a grand queue.

In sharp contrast, Café & Meal MUJI in Harbour City, Hong Kong has ceased operations.

Behind the "two-level reversal" is the shift of MUJI's overall strategic focus to the mainland.In 2021, MUJI announced its store expansion plan in China by 2024, and will open 50 stores in China every year. In February 2024, MUJI opened its largest flagship store in China in Joy City Chaoyang, Beijing, covering an area of ​​nearly 5,000 square meters; in May and June of the same year, 17 new stores were opened in China, covering more than a dozen cities.

The acceleration of store openings is the main means for MUJI to "exchange store scale for performance growth". Since 2016, MUJI's revenue in mainland China has continued to decline. In order to save the decline, it chose to use expansion to "balance" the decline in single-store performance. For example, the intensive opening of 5 new stores in December 2023 directly increased the year-on-year revenue growth rate from 33.6% to 47%.

However, this is not a long-term solution. If the profitability of existing stores is not improved, over-expansion will only increase the risk of future losses.Crossing over to the coffee business has become a way for MUJI to improve the profitability of individual stores.

The Suzhou pop-up store is a typical example. It is now on the eve of the opening of Suzhou Yanlord Cangjie store on August 16. The pop-up store retains the MUJI-style minimalist aesthetics and incorporates the Jiangnan style in accordance with local conditions. In addition to regular products, it also specially launches limited products and peripherals. While continuing to convey the brand culture, it also undertakes the task of creating momentum and attracting traffic for the new store.

The effectiveness of the cross-border business remains to be seen, but MUJI’s real intention is not “coffee”; this move is just a roundabout way to save the country.

01 If you don’t have enough “strength”, you can make up for it with “limitation”

MUJI put a lot of thought into this pop-up coffee shop.

First of all, Suzhou can provide the greatest support for coffee shop operations.

On the one hand, Kunshan in Suzhou is a "newcomer" in coffee production in recent years. In 2022, Suzhou's coffee cargo volume reached 90,000 tons, ranking first in the country; on the other hand, as a new first-tier city, Suzhou has already developed a coffee mentality. The advantages of production area and population have laid the foundation for MUJI on both the supply and demand sides.

In terms of location, the pop-up store is located in Suzhou Yanlord Cang Street, in the heart of the ancient city area, only two kilometers away from famous attractions such as the Humble Administrator's Garden, Suzhou Museum, and Pingjiang Road, ensuring the store's traffic. In addition, as a high-end commercial district, Cang Street's main consumer groups also fit in with Café MUJI's mid-to-high-end positioning.

In terms of venue design, the pop-up store combines MUJI's simple style with Jiangnan characteristics. On the front, the green tiles and white walls are set against the Chinese window lattices, showing the Suzhou garden style; on the back, the MUJI original wood color is the main color, and the woven sack decoration presents a natural storage scene of coffee beans, showing the "MUJI-style" philosophy of life.

However, the pop-up store is small, with only a few chairs at the door and the rest area at the back can only accommodate a few customers. The open venue lacks a sense of experience under the scorching sun.

On the product side, MUJI has taken advantage of the Suzhou-style gardens and launched three limited drinks, all of which are matcha products with white and green colors, euphemistically called "Suzhou style". The three drinks are priced at 28 yuan, continuing Café MUJI's usual pricing. In order to enhance exposure, the "limited-time benefits" also launched a Xiaohongshu check-in event, where you can add a topic and get a mini ice cream.

Prices and nearby coffee brands at this pop-up storeStarbucks, M Stand, and Peet's Coffee belong to the same price range, which also means that MUJI's coffee pop-up store has to compete head-on with mid-to-high-end brands in the coffee industry. The core competitor is the third intangible cultural heritage concept store of Starbucks next door.

Similar to MUJI, the intangible cultural heritage concept store also focuses on cultural output. The store fully demonstrates various Suzhou intangible cultural heritage elements, including garden-style decorations such as winding paths, window holes, pavilions and pillars. It is reported that the store also has an intangible cultural heritage skill experience area, where activities are held from time to time, allowing customers to understand and learn intangible cultural heritage knowledge and experience intangible cultural heritage handicrafts while tasting coffee.

In comparison, the cultural heritage of Café MUJI Suzhou pop-up store is relatively shallow, remaining only at the level of scene decoration.

Perhaps the only highlight is the limited edition badge peripherals with unique Suzhou characteristics (Pipa version and Garden version), which are given as a gift when you buy two cups and are currently being sold for 50 yuan each on Xianyu.

However, although the badge is popular, it can only bring in new customers. The real support for repeat purchases and store traffic still depends on coffee products. However, the quality of Café MUJI's coffee does not match the high price. Most consumers reported that they would give it a try for the badge, but the taste of the coffee is not good.

It is worth noting that Café MUJI’s pop-up store will last for three months, and whether its subsequent sales can remain strong after the popularity of the badges fades remains to be seen.

"Retail Business Finance" believes that MUJI's coffee pop-up store is more about attracting traffic to subsequent new stores than making coffee, and the so-called "Suzhou style" in the promotion is also a little lacking in sincerity. Admittedly, the Suzhou pop-up has created traffic and promoted brand interaction, but if the coffee price-performance ratio fails to win word of mouth, it may damage the brand's goodwill and pose a hidden danger to long-term development.

02 Is coffee the “savior” of MUJI’s performance?

Investing so much energy in coffee pop-up is inseparable from the current worrying performance of the brand itself.

MUJI is facing a situation of "double failure" both online and offline. On the offline side, MUJI has been in a delicate dilemma since some time ago: the store is crowded with people, but most customers are just "wandering around", with low willingness to buy, and the "guess the price" game is popular.High customer traffic failed to translate into actual sales growth。

In addition, most of MUJI's stores are located in mid- to high-end shopping malls, and the stores occupy a large area. The high store operating costs and low conversion rate put pressure on its offline store performance. In Q2 2018, its comparable same-store growth rate showed negative growth for the first time. According to Nikkie Asia, in August 2023, MUJI said that sales growth in its Chinese stores was slowing down.

On the online side, MUJI has successfully exported the brand symbol of "MUJI style" in China, which is both its core competitiveness and its biggest weakness. Simple packaging and product design, and the unchanging style for thousands of years make it very easy to copy. As a result, many white-label merchants have emerged online, taking a share of MUJI's cake with lower prices and similar styles.

The problems on the sales side are directly reflected in the finances. The Q2 financial report for fiscal year 2024 released by Muji's parent company Ryohin Keikaku shows that from September 2023 to February 2024, the company's revenue and net profit reached 31.9839 billion yen and 15.8 billion yen respectively, a year-on-year increase of 12.88% and 114.3%.

In 2021, former Uniqlo executive Nobuo Domae became the president of Ryohin Keikaku (MUJI's parent company). In the year he took office, he set a goal of achieving revenue of 700 billion yen by August 2024. Now that 2024 is halfway through, judging from the current performance, it will be difficult for MUJI to achieve its goal.

The root cause of the current predicament is the serious premium of MUJI in the Chinese market. After entering the Chinese market, the brand deviated from the "low price and high quality" positioning in Japan and turned to pursue the route of light luxury brands. The pricing strategy is relatively simple and crude. Data shows that in China, the prices of MUJI's domestically produced products are 25%-30% higher than those in Japan.

In the early days, the brand story was still "tellable". The aesthetic trend of young people in China was deeply influenced by Japan and South Korea. With its simple, fashionable and high-quality design concept, MUJI once became the iconic choice of domestic white-collar workers. Its brand charm made many consumers willing to pay the "brand premium".

However, with the rise of the "quality-price ratio" trend, domestic consumers no longer blindly pursue "brands" for consumption. At this time, MUJI had no price advantage and no absolute quality, and was frequently caught in quality and safety storms. Its products failed random inspections many times, and its performance was inevitably weak.

MUJI is clearly aware of the root cause of its sluggish performance and is working hard to change its domestic business philosophy.

First, price reductionSince 2014, MUJI has implemented 11 consecutive price cuts in China. The former president, Akira Matsuzaki, was determined to adjust the prices in the Chinese market to be comparable to those in the Japanese market, but this goal has not yet been achieved.

In addition to direct price cuts, MUJI has also adopted a variety of disguised price cuts. Since 2018, its Chinese stores have added long-term discount areas, combined with winter and summer discount seasons, to further attract customers. At the same time, through cooperation with shopping malls, payment platforms and banks, multiple discounts have been launched to allow consumers to enjoy an unimaginably low-price shopping experience. There is no shortage of popular strategies for sharing such "wool grabbing" on Xiaohongshu.

However, the effect of price reduction is limited and can only improve performance in the short term. Long-term price reduction will damage brand value.

Second, shift the focus to brand ecology and strengthen one's own brand effect.For its core business, MUJI strives to promote product differentiation and design localization. For example, its Beijing flagship store launched new products such as AI-flavored French fries for the first time, attracting customers through differentiated new products; the Henan dialect slogans in the Zhengzhou store and the tie-dye and flowers in the Yunnan store highlight the uniqueness of the brand IP, continue to bring freshness to consumers, and bring them closer.

Image source: Xiaohongshu

The third is to “do a side job”.MUJI has successively launched various business formats including home decoration services, apartments, supermarkets, hotels, vegetable markets, restaurants and cafes, aiming to deeply penetrate MUJI's unique design aesthetic concepts into the daily lives of Chinese consumers through diversified touchpoints and continuously strengthen the brand imprint of "MUJI style".

However, things did not go as planned. The MUJIcom convenience store and Powerlong Apartment Designed by MUJI projects launched in 2020 failed to continue operating and have been closed or sold one after another; and the scale of business formats such as hotels has limited growth. Currently, there are only three MUJI HOTELs in the world, and their influence is not great.

Price cuts hurt brand value, ecological building requires long-term maintenance, and side businesses place high demands on costs. Muji's "three steps" in China each have their own concerns.

It can be seen that coffee shops may be the simplest business model at present, which can build a "MUJI-style" living space, display and disseminate brand products and concepts, and establish emotional connections with customers; coffee's low customer unit price, high frequency of repurchase and broad user base have become a powerful drainage channel.

03 Coffee is just a feint

Using side businesses to divert traffic to the main business is a proven strategic approach.

In 1956, IKEA, which mainly sells home furnishings, opened an IKEA restaurant in the IKEA store in Älmhult. Later, the IKEA restaurant played a huge role in IKEA's difficult period. One yuan ice cream, three yuan hot dogs, unlimited coffee refills with membership cards, and the unique Swedish meatballs attracted many consumers.

Today, more and more brands are using this business strategy, using coffee as a point of entry to attract customers. In March 2024, Gucci opened a one-week pop-up coffee shop in Beijing, Shanghai, Shenzhen and Chengdu. In April, Decathlon's first coffee shop opened in the form of a "store-in-store" in Decathlon's Shanghai Wujiaochang store. In July, the country's first Coach coffee shop officially opened in Shanghai Damaru Department Store...

It can be seen that coffee shops are only the surface of the business layout, and the scene marketing and experience marketing behind them are also the core driving forces for their entry.

Offline scene marketing focuses on the coordinated reconstruction of the various elements of "people, goods and places". In the context of product homogeneity, it is difficult to differentiate "goods". Brands will focus more on "places", that is, building a space to carry and convey brand concepts and achieve differentiation through brand beliefs.

For example, MUJI's coffee shop products also have homogeneous products such as "Raw Coconut Latte, Duck Shit Fragrance". The only differentiated product is the limited edition in different cities, but most stores only have 2 types, which accounts for a small proportion. On the scene side, it continues the creation of the "MUJI style", which can attract consumers as a unique style and main brand effect.

This "flash mob" in Suzhou is also a test of a new business model.In addition to being the first pop-up store, this is also the first time that Café MUJI has combined the city's characteristics with MUJI aesthetics in store design, and the first time it has been presented to consumers in the form of an independent coffee shop. Previously, conventional Café MUJI stores were either independent stores of nearly 200 square meters or in the form of a store within a store.

If the trial is successful, Café MUJI may support the premium space of coffee in the future through city specialty stores and limited editions; it may also develop more diverse store types.

However, the coffee sideline business cannot replace the main business after all. Café MUJI is easy to attract customers.It is a daunting challenge to achieve the conversion from traffic to main brand customers and effectively maintain the private domain ecology.How the main products can absorb this wave of traffic is a question that MUJI needs to think about urgently, and the answer may lie in the brand name.

Whether it is making coffee or selling groceries, in addition to "Muji", it is also necessary to have "good quality". The reason why MUJI cannot sell its products is not because consumers are unwilling to spend money, but because they are unwilling to spend "unworthy" money. The cost-effectiveness is the "root cause" of MUJI.

If MUJI wants to stand out in the Chinese market, brand is no longer a decisive factor. MUJI can no longer regard Chinese consumers as "suckers" who pay for the brand, but should also invest more energy in the product itself, in addition to the brand.

Moreover, given the current trend, the number of brands engaging in cross-border coffee marketing will only increase in the future. When this marketing method gradually becomes homogenized, the novelty fades and the traffic is diluted. In order to retain consumers who like new things but dislike old things, we should stick to the two major "positions" of brand and product.