Wang Shiqin: "Buy cheap, sell high; buy expensive, sell low." When discussing the recent boom in hard discount stores, Don Quijote is unavoidable. As a veteran Japanese hard discounter with 27 consecutive years of profitability, and given the similar retail formats between China and Japan, the author believes it can serve as a benchmark for China's retail trends. Yasuda Takao, who studied law, opened Don Quijote; his psychological state is unknown, but from a 'thief market' to a leading discount retailer, Don Quijote has clearly taken the right path. How did operations like compressed displays and employee purchasing build a commercial empire? Though it's an empire, in consumers' minds it's a rare gem: products are messy and overflowing, handwritten posters are everywhere, the view is tightly packed, and even the background music is noisy. Why do people flock to such a supermarket? The author's friend in Tokyo, Japan, always praises Don Quijote. Traditional hypermarkets with neatly arranged goods are rarely visited—what's the problem? Through this article, let's explore together.
Purchasing and Compressed Displays
Initially, Don Quijote's success stemmed from tourists in Japan not having time to shop at stores open from 8 AM to 10 PM, so Yasuda Takao decided to open 24 hours—possibly the origin of Japan's first 24-hour operation. He has always treated "compressed displays" as a bible, encouraging employees to stuff more items onto shelves and holding multiple "Display Ironman" competitions annually. The so-called Ironman is like an internal skills contest: whoever stuffs the most wins. For customers, navigating cramped aisles piled high with goods, searching for items, feels like exploring a tropical rainforest—you never know where the next desired product is. Strangely, consumers love this experience. In 2020, Don Quijote's total revenue exceeded 1,681.9 billion yen (100 billion RMB), rising against the pandemic with 800 stores, making it an important research model. The reason Don Quijote dares to use compressed displays is essentially betting that customers will sweep goods. This sounds simple, but in practice, those who've done it know how hard it is; stocking is based on demand, and many brands fear excess inventory affecting turnover. Behind compressed displays is Don Quijote's robust supply chain. One reason for low prices is channel power. Initially, Don Quijote sourced surplus goods from popular brand manufacturers—discontinued products, defective items, samples, returns—but all genuine. Genuine quality at low prices tempts anyone; in today's terms, it's extreme cost-performance.
Just like its name "Don Quijote" (激安的殿堂), in Japanese it means "Temple of Super Cheap." Image source: Internet. "Jōnetsu" means passion and enthusiasm, and products labeled "Jōnetsu Price" are custom-made or co-produced with factories—private label products. As scale grew, surplus goods became insufficient, and Don Quijote's private brands, with large order volumes, are not only cheaper than regular market prices but also have higher gross margins. In other words, due to volume, Don Quijote could build its product matrix early. So, hard discount stores must increase volume; unlike fresh produce, the logic is to reduce costs through scale.
Don Quijote's predecessor was the "Thief Market" (小偷市场). Image source: Internet.
Speaking of employee purchasing, one must mention the Japanese national variety show "Monday" (月曜日). In one episode, it featured four types of Japanese specialty stores, leaving a deep impression on the author about Japan's rich retail formats, including Don Quijote. Business owners might gain insights into management after watching. The store clerk chatted enthusiastically, exuding a rare sense of ownership; Don Quijote delegates authority with great speed and force. According to local Japanese news: branch managers directly handle about 70% of product ordering, while the remaining 30% are company-ordered "Jōnetsu Price" items (ensuring profit), plus a "clerk battle" system to motivate frontline staff. In other words, any employee has purchasing rights, especially for new products. Unsold goods aren't quickly removed; they're left piled up. Compressed displays are actually a psychological tactic. Kathleen, a consumer psychology professor at the University of Minnesota, found that when consumers repeatedly see a massive array of choices, they become fatigued and abandon logical thinking. This Japanese hard discounter stumbled upon success; Yasuda Takao initially taught his display techniques, but later found it hard to explain the logic to employees, so he let them improvise, and the fusion created today's Don Quijote.
So, what should Chinese hard discount stores learn from Don Quijote?
Cultural Embedding Strategy Combined with Product Design
Japan's consumer society is more mature than China's. With abundant supply, the consumer market has differentiated, with personalization taking the lead. In an era of consumer choice overload, winning competition requires more than wisdom. The business methods initially validated in the Thief Market—nighttime operations, compressed displays, POP floods—were carried over to Don Quijote. Yasuda Takao transferred his experience as a distributor to the new format, and performance rose year after year.
What impresses the author about Don Quijote is its excellent cultural embedding. If the first generation of hard discount stores competed on products, the second on operations, the third will definitely compete on culture. China's retail industry is relatively fortunate, at least able to learn from the US and Japan. Entering the store, you'll hear "DonDonDon, Donki~"—a song composed and written by employee Tanaka, who even proposed creating the company theme song. Tanaka later rose to department head; employees inspired with a sense of ownership bring immense value to the company. Image source: Internet.
Don Quijote's mascot is that blue penguin! It originated in 1998 at the "Suginami store" (now closed), where a penguin was drawn on a handwritten promotional poster; it was so cute it became the corporate mascot. The male penguin is Donpen, the female Donko—a pair born in Antarctica and raised in Tokyo, wearing nightcaps, looking lazy and round, very endearing. Note the setting: raised in Tokyo, aligning with Don Quijote's commercial route in the capital region. The IP image follows corporate strategy; outsiders see the fun, insiders see something different. Cultural embedding is a key future competitive direction; a hard discount store's core strength lies not only in channel confidence but also in cultural embedding. Don't underestimate IP; don't think it's childish. Human nature is lazy; the simpler, the more direct. The success of IP incubation can even determine whether a brand holds a place in consumers' minds.
Positioning is a required course for retail enterprises. As the saying goes, good positioning yields twice the results with half the effort. Yasuda Takao's "compressed display" product arrangement packs goods so tightly that no gaps are visible, and aisles are deliberately narrow, giving customers a sense of getting lost and discovering treasures while searching, unconsciously grabbing more items until they reach the checkout with many unexpected purchases... But these are all calculated! Image source: Internet.
As seen in the chart, Japan's economic growth rate stagnated, income growth declined, yet Don Quijote's sales climbed steadily. Besides adopting low-price strategies to cater to the market, Don Quijote implemented "extended business hours." Now, nighttime consumption accounts for 50% of Japan's total consumption, but back then it was almost empty; even 7-Eleven closed at 11 PM, while Don Quijote extended to 3 AM, becoming the latest-closing retail store in Japan. This is the second direction the author wants to emphasize: fixed customer space. Retail enterprises, especially hard discount stores, have always faced a complex issue of customer base: who is the target? Where are they? How to reach them? The answer lies in tourism. According to Don Quijote's promotional materials, of the over 10 million annual visitors to Japan, half have shopped in its stores. Retail stores as tourist attractions is another testament to cultural strategy. Everyone has been to scenic spots; the reason to shop is to leave a souvenir, so giving customers a reason to buy is crucial.
Furthermore, Don Quijote's success also lies in actively building a private brand matrix. "Jōnetsu" is its lowest-positioned private brand, priced slightly lower than similar products. "PLUS" is slightly below market price but with superior quality. The rest is "Premium," priced higher, offering products that comprehensively consider price, quality, and design for mid-to-high-end consumers. According to industry insiders, these three private brands account for 11% of sales and 16% of gross profit. This shows consumers have high acceptance of Don Quijote's private labels, and their gross margins are higher than externally sourced products. Image source: Internet.
In fact, like the recent boom in snack collection stores and hard discount stores, having self-developed products has an immediate impact on terminal influence—in other words, giving distributors a reason to sell. The author believes that completely bypassing distributors for 100% direct supply is unrealistic; good products need distribution channels, and the underlying logic is the same as traffic platforms.
Mastering CVD+A
Don Quijote's supply chain advantage also lies in low out-of-stock rates. Based on its supply chain strengths, Don Quijote initially had 60% of special-priced items, later increasing to 70%. "Opportunistic purchasing" of special-priced goods is the source of profit, always adhering to the creed: "Buy cheap, sell high; buy expensive, sell low."
Due to the special nature of opportunistic purchasing, in warehousing and logistics, Don Quijote began "consignment inventory" in 2000. Through this change, Don Quijote achieved zero inventory risk, shortened supply time and effort, and reduced out-of-stocks. Non-cooperative suppliers are charged a high logistics sponsorship fee of up to 1.5% of total goods value, and forced to comply. Consignment inventory is similar to a central warehouse model, using goods allocation to achieve unified operational dispatch. Ito also does this; building self-owned logistics is costly, so having Kao's people do it improves turnover efficiency.
In 2007, Don Quijote acquired Nagasakiya, sourcing locally based on regional market needs, continuing the individual store manager system. Employees directly decide purchase prices, observe neighboring store price changes, flexibly adjust prices, and choose the best product mix for their store; sales, gross profit, and inventory turnover are directly linked to employee compensation, turning Nagasakiya profitable.
What exactly is the CVD+A model? An online flowchart might answer some questions. Image source: Internet.
If these concepts are too abstract, the author will use a simple price comparison, using Don Quijote's Hong Kong store as an example. Image source: Internet.
Imported products are often expensive. However, Don Don Donki's prices are extremely reasonable, making other discount retailers pale in comparison. For example, a bag of delicious Japanese grapes costs about 100 HKD at a regular grocery store. At Don Don Donki, it's only 39 HKD. It's no wonder shoppers love buying authentic Japanese goods here. Variety is one thing, but combined with affordable prices, it's easier to attract a broad audience.
Objectively speaking, the current business environment for hard discount stores in China is relatively relaxed: there's policy support, consumers are willing to spend and try, and although competition is fierce, there are no unicorn players yet.
What Insights Does This Bring to Domestic Discount Stores?
The lesson from Don Quijote is that when products are still relatively homogeneous, it's advisable to first learn the model; developing self-developed products can come gradually. For cultural tourism routes, try building your own corporate IP first, make it famous, then empower it, tell Chinese stories well, and create snacks and products with Chinese characteristics. Regarding warehousing and inventory, the author suggests cooperating with excellent logistics companies to build central warehouses to meet dispatch needs; truly wealthy players can also adopt partial self-built warehouses to open up the supply chain. As for entertainment, first, select high-quality, approachable products; design and aesthetics will be key in the future, as ugly snacks and items certainly won't stimulate purchase desire as much as attractive ones. Compared to weak online channels, domestic snack manufacturers might shift focus to R&D in the future; channels and terminals remain good entry points for distributors, with the only difference being that modernized distributors can better adapt to the market.
Founded on September 5, 1980, Don Quijote became Japan's "king of cheap" thanks to deep insight into society and the market. Food profit margins aren't necessarily the highest, but Don Quijote believes food is relatively less affected by e-commerce competition and more likely to attract repeat customers. A Japanese industry insider once said, "There's nothing better than showing Japan through food." Perhaps that's the meaning of A. Using food to showcase local customs aims to boost tourism, which ultimately benefits consumption, forming a closed loop. Due to shortcomings in mainland China's overseas product supply chain, many Japanese brands are criticized for "low cost-performance." But this is also an opportunity for China's own hard discount stores: before foreign brands launch a major offensive, prioritize building your own moat, as future opening-up will only deepen.
The author looks forward to seeing Chinese and foreign hard discount stores shine together—that would be a beautiful scene for the retail industry.