Despite declining profits and inflationary pressure, furniture giant Nitori Holdings Co. will not raise the prices of its products, its leader said.

In an interview with The Asahi Shimbun, Chairman Akio Nitori said the company actually intends to lower prices from next year, saying a price hike would drive away its customers.

The company, known for its catchphrase O, nedan ijo” (Wow, more value for the price), plans to reduce costs through digital investments and perhaps relocating production facilities to Asian countries where labor costs are lower than in China, Nitori said.

Excerpts of the interview follow:

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Question: Nitori’s sales have plunged and profits declined in the last business year. Do you think the value-for-the-price strategy is reaching the limit?

Nitori: The reason for declining profits is clear: delays in product development.

At least 30 percent of shelves must be lined with new products, but we couldn’t make that happen. We failed to make customers feel we were offering something fresh.

After the COVID-19 pandemic, working remotely made things more convenient.

Under ordinary circumstances, we must travel overseas to negotiate prices and discuss product development, but the number of business trips for that purpose decreased by half or more of what it should have been.

Q: How does the decreased frequency of face-to-face negotiations affect product development and price setting?

A: Since its founding, Nitori has dispatched employees to places where other companies won’t go to find procurement sources for raw materials and contract manufacturers.

We have been making strenuous efforts to negotiate prices while looking at actual items in those places. If we leave the job to trading firms and agencies, we have no choice but to keep pace when someone raises the price.

This kind of negotiation is impossible in the remote working culture.

Q: Is Nitori planning to raise prices?

A: We won’t raise prices. In fact, we want to lower prices from next year.

Q: Why is Nitori determined to maintain or even reduce prices in this time of inflation?

A: There is an intense market share competition because products handled by Nitori are also handled by other businesses, including drugstores and electric appliance retailers.

I’m not confident whether we can maintain profits after price hikes.

If we were to raise prices, even slightly, customers would shy away from our products, saying, “Where’s the ‘O, nedan ijo?’” We can’t trick customers.

Q: Are some employees asking you to raise prices?

A: They are, definitely. But I told every one of them that’s a no-no.

Instead, I instruct them to negotiate more and make efforts to lower prices.

Q: Are consumers beginning to accept price hikes?

A: That is not true, absolutely not.

If we raise prices, we’ll lose customers instantly and lose profits as well.

I guess consumers will continue to buy food, even as inflation proceeds or if they earn less, because they have to eat.

But Nitori’s products are furniture and other durable goods, so consumers can keep using their current products.

That is all the more reason why we must make efforts to develop products and keep offering attractive and new ones at low prices.

Q: Isn’t it difficult to maintain prices when the yen weakens and the company struggles financially?

A: Indeed. When the yen falls by 1 yen against the dollar, Nitori’s net profits decrease by 2 billion yen ($12.9 million).

So, we moved forward with cost reduction, as well as artificial intelligence (AI) and digital investments, at one go.

At a distribution hub (with a total floor space of about 200,000 square meters) that was completed last year in Satte, Saitama Prefecture, tasks that had required manual labor can now be performed by machines and robots as much as possible.

We previously needed 700 workers for a distribution facility of this scale, but we now need only 300 to do the job.

We can reduce costs in the mid- and long term and avert price increases.

Q: What are your other cost reduction measures?

A: We are always thinking about relocating manufacturing bases.

Previously, we could hire nearly 100 workers in Vietnam with labor costs equal to one Japanese worker, but now, we can only hire four to five workers there.

We’re not thinking about it in concrete terms, but it is possible to relocate the current bases in China and Vietnam to other countries where labor costs can be even lower.

For example, we can relocate more bases from China to Vietnam. Labor expenses are also lower in Cambodia and Bangladesh.

We also want to turn our premises in Kawasaki into a new distribution base within 10 years.

Now that we have reduced package and shipment volumes by 30 percent by increasing the efficiency of ‘knockdown,’ in which furniture pieces are shipped before they are given the finishing touches, we think we can largely cut costs when this facility is completed.

However, because construction costs are high these days due to soaring material prices and labor shortages, we are watching for an opportunity to construct it at a low cost.