Heir to the Throne Flush with success in Japan, Toto Ltd. next wants to conquer America with its wondrous high-tech toilets.
By Andrew Tilin and Mariko Mikami

(Business 2.0) – Walk up to the world's most expensive toilet--the $5,000 Neorest, with its elegant lines and push-button controls--and it does automatically what millions of husbands so famously cannot: It lifts the seat.

An amazing feat, to be sure, and there's plenty more where that came from. If your business involves sitting rather than standing, the toilet's infrared sensors will detect that too, and on cold mornings it'll even greet your backside with a warm welcome, heating the seat to a toasty 98 degrees. Then there's the wireless remote, which operates a hidden wand that showers your behind with warm water before finishing the job with a gentle blow-dry. As you step away, the lid folds back down and a nozzle and "siphon jets" spring into action, using 1.2 gallons of water if the sensors identify the contents as No. 1, or 1.6 gallons otherwise.

As dazzling as all that might sound, it's not nearly as impressive as the 87-year-old company that makes the Neorest, Toto Ltd. of Fukuoka, Japan. With some 1,500 engineers working to improve every facet of the excretory experience, Toto stands as the world leader in bathroom R&D. But its innovations go well beyond the lavatory, notably to a sales network that engenders both brand loyalty and higher margins. Toto dominates the sector in Japan with a market share of more than 60 percent, which it built by opening showrooms that wow its products' end users while linking them with a network of Toto-authorized contractors. Sales last year reached $3.7 billion, making Toto one of the world's three largest manufacturers of toilets, sinks, and other bathroom fixtures.

But Toto isn't content to rule Japan. It's set its sights on Kansas too. Kazuo Sako, the 44-year-old president of Toto USA, believes there's room for growth here, where two dominant rivals, Kohler and American Standard, still crank out utilitarian products--and remain convinced that's what their less potty-obsessed customers want. To change the American view of the commode, Toto recently bought a billboard ad in Times Square and ran infomercials on cable TV. It also sends out RVs equipped with the latest hardware to show dealers how its products handle golf balls and car keys in one flush. Says Sako, "I'm convinced that what we offer is what's universally wanted."

Converting the Lookie-Loos

That may sound like marketing bravado, but it comes from a company that's spent nearly a century convincing people that there's a better way to go. It introduced the Western toilet to a squatting Japanese public before World War II. In 1980 it rolled out the Washlet, a sprayer built into a seat that works like a bidet. Today the annual market for Washlet-style products in Japan is over $1.2 billion. The Washlet-armed Neorest, which debuted in Japan two years ago, sells at a clip of about 120,000 units per year.

On its home turf, Toto generates enthusiasm by inviting customers in to imagine themselves on a new throne. After decades of selling toilets to developers in bulk, the company had to rethink its approach in the 1990s, when the Japanese economy (and, with it, new home construction) went south. Toto refocused on the booming remodeling market, nearly doubling its number of showrooms to 87 over the course of six years. The stores don't sell so much as a bolt or gasket, but they're not simply embassies of goodwill. Attendants steer buyers to members of the company's "remodel club"--a pool of 4,000 Toto-educated plumbing and construction firms--that handle purchase and installation. It's a win-win-win arrangement: Contractors get new business. Customers find competent installers. And Toto? From 1999 to 2003, even as housing starts sank 3 percent in Japan, order volume for complete bathroom sets leaped by nearly 250 percent.

Targeting John Q. Public

All of which must be making the folks at Kohler and American Standard a little nervous, right? Not really. Mention Toto's accomplishments or westward ambitions to execs at these companies and the reaction tends to be more like who gives a ... darn. Most U.S. consumers, they say, couldn't care less about getting up close and personal with their toilet before making a purchase. That's why most of the 8.7 million U.S. toilets sold annually are handled by wholesalers and big-box retailers like Lowe's and Home Depot. "What a Japanese consumer is willing to pay is more than what an American would pay," says Gary Uhl, director of design for American Standard. "The Japanese may be willing to embrace gadgetry, but here we like things that are more straightforward."

To Sako, those are fighting words. Toto, he counters, has been steadily gaining ground on its American rivals by selling midrange to high-end toilets through 400 independent dealers that can better attract discerning shoppers. Last year Toto USA rang up $117 million in sales--a healthy slice of the estimated $820 million U.S. market and a 35 percent jump since 2002. "I don't want to make an enemy of Home Depot," Sako says, "but the mom-and-pop stores stay around for the long run and have a good relationship with the construction industry. They have time to explain the product they're dealing with."

Contractors, too, are paying more attention to Toto. Max Isley, owner of Hampton Kitchens of Raleigh in North Carolina and a bathroom designer for the last 30 years, recommends Toto to his high-end clientele. "Toto makes the best," he says. "We spec it more than anything else." More important for Toto, it also brings in higher margins than anything else. Independent dealers can't mark up Kohler or American Standard products because they know buyers will run to Home Depot for a better deal. But since Toto stays out of big-box stores, it enjoys fatter margins at specialty dealer prices. Says David Lopatin, vice president at Next Plumbing Supply in Florida, "There's no money in it for dealers or plumbers to sell Kohler. There's a real niche market, and Toto's expanding it."

Even in the smallest of niches--the market for Neorests--Toto is turning a few early adopters into fanatics. "This happens to be a very comfortable toilet," says George Schaeffer, CEO of OPI Products, a North Hollywood nail polish manufacturer. Schaeffer should know; he bought 11 Neorests for his mansion and another for his office. "What do you do on a toilet? You read. Sit on this one. It'll change your life."

Life-changing? Doubtful. But if Toto wins more converts like Schaeffer, it may well change how America does its business.

Andrew Tilin (atilin@business2.com) is a senior editor at Business 2.0. Mariko Mikami is a Tokyo-based freelance writer.