5, 25. 2006
The Daiei, Inc., a leading supermarket chain that is going through a rehabilitation process, has fell into a red figure for the first time in eight years. It tried so hard to shake off the tactics of selling at low prices, but it could not succeed. People are worried that the company may repeat the past business method of securing sales only for the immediate future. One year has passed since the company received the help from the Industrial Revitalization Corporation of Japan (IRCJ), and what the future of Daiei holds?
Daiei's food supermarket "Gourmet City". Daiei is strengthening food business.
The company reported a deficit of 6,100 million yen in the unconsolidated account settlement for the term ended in February, which it made public on April 12. A main reason for the operating deficit was an increase in the sales promotion expenses. Daiei carried out in December a major sales campaign, a "2 million yen return sale." The sales in the month went up 6% compared with the corresponding month of the previous year, but sales cost went up also. The sales increase was not enough to offset the stagnant sales in the past.
"I would rather say that our restructuring plan is moving forward," says Yasuyuki Higuchi, President and CEO of Daiei. The interesting-bearing debts decreased to 820 billion yen from 1.4 trillion yen at the end of the previous term. Some 53 unprofitable stores have been closed down. A total of 1,268 workers have been discharged on a voluntary retirement basis. To withdraw from all businesses except its core business, the company has sold to is subsidiaries and streamlined the leisure, real estate and other divisions.
Return to Old-Time Daiei
In its consolidated account settlement for the term ending in February, Daiei recorded a new all-time high profit with contribution from the gains obtained by its OMC credit card unit. This made its business stagnation more conspicuous. The challenge facing the company is the strengthening of is management ability more than anything else.
The company has been redecorating its stores in operation one by one since last fall. For stagnant apparel division, it leased the floor space, for instance, to Uniqlo Co. Ltd. by forming a tie-up arrangements in a bid to improve the efficiency. Concerning the vegetable and fruit and delicatessen which determine the competitive power of supermarkets, the company started a project under the direct leadership of the president. Apparently for these efforts, the sales of foods during the four consecutive months since December maintained the same levels as those for the corresponding period of a year earlier. A Daiei executive noted that the "company's competitive power became stronger than that of other companies as long as the vegetable and fruit are concerned."
As indicated by the unconsolidated account settlement, however, the future of the company does not allow for optimism. An executive of a major supplier for Daiei said that "the company has returned to what it used to be in the old times" by looking at the management policy the company had been carrying out since December.
Last spring, Daiei ventured to invite executives from different industries to take over its management leadership, including Fumiko Hayashi, who was the president of a imported car dealer, and Higuchi, who was President of Hewlett-Packard Japan, Ltd. What the company was aimed at then was to get away from the old way of doing business of selling things at low prices. Because of too many stores under it to manage, however, it was very difficult for Daiei to increase sales without selling at reduced prices. Up until October of last year, the sales of the Daiei stores had dipped far below the levels of a year earlier, and many people think that the company's efforts to build up sales after December indicated the revival of the old strategy for securing the sales in the immediate future.
IRCJ May Sell Shares
Daiei has transferred 800 of its employees to the special-event management unit it newly established in a bit to further reduce its labor cost. The company is aiming at improving its unconsolidated business result in order to impress the public with a recovery of its core business. Repeated personnel restructuring, however, may weaken the morale of the staff. Specialist workers at field offices are constantly replaced, so that there are shortages of buyers who have the sufficient knowledge about merchandises to stock. Some people are concerned that this situation could lead to the weakening of the managing ability.
An executive at a megabank said he is worried that "IRCJ is trying to sell the shares in a hurry." In view of a progress made in the solving of the problems of nonperforming loans and the business recovery, IRCJ plans to disband itself this year, one year earlier than originally planned. The Daiei shares IRCJ holds are to be sold within this year.
The trading house Marubeni Corp. is now the sponsoring company for Daiei, and it has the priority right to purchase the Daiei shares. Under the circumstances, however, Marubeni is undecided about such purchase.
A rumor is spreading among some industrial people that "Wal-Mart Stores, Inc. is moving again in a bid to take over Daiei." Should Daiei stumble in its efforts to strengthen its management ability and fails in its rehabilitation, the super market industry as a whole could move toward restructuing of itself depending on who will own the Daiei shares.