The Seiyu, Ltd. - Company Profile, Information, Business Description, History, Background Information on The Seiyu, Ltd.

1-1, Akabane 2-Chome
Tokyo 115-0045

Company Perspectives:

Founded in 1963, Seiyu has grown into one of Japan's largest retailers by maintaining a clear understanding of market trends and tailoring its business to meet the needs of consumers. Seiyu strives to maintain the highest standards of quality in every aspect of its operations, from appealing original-brand merchandise to store development to strict freshness checks for food.

History of The Seiyu, Ltd.

The Seiyu, Ltd. (Seiyu) leads the Seiyu Group, a subgroup of the Saison Group, a diversified conglomerate with interests in retail, food, finance, real estate, entertainment, and other areas. Saison Group is one of Japan's largest retail concerns. The Seiyu Group consists of 22 main companies, within which The Seiyu, Ltd. represents the group's main business of superstore retailing and operates about 200 stores throughout Japan. Seiyu maintains a wide range of store formats, including large general merchandise stores, which are centrally operated and predominantly self-service department stores; supermarkets; and specialty stores. Among other activities, Seiyu also develops and operates shopping centers. Seiyu was originally founded in 1956 to become the supermarket arm of the privately owned Seibu Distribution Companies--now the Saison Group. At the time, the company took the name of its parent, Seibu Stores, and is the oldest of Japan's major superstore chains by one year, although its competitor Ito-Yokado Co. Ltd. had been operating in another form since the early 20th century.

Early History

The key personality in the history of Seiyu is Seiji Tsutsumi. Until 1991 Tsutsumi was the head of the then Seibu Saison Group before stepping down to become chairman of the Saison Corporation within the same group. Over several decades, he was the driving force behind Seibu's successful retailing operations. His half-brother, Yoshiaki Tsutsumi, was head of the independent Seibu Railways Group. Competition between the brothers contributed to the respective buildup of their companies after the original Seibu companies were split between the two brothers by their father. The early years were difficult for the company. Seiyu was established as a three-store chain with supermarkets in Odawara, Taira, and Shizuoka; however, all three original stores soon failed. The first successful store opened in Tsuchiura in 1958. Others followed but the pace of store openings remained slow, and by 1962 there were only five stores with less than 5,000 square meters in sales space. The main reason for the slow opening of new stores was Seiyu's dependence on its parent company, Seibu Distribution. At the time, Seibu was conducting an ill-fated and costly experiment with a department store in Los Angeles. With Tsutsumi's tight overall control of the group's operations and a lack of funds due to losses from department stores, growth was restricted. In many respects, Seibu stores operated as small department stores. Each store sourced and sold goods independently and did not practice self-service selling.

In November 1962 Tsutsumi decided that it was time to extend the supermarket side of the business. This was a period when Tokyo was growing rapidly, and large housing developments were springing up around the city. Following Tsutsumi's directive, the company began to search for new store sites close to this new housing. These estates represented a totally new market for Japanese retailers, with younger families from all over Japan beginning to move to the capital.

In addition, the company made a positive move toward becoming a chain store business and developed the retail strategy of self-service discount department stores whereby the company would open self-service outlets similar to department stores offering household and food items at a discount. This was the first step in the development of Seiyu's modern superstores.

Five months later, in April 1963, the company changed its name to Seiyu Stores Ltd., a move that emphasized the distinction between Seiyu and Seibu, and indicated a move to greater independence from the Seibu Group. The decision was not entirely voluntary. Complaints from small businesses led the Ministry of International Trade and Industry (MITI) to instruct the company not to operate under the same name as its sister department stores.

Following this change Seiyu rapidly expanded its chain of stores. To achieve this it took advantage of its connection with the Seibu Railway Company, locating stores along major rail arteries to the west of Tokyo. This land was not only cheap, but the sites had several other advantages. Stores at railway terminals provided a guaranteed flow of customers by catching commuters as well as local residents. In urban Japan, unlike most Western nations, shopping by car was seriously restricted because of road congestion and even in the early 1990s railway terminals were employed as prime retail sales.

Throughout the 1960s, Seiyu expanded first along the two main Seibu railway lines, and after 1965 stores were opened along lines operated by Japan National Railways and Keio Railways to the west of Tokyo, and along Sobu railway lines to the north. Store sizes ranged between 900 and 3,000 square meters depending on the site. On the whole, medium-sized stores of slightly more than 1,000 square meters of sales space were employed, with the emphasis on food and household products. The larger superstore outlets also carried a few clothing lines.

In 1969 Seiyu opened its first major distribution depot at Fuchu. In the same year production capacity for private brands was expanded with the founding of the Seiyu Stockbreeding Company and the Seiyu Meat Company. Seiyu Shoes Ltd. and Seiyu Marine Products Ltd. were established in 1970.

Expansion and Diversification in the 1970s

By this time the Seiyu chain had grown to more than 80 stores, all within Tokyo and neighboring regions. The early 1970s saw further expansion and diversification. Through the takeover of Koma Stores Ltd., a Kyoto chain of 12 outlets, Seiyu Stores Kansai Ltd. was founded. At the center of the Kansai region is Osaka, Japan's second largest city and the country's second largest market. It was also the home base for the major superstore chains of Daiei Inc., Nichii, and Izumiya. Seiyu's entry in 1970 was part of a strategy to open stores throughout the country. The Kansai company acted as a gateway to Nagoya and the southern island of Kyushu, leaving the Tokyo headquarters responsible for the north of Japan.

In 1971 Seiyu acquired a majority shareholding in the regional Uoriki chain in the Central Japan Alps. Unlike the takeover of Koma in Kyoto, this was not simply a market entry strategy. Although Uoriki was a small local chain, it dominated food retailing in the area, and Seiyu maintained this strong position, becoming highly successful in the region. The company was renamed Seiyu Stores Nagano Ltd. in 1971.

In 1972 the Seibu Group established links with Sears, Roebuck & Co., giving Seibu access to the Sears catalog. Catalog corners were set up in some large Seiyu stores as well as in department stores, and Seiyu gained access to Sears's retail experience. Sears maintained a 2.24 percent stake in Seiyu into the 1990s, selling the stake in 1992.

Also in 1972, experiments were set up in small store retailing. This was the beginning of the highly successful Family Mart convenience store chain. Seiyu opened a small number of experimental stores during the mid-1970s, eventually establishing Family Mart Company as a viable chain in 1978. Family Mart eventually became the third largest convenience store chain in Japan and in 1981 was made independent from Seiyu Group, with the Family Mart Group becoming a separate, autonomous part of the Saison Group, partially owned by Seiyu.

Throughout the mid-1970s Seiyu continued a strategy of store expansion and business diversification and in 1974 expanded production of its own name brands to more than 500 items. These early brands were designed chiefly as discount goods to attract price-conscious consumers. In 1976 Seiyu went public with a listing on the first section of the Tokyo Stock Exchange.

Ties with Sears, Roebuck were strengthened when the companies exchanged research teams between 1974 and 1978. Sears's chief objective was to gather information on the Japanese market, while Seiyu was interested in learning more about the Sears system of retailing. In 1978 Seiyu established an office in Chicago for the purpose of gathering information and sourcing new products suitable for its business in Japan. Further offices were established in Peking in 1979 and in Paris in 1982.

Although the implementation of a new Large Store Law in 1974, restricting the opening of large stores, did not hinder the opening of stores of less than 1,500 square meters, problems with small local retailers made new large store developments increasingly difficult toward the end of the 1970s. In 1979 MITI tightened the law further, making all new stores of more than 500 square meters subject to official approval. The consequence of this new legislation was that large companies such as Seiyu found it no easier to open medium-sized stores than to open large ones. A new strategy of opening large stores, usually more than 5,000 square meters, emerged and many stores exceeded 10,000 square meters in sales space. Small and medium supermarkets were opened only in rare cases.

In 1979, Seiyu moved its headquarters to Tokyo's tallest building, the Sunshine 60 in Ikebukuro. The building was constructed to let, and the Saison Group was the main tenant. The building's spectacular size was similar to that of Sears, Roebuck headquarters in Chicago. The complex included a Seiyu superstore, one of the few in central Tokyo.

Further Diversification in the 1980s

By the beginning of the 1980s Seiyu was operating retail outlets that ranged from small convenience stores and medium-sized supermarkets to large-scale department stores. The company was also involved in producing a wide range of own-name brands, notably fresh and processed food products and household goods. The type of low-price, low-quality own-name brands previously available were no longer acceptable to Japanese consumers, and Seiyu responded to this problem in two ways, improving the quality of its supermarket brands and introducing the Shoku no Sachi own-name foodstuffs brand in 1984. In 1980 Seiyu had introduced the Mujirushi Ryohin brand. Mujirushi Ryohin means 'good unbranded products'; these high-quality basic goods soon became very popular and Mujirushi Ryohin became a famous brand. Sold initially in special areas of Seiyu stores, against a background of plain stone floors and unpolished wooden shelving, goods were packaged in plain wrappers and sold without the elaborate designs found on much Japanese packing. In doing this, Seiyu created a unique brand image. Large sales within larger Seiyu stores and Seibu department stores led to the opening of independently sited specialty stores under the Mujirushi Ryohin name, including in 1983 the opening of a store in the highly fashionable Aoyama district of Tokyo. Eventually, Daiei, Jusco Co., Ltd., and Uny Co., Ltd. all created their own versions of Mujirushi Ryohin. By 1991 there were 217 Mujirushi Ryohin specialty stores in Japan, stocking a range of more than 1,800 items. In 1991 Seiyu opened a Mujirushi Ryohin store in London.

By 1983 the Seiyu name was widely known in all parts of Japan and the group responded by changing the name of its main subsidiaries. Seiyu Stores Ltd. became The Seiyu, Ltd., and the main regional companies also simplified their names to Kansai Seiyu Ltd. and Nagano Seiyu Ltd. Kansai Seiyu was merged with the head company in 1988.

Building on the success of the Mujirushi Ryohin specialty stores, Seiyu continued to expand beyond its traditional core of food retailing. In 1983 links were formalized with Time Ltd. in the United States, and Seibu Time Ltd. was established. Seibu Time Ltd. began producing a number of magazines, including Money Japan, launched in 1985; Lettuce Club, launched in 1987; and any, launched in 1989.

In the areas of information and culture marketing, further developments included the production and distribution of films. The group's chairman and founder, Seiji Tsutsumi, had always encouraged all forms of art, and his retail stores were the venue for art exhibitions and performances. Cine Saison Ltd. was established in 1984 within the main Seiyu Group structure, and in 1985 began producing one Japanese movie a year. Within a few years, 12 Seiyu stores and shopping centers were operating cinemas, and eight more had facilities to run regular drive-in movies.

Beginning in 1987, Seiyu also operated the 774-seat Ginza Saison Theater in central Tokyo and was responsible for organizing a large number of cultural events throughout the latter half of the 1980s. In 1988 the Soviet Ballet Institute School was opened in Tokyo, and in the same year a cultural exchange agreement was established with Robert Redford's Sundance Institute, a film school in the United States.

To strengthen the company's image at the upper end of the retail market, Seiyu began to remodel its larger stores as department stores in the 1980s, increasing the ratio of nonfood products and introducing more concessions within stores. The company also began to use the Seibu name on these larger stores to emphasize the department store image. Kasugai Seibu, Koriyama Seibu, and Maebashi Seibu were all examples of department stores run by Seiyu, with sales that were among the highest for individual outlets in Japan.

Seiyu also opened and began operating two large shopping complexes. The Hikari-ga-Oka complex in northwest Tokyo was completed in 1987. Part of a major housing development, it included a Seiyu-operated Seibu department store, a separate supermarket, many specialty stores, restaurants, and a cinema. Seiyu aimed to operate the complex as a community center, providing evening classes and various family events on weekends. The Hikari-ga-Oka complex was one of Seiyu's most successful projects of the late 1980s.

In 1988, Seiyu opened the Rakuichi complex at Nagahama in Shiga prefecture, its second and more ambitious shopping center development. Rakuichi was a shopping center and entertainment complex that included a superstore, specialty stores, a conference center, and an amusement park. It was designed to cater to a wide geographical area. This kind of development was emulated by other Japanese retailers and represented the desire to offer complete one-stop shopping and entertainment.

Toward the end of the 1980s Seiyu consolidated various arms of its business. Seiyu Finance Ltd., originally established in 1982, was merged with Tokyo City Finance (TCF) in 1989. The new company offered a wide range of financial services to Seiyu customers, including consumer credit, mortgages, life and other insurance, securities, and some business finance services. These services were offered both independently and at special counters within major stores. Meanwhile, in 1988, Seiyu purchased the Inter-Continental Hotels and Resorts hospitality chain for ¥280 billion.

Seiyu expanded its international operations during the latter half of the 1980s, establishing links with companies in South Korea, Indonesia, Thailand, and Hong Kong. These links were formed to promote contract production in the poorer Southeast Asian countries of cheap consumer goods. In addition, food products were imported from the western United States. By the early 1990s, Seiyu had five buying and representative offices in southeast Asia and three more in the United States. In 1990 the company opened its first large overseas store, a Seiyu department store, in Hong Kong.

1990s: The Mall, Food Plus, and Post-Bubble Restructuring

Seiyu continued to pursue new ventures in the 1990s, a decade marked by sustained economic sluggishness in Japan following the bursting of the country's economic bubble in 1991. Seiyu entered into a joint venture with L.L. Bean Inc., a U.S. retailer of outdoor clothing and equipment, and Matsushita Electric Industrial Co., Ltd. of Japan in 1992. That year, the joint venture opened the first L.L. Bean store in Japan. By 1996 there were seven such units in the country. Seiyu also developed a new store concept in this period called Food Plus, which combined the food offerings of a typical supermarket with a large drugstore, and sometimes a home center as well. Two Food Plus stores were opened in 1996, with the second one encompassing about 4,800 square meters of selling space and offering about 55,000 items. Seiyu also developed a new concept for its shopping malls, which it called simply 'The Mall,' and which was designed to be community-oriented, was anchored by a Seiyu store, and included numerous specialty stores as well as eating and drinking establishments. The first such shopping center was opened in Kasugai in 1992, and there were six by 1997. The Mall and Food Plus concepts were the main vehicles for the domestic expansion of Seiyu's core business in the mid- to late 1990s.

Following up on the opening of the Seiyu store in Hong Kong in 1990, Seiyu pursued a modest overseas expansion in the mid-1990s, focusing on the emerging markets of east Asia. In April 1995 a Seiyu department store was opened in Singapore, followed by a second unit in November 1996. The first Seiyu store in China debuted in June 1996, while Indonesia entered the company orbit in October of that year through a new Seibu outlet. Two Seiyu supermarkets opened in Bangkok, Thailand, in late 1996. All of these ventures were initiated through partnerships with local companies.

The mid-1990s also saw Seiyu begin to feel the full effects of the economic difficulties in Japan. In addition to an ongoing slump in consumer spending and increased competition in the retail sector--in part due to government deregulatory measures that spurred the opening of new stores--the company's finance subsidiary, Tokyo City Finance, was suffering from mounting losses resulting from the plunge in the Japanese property market that left TCF burdened with bad loans. The troubles at TCF led Seiyu to post extraordinary losses of ¥18.7 billion in the year ending in February 1995 (fiscal 1994) and ¥45.3 billion the following year. As a result, Seiyu posted a net loss of ¥6.32 billion (US$60.3 million) in fiscal 1995. Fiscal 1996 brought an additional ¥47.2 billion in extraordinary losses and a net loss of ¥2.99 billion (US$24.8 million). This latest loss would have been even worse had Seiyu not sold a large block of shares in Family Mart, reducing its shareholding from 33 percent to 22 percent and posting an extraordinary gain of ¥44.52 billion in the process. In March 1997 two Seiyu Group companies--drugstore operator Asahi Medico, Ltd. and photoprocessor Seiyu Photo Service Co., Ltd.--were merged to form Asahi Medix Co., Ltd. The new company ran a chain of 67 drugstores and 233 photoprocessing shops.

In October 1997 Seiyu initiated a far-reaching restructuring program aimed at sparking a company turnaround. First, the management was revamped with five new corporate directors being appointed, the overall number of directors being reduced from 31 to 14, and Noriyuki Watanabe, a former stockbroker who had been vice-president at Family Mart, replacing Katsuhiro Fujiseki as president of Seiyu. Watanabe chose as his vice-president, Masao Kiuchi, the head of Ryohin Keikaku Co., Ltd., the publicly traded subsidiary of Seiyu that operated the extremely successful Mujirushi Ryohin. Having somewhat neglected its core retailing businesses while foraying into its various nonretailing ventures, Seiyu had a fair number of outdated and underperforming stores. The company began closing some of these, with 13 shuttered in 1997 and another six the following year, and overhauling others. Seiyu also began jettisoning numerous group companies, aiming to reduce the number of subsidiaries from 101 to 25 by 2002. In February 1998 its ownership of Inter-Continental Hotels and Resorts was sold to Bass PLC of the United Kingdom for ¥370 billion (US$2.9 billion). That same month, Seiyu sold its remaining 21.6 percent stake in Family Mart to ITOCHU Corporation, a Japanese trading firm, for ¥135 billion (US$957 million). Other transactions that affected fiscal 1997 results included the sale of shares in Ryohin Keikaku, which reduced the company's stake from 53.6 percent to 46.2 percent, and an initial public offering of stock in S.S.V. Inc., which decreased Seiyu's interest from 55.7 percent to 45.7 percent. S.S.V. operated supermarkets, mainly in the Nagano, Aichi, and Gifu prefectures. With another write-off, mostly related to TCF, of ¥166.2 billion (US$1.3 billion), Seiyu posted a net loss of ¥59.5 billion (US$468 million) for fiscal 1997. The company returned to the black in 1998, but only because additional asset sales--including the further reduction of its stake in Ryohin Keikaku to 21.6 percent--offset more restructuring charges.

Seiyu remained a troubled firm at the dawn of the millennium, burdened by a debt load in excess of ¥911.5 billion (US$7.46 billion), a figure that was equivalent to 52 times the total shareholders' equity of ¥17.28 billion (US$144 million). In August 1999, with the company's capital having fallen further to ¥11.71 billion, Seiyu allocated ¥20 billion (US$175 million) in new shares to six companies in the Saison Group. This increased Seiyu's capital to ¥21.71 billion. Later that year the company sold another 15 percent of its stake in Ryohin Keikaku. In January 2000 Seiyu sold Asahi Medix to Sumitomo Corporation. Soon thereafter Seiyu reported a net loss for the 1999 fiscal year. The outlook for Seiyu appeared bleak, especially as some prominent Japanese retailers were at this same time declaring bankruptcy. The company also could not expect any more financial assistance from the Saison Group, as Saison was facing its own crisis from the failure of Seiyo Corp., a Japanese property developer and a Saison Group firm. This forced Seiyu to look for outside financing, and in April 2000 the company raised another ¥15.62 billion through the sale of additional shares. About half of this offering was purchased by Sumitomo, giving the trading company a nearly 12 percent stake in Seiyu. Observers speculated that the new alliance between Seiyu and Sumitomo might very well lead to the dissolution of the Saison Group. In any event, Seiyu was eager to resume a more aggressive program of store openings to regain momentum in its core businesses, and it needed to fund this expansion.

Principal Subsidiaries: S.S.V. Inc.; The Endo Chain Co., Ltd.; Hayashibe Co., Ltd.; Seiyu Foods Co., Ltd.; Smile Corp.; The SCC, Ltd.; L.L. Bean Japan, Inc.; Wakana Co., Ltd.; Pacific Tour Systems Corp.; Libro Co., Ltd.; S.S. Communications, Inc.; Smis Co., Ltd.; Hospitality Network Corp.; Nicoh Inc.; Tokyo City Finance Co., Ltd.; Seiyu (Thailand) Co., Ltd.; Beijing Zhong Shang Seiyu Co., Ltd. (China); Seiyu (Singapore) Private Limited; Seiyu (Shatin) Co., Ltd. (Hong Kong); Seiyu Pacific Pte., Ltd.

Principal Competitors: The Daiei, Inc.; The Daimaru, Inc.; Isetan Company Limited; Ito-Yokado Co., Ltd.; JUSCO Co., Ltd.; Marui Co., Ltd.; Matsuzakaya Co., Ltd.; Mitsukoshi, Ltd.; Mycal Corporation; Takashimaya Company, Limited; Tokyu Department Store Co., Ltd.; Uny Co., Ltd.


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Further Reference

Amaha, Eriko, 'Into the Unknown: Investing in Restructures Takes Courage,' Far Eastern Economic Review, July 9, 1998, p. 44.Asao, Kunio, Seibu Sezon Gurupu, Tokyo: Nihon Jitsugyo Shuppansha, 1985.'The Emporia Strike Back,' Economist, October 29, 1994, pp. 83--84.'Look Out,' Economist, October 24, 1998, pp. 108+.Sakamaki, Sachiko, 'Simple Success: Japanese Chain's Anti-Brand Chic Is a Consumer Hit,' Far Eastern Economic Review, August 21, 1997, p. 75.Shirouzu, Norihiko, 'Seiyu's Move to Restructure Impresses One Contrarian,' Asian Wall Street Journal, September 22, 1998, p. 17.Tominaga, Masabumi, Seiyu Sutoa no Keiei, Tokyo: Nihon Jitsugyo Shuppansha, 1978.

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