Nagasakiya Co., Ltd. - Company Profile, Information, Business Description, History, Background Information on Nagasakiya Co., Ltd.

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History of Nagasakiya Co., Ltd.

Nagasakiya Co., Ltd. is one of Japan's leading retail chains, with a nationwide network of large supermarkets. The main line of retail is apparel, but the Nagasakiya group, which includes all of the subsidiaries of Nagasakiya, covers a wide range of retail activities, including home appliances, restaurants, and convenience stores. The Nagasakiya group is also involved in leisure development, finance, and import/export. During the 2000s, faced with insurmountable debt, the company declared bankruptcy and underwent major restructuring.

Post-World War II Beginnings

Nagasakiya was founded early in 1948 by Kohachi Iwata. The original store consisted of a small refreshment stand in Hiratsuka in Kanagawa Prefecture, near Tokyo. Kohachi Iwata was the son of a local retailer, Chohachi Iwata, who in 1919, at the age of 22, opened a small Japanese bedding or futon store in Chigasaki. The store was moderately successful, and Chohachi hoped his son Kohachi would join him in the family business after graduating from university. The young Kohachi Iwata failed his entrance exams, however, and left school in 1940 at the age of 19 to work in his father's store. His first job was to stand in front of the store and try to attract customers, and for the next five years he worked extremely hard at this.

The store was destroyed in the bombing of the Kanto area in air raids in the summer of 1945, leaving the Iwata family with nothing but the land on which their store had stood. The young and ambitious Kohachi Iwata decided to start a venture of his own on a small plot of land owned by his family in Hiratsuka, near Chigasaki. The plot was in the ruins of Hiratsuka railway station in the town center, and it was here in 1946 that Kohachi Iwata and his new bride set about making a living. The initial venture, called Nagasakiya, was a small refreshment store of about 20 square meters, and the main product sold was crushed ice flavored with fruit juice. In the summer heat it was a cheap refreshment for the city dwellers, many of whom were still poverty-stricken and were rebuilding their homes following the end of World War II.

Iwata worked frantically to make ends meet and build a successful business. In the winter, when the demand for iced refreshments had fallen, Iwata expanded his store to offer cotton clothes as well as the bedding that was his family's traditional business. In Hiratsuka, a relatively depressed city in the Kanto plain, Iwata's store offered basic necessities at a cheap price. Business grew to such an extent that by 1948 Iwata formed a company called Nagasakiya Co., Ltd.; its sole purpose at that time was the operation of the store.

Japan was rapidly changing for the better, however, and in the early 1950s the economy experienced rapid growth. The city of Hiratsuka became a shopping center for consumers in the surrounding suburban areas. Iwata noted that people were coming from Odawara and Isogo to shop at his store, rather than traveling into the city of Yokohama. By 1950 Iwata had accumulated enough savings to open a second store in nearby Machida, which also was called Nagasakiya. Apparel was now the main product line of both stores. In 1953 Iwata bought the building containing his original Hiratsuka store and converted the complex into a larger store.

The success of Iwata's stores in the early 1950s can be attributed to the booming consumer demand for essential household items and also to Iwata's constant hard work. During this time, several of the largest retailing chains in Japan today were emerging. Iwata saw Daiei Co., Ltd. and Ito-Yokado Co., Ltd. as his main competitors. In 1954 he envisaged a ten-year plan to set up a national chain of large supermarkets. He pinpointed the 40 largest metropolitan areas as targets for his stores. In 1957 Iwata was one of 16 entrepreneurial retailers traveling to North America on a month-long fact-finding mission. The group traveled to Hawaii and Los Angeles and then on to New York. Iwata was fascinated by the U.S. retail market and the use of a single brand name, such as J.C. Penney, to cater to mass consumer shopping nationwide. He also noted the use of vending machines, a phenomenon that had yet to reach Japan. These observations helped form Iwata's vision of a retailing empire in Japan. On his return to Japan, Iwata arrived at the port of Ichikawa in Chiba Prefecture, where he happened to notice a restaurant catering to the servicemen of a nearby U.S. Navy base. Iwata thought that the Westernized aspects of the restaurant could be applied throughout Japan. He promptly hired the manager of the restaurant and set up a subsidiary called Choeisha, which would eventually become the restaurant chain Oasis, a subsidiary of Nagasakiya.

As the first step in the creation of what he termed "superstores," Iwata decided to construct a seven-story building on the Hiratsuka site. His main problem at the time was the lack of financing for the project, yet he succeeded in obtaining not only planning permission but also loans from a wealthy bureaucrat in the Kanagawa Prefectural government in charge of new construction, who was anxious to promote development in the area. Construction began in mid-1959 and was completed by the end of the year. It was the first Nagasakiya superstore, with elevators, escalators, and refrigerated food display cabinets. In order to repay the loans, Iwata announced cut-price sales at his other stores in nearby Hachioji, Kamakura, and Machida.

During this time Iwata opened stores at the rate of about one a year, and by 1961 there were ten Nagasakiya stores in Kanagawa Prefecture. Nagasakiya was at this time still privately owned by Iwata. He was advised that, in order to achieve the kind of expansion he envisaged, it would be necessary to float the company. Iwata was initially reluctant, being fairly ignorant of the financial world. After looking into the advantages and workings of the stock market he agreed to float his company on the First Section of the Tokyo Stock Exchange. The company was initially capitalized at ¥480 million. Nagasakiya now possessed the foundations for building a nationwide retail empire. It had the capital in the form of publicly traded shares, the market in the form of a booming Japanese consumer market, and leadership in the form of Iwata and his team of able managers.

The 1960s was a dynamic time in Japanese retailing. Supermarket chains Daiei and Ito-Yokado were setting up their nationwide networks at a furious pace. These chains provided a full range of household items. Nagasakiya, on the other hand, concentrated on clothing retailing, although in 1960 food retailing commenced on the ground floor of many Nagasakiya stores.

By 1967 Nagasakiya consisted of 30 superstores, compared with 20 stores five years earlier, with combined sales of more than ¥3 billion. The period 1967 to 1968 saw massive expansion in the Nagasakiya chain, with more than ten new superstores added during this year. These included stores in Shizuoka and Omiya, both in the Kanto region, with floor space of more than 2,500 square meters. The policy was to concentrate on opening large stores in the key areas identified by Iwata ten years earlier. In 1967 Nagasakiya launched its in-house brand of clothing--Sunbird--to be sold exclusively in the stores. The Sunbird line was costlier than Nagasakiya's other clothing, and by 1980 the brand was a well-established name in the Japanese fashion world.

In the period 1970 to 1974 Nagasakiya continued to thrive, with sales and floor space doubling during this time. Nagasakiya achieved sales of ¥100 billion in 1973. In the same year Nagasakiya felt that specialty stores were going to be profitable in the future and established a subsidiary, Babybird Co., Ltd., which sold babies' and children's clothing. In 1974 Nagasakiya established Sunbird Finance Company to engage in corporate and personal loans for customers of Nagasakiya. Sunbird Finance Company sold its services through outlets at Nagasakiya stores, and by 1980 these outlets numbered 200.

Nagasakiya's rapid growth was slowed somewhat by the oil shock of 1973, when the OPEC member nations increased the price of crude oil threefold overnight. This had a devastating effect on the Japanese economy, which relied on Middle Eastern oil for 70 percent of its energy needs. For the first time in ten years the Japanese economy experienced negative monthly gross domestic product (GDP) growth. The effects were not as severe for Nagasakiya as they were for retailers selling high-class and luxury goods, and the chain continued to grow, albeit at a slower pace. By 1978 sales had reached ¥200 billion, with a total of 90 Nagasakiya stores. By 1981 there were 100 stores. Nagasakiya entered the convenience store market in 1980 with the establishment of Sunkus Co., Ltd. With 630 branches, Sunkus was a fairly large player in this market but did not compare with Seven Eleven Japan and Circle K Japan, which owned thousands of stores. The establishment of specialty stores was a policy of all the major retailing groups at this time. Nagasakiya started Sun Men's Shop Co., Ltd., selling men's clothes, and Sun Optical Co., Ltd., selling eyeglasses and watches, in 1981. Cymbal Co., Ltd., started in 1983, specialized in clothes for the 12 to 18 age group, and Sun Techno Services Co., Ltd. was established in 1984 to provide building services for the Nagasakiya stores and other clients. In 1985 Kanoko Co., Ltd. was established to sell woolen goods, Sun Kaden to sell electrical home appliances, and L & B Co., Ltd. to sell high-fashion women's wear. Sun Systems Development was begun in 1986 to provide computer services for Nagasakiya and other customers.

In 1987, with significantly more than 100 Nagasakiya stores open throughout Japan and more than a thousand stores operated by Nagasakiya subsidiary companies, the company had become one of the top ten retailing groups in Japan. Like most markets in Japan, the retail market was extremely competitive. Nagasakiya embarked on a large-scale store renewal program in 1987. Old, inefficient stores were rebuilt under the "scrap and build" policy. Maximum use was made of floor space, and extensive market research was undertaken to plan store layout and stock levels. In 1988 the company's founder, Kohachi Iwata, retired as president of Nagasakiya to allow his son Fumiaki to take over the day-to-day operations of the company. Kohachi assumed the position of chairman and remained the inspiration behind the company.

At the beginning of the 1990s the Nagasakiya group of companies consisted of 115 Nagasakiya superstores and 53 subsidiaries operating mainly in the retail sector. Other business areas in which group companies were involved included real estate development, leisure centers, import/export, advertising, and an overseas restaurant in Singapore.

Collapsing in the New Century

A major development was the opening in September 1990 of Fantasy Dome near a Nagasakiya store in Tomakomai in Hokkaido. With 30,000 square meters of floor space, it was one of the busiest amusement parks in Japan and, being completely enclosed, it was the first all-weather leisure center in Japan.

Nagasakiya's growth was hampered by a fire in its Nagasakiya store in May 1990, in which there were a number of casualties. As a result of the ensuing negative publicity, the company was forced to initiate a costly safety assessment program in all of its stores. Compensation to the victims and their families also tied up capital intended for expansion. The company feared that it could even be forced to sell assets, depending on the total cost of the disaster. In the long term, however, this setback was not expected to affect the company significantly and steady growth was predicted in the 1990s, with slower growth in the mature clothing retail markets contrasting with the high growth of the convenience stores and restaurants.

But Nagasakiya's ambitious expansion of the 1980s and early 1990s caught up with the company--as well as Japan's retail sector in general--by the end of the 1990s. The company's drive to expand, and to finance its expansion through debt, depended on the buoyancy of Japan's consumer spending. Yet by the end of the 1990s, years of recession had cut deeply into consumer spending. Consumer spending habits also had shifted, toward larger-scale stores. Nagasakiya's heavy debt load, however, made it impossible for the group to follow suit. From peak sales at the start of the 1990s, Nagasakiya's sales dropped rapidly. The company initiated a store-closing program, shutting more than 15 stores through the decade. By the middle of the decade, the company had slipped into the red. In 1999, after five straight years of losses, the company's ¥184 million loss pushed it over the edge. Fully one-third of the company's 84 stores were losing money.

Finally, by 2000, Nagasakiya found itself crushed by more than ¥280 billion ($3.4 billion) in debt. Unable to pay its obligations, the company was forced to declare bankruptcy in order to shield itself from its creditors. This action, accompanied by difficulties among many of the company's competitors, helped spark the collapse of Japan's banking sector as well.

New York-based Cerberus Group, an investment group set up by Stephen Feinberg and specialized in rescuing failed companies, stepped in to provide financial backing to aid in Nagasakiya's rehabilitation. The company promptly began a new store-closing program, shutting 30 of the company's unprofitable stores. By 2002, with its total debt load topping ¥420 billion (including two company affiliates) the company had presented its rehabilitation plan to its creditors--which included the forgiving of some 99.4 percent of its debt. A reduced version of the plan was agreed to by the company's main creditor, Mizuho Corporate Bank, in July 2002.

The company continued exploring plans to cut its costs, including sponsoring a contest for cost-cutting ideas among its employees in 2003. At the same time, Nagasakiya began looking for new business ventures, such as an agreement with Ninety-Nine Plus Inc., which operated ¥99 fixed-price stores, to cooperate in the creation of a new chain of convenience stores. With its rehabilitation plan in place, Nagasakiya could look forward to a fresh start in the new century.

Principal Subsidiaries: Sun Denka Co., Ltd.; Sun Bird Tour Co., Ltd. (88%); Kanoko Co., Ltd.; Nagasakiya Photo Service Co., Ltd.; L & B Co., Ltd.; Sun Advertising Co., Ltd.; Be Gol Co., Ltd.; Sun Planning Centre Co., Ltd.; Cymbal Co., Ltd. (60%); Sun Systems Development Co., Ltd. (70%); Hiroya Co., Ltd.; Sun Assort Co., Ltd.; Baby Bird Co., Ltd.; Sun East International Co., Ltd. (67%); Sun Men's Shop Co., Ltd.; Sunland Co., Ltd. (98%); Sun Optical Co., Ltd.; SunBird Finance Co., Ltd. (39%); Nagasakiya Home Centre Co., Ltd.; Sun Techno Services Co., Ltd.; Sunkus Co., Ltd. (95%); ODS Nagasakiya Co., Ltd. (Singapore; 75%); Oasis Co., Ltd. (80%); Sun Leisure Co., Ltd. (83%); Sun Fantasy Co., Ltd. (90%).

Principal Competitors: The Daiei, Inc.; Ito-Yokado Co., Ltd.


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