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

3-3-3 Honjo
Kumamoto City 860

History of Kotobukiya Co., Ltd.

Founded shortly after the end of World War II, Kotobukiya Co., Ltd. became the leading retailer in Japan's southern island of Kyushu. At its height, the company operated some 134-supermarket outlets under the name Kotobukiya and about 300 other specialty boutiques, selling everything from fashion to food and electric appliances. Like many Japanese retail chains, Kotobukiya provided the full range of shopping-related services, and was actively involved in the credit, travel, property leasing, and restaurant businesses. Hard hit by Japan's economic recession in the 1990s, the company was forced to file for bankruptcy protection in December 2001. The company sold off its retail outlets to a number of Japanese retailers, including Chiba Prefecture-based Aeon Co., and is now in the process of repaying ¥37.7 billion in liabilities before its final liquidation.

Origins of a Retail Chain: 1947

Kotobukiya originated in Kyushu, Japan's second most populated and industrialized island. The island is divided into seven provinces and contains the major industrial cities of Nagasaki and Fukuoka. It was in Nagasaki that Japan first had contact with the Western world in the 16th century and until 1868 it remained the only port open to foreign vessels.

Kotobukiya's founder, Sueko Suzaki, was born in 1904 in Saiki, a small town on the east coast of Kyushu, where she lived with her husband and family. After her husband was killed in World War II, she had to raise her family on her own. In postwar Japan there was limited opportunity for women to obtain employment, so in 1947, using her savings, she opened a small store of only 12 square meters selling handbags and cosmetics bags that she made herself. Suzaki named the shop Kotobukiya, which is another reading of the first Japanese character in the name Suzaki. Through her hard work, the shop flourished and Suzaki began selling decorative scrolls and other trinkets. Japan's defeat in World War II meant that in the early postwar years its economy was largely dominated by the United States and to some extent this also applied to consumer fashions. Realizing this, Suzaki began to stock items imported from the United States and gave her shop an American atmosphere.

Formulating a Strategy for Expansion: 1955-70

This expansion of the business caused Suzaki's eldest son Hajime to leave his job in a Tokyo tax office and return home in 1953 to help with the family business. The following year, in order to combat inflation and stabilize the economy, which was still fairly weak, the local authorities initiated controls that dictated prices for certain goods, making it easier for retailers and consumers to plan their finances. At the first company meeting in 1955, Sueko and Hajime Suzaki and the store's ten employees formulated their strategy for expansion. Novel promotional ideas were used to advertise the store; five female models were brought from Kyoto to promote the goods; and free samples were handed out. Then Kotobukiya began staff training, which was to become an important factor in the company's success. Employees were taught how to present the souvenirs sold in the store and how to serve the customer with respect.

In 1957, ten years after opening her first store, Suzaki opened another in the city of Miyazaki, south of Saiki. To raise money, half of the company's shares were sold to the employees. At the time the firm's capitalization was only ¥1.25 million--slightly less than $3,700. The two stores' combined shop floor area had increased to 1,800 square meters and a management system encouraging employee participation was introduced. The Miyazaki branch, located in a far more prosperous and populated area than Saiki, flourished. A Western products division was formed in 1960, and in the same year Kotobukiya Company was formed as a holding company. The year 1961 saw the opening of the company's first food supermarket in Saiki. The range of products sold in all the stores was enlarged to include processed foods and household items. In 1962 and 1963 several new stores--referred to as compact department stores--were opened, not as large as some of the bigger stores, but still selling a wide range of goods.

As president of the firm, Hajime Suzaki took the leading role in expanding the company and in 1963 visited the United States to observe retailing operations and methods. He studied inventory control and supermarket promotion and picked out aspects of U.S. retailing methods that he thought applicable to his own operation. One was the development of a strong brand image associated with the store, and he sought to apply uniform standards to all Kotobukiya stores so that customers could expect similar service in each branch. By 1966 capitalization had reached ¥40 million and, as a result of growing consumer demand, Kotobukiya continued to open new stores at the rate of about ten a year while closing down or moving smaller and less productive premises. That year, the original store in Saiki was closed and moved to a new location nearby. The company also began sending its store managers on overseas training courses and in the following year a formalized management training program was organized, with 13 new university graduates joining the company. With 400 employees, Kotobukiya was a medium-sized company and Hajime Suzaki decided to move it to the city of Kumamoto on Kyushu's west coast. The four-story headquarters also contained a department store.

Diversification in the 1970s and 80s

With the large amount of real estate that the company owned or rented, Suzaki diversified successfully into property leasing. In 1970 a training program was set up for the sales staff--Japanese department stores provided, and the customers expected, excellent service and Suzaki strove to provide this by comprehensive staff training. In 1971 Kotobukiya opened Bouquet, its first specialty store in Kagoshima, which aimed to be the most modern in the region. The chain grew quickly, selling fashion goods aimed at the youth market. Frequent overseas trips to the United States and Europe by store managers meant that the company was well versed in the latest western fashion trends, many of which were copied in Japan.

In 1972 Kotobukiya formed a partnership with the Southern Japan Trust Bank to provide customers with credit services. The following year Kotobukiya became a listed company with its shares traded on the Fukuoka Exchange, moving to the Osaka Exchange in 1976. The range of goods sold at Kotobukiya's stores by then included electrical goods, leisure equipment, and imported liquor. The year 1977 marked the 30th anniversary of the company, and to celebrate the occasion Kotobukiya donated ¥100 million to local charities in Kyushu. In this year, sales reached the ¥100 billion mark--about $500 million--and new stores continued to be opened at the rate of about 12 per year. To cope with the necessary staffing requirements, a training center was opened, and in 1979 alone 1,400 people joined the company. The 100th Kotobukiya store was opened in Kumamoto and in 1980 two new companies were formed: Kyushu Consultants, providing leasing and finance services, and Kotobukiya Land, dealing in real estate. To remain competitive, the chain cut prices on groceries at its supermarkets. A new computer system allowed management to control stock more tightly and undercut smaller retailers. By 1981 the chain was ranked 19th among Japanese retailers and employed more than 10,000. Twenty-four-hour convenience stores were launched and an overseas trading company was set up to supply the stores with selected imported goods. For this purpose, a representative office was set up in Korea. Meanwhile, Kotobukiya entered two new areas of retailing, fresh fruits and marine products.

In 1983 the company implemented a system subsequently used throughout Japanese business--total quality control. Store managers were introduced to the system, the aim of which was to ensure that there was no price, stock, or quality variation across the chain and a computer system was used to verify this. At the frequent store managers' meetings, exchanges of ideas and information were encouraged. In 1984 Kotobukiya opened its first Sunpark leisure center and in the same year began issuing credit cards that could be used at Kotobukiya stores: there were 23,000 subscribers in the first year. In that year, the Japanese government promoted the industrial development of Kyushu and Shikoku, Japan's smallest island, under the Technopolis scheme and Kotobukiya donated ¥100 million to the project. The year 1985 marked the appointment of the first woman in charge of a Kotobukiya store--well overdue considering that in addition to having a woman as founder, over half of the company's staff were women.

Consolidation in the Late 1980s

Partly in response to overexpansion in the late 1970s and early 1980s and partly due to management plans to concentrate on larger stores, 19 branches were closed in 1985 resulting in job cuts--the workforce fell from 10,000 in 1982 to 6,000 by early 1986--and decreased revenues. Profits, however, remained steady. Hajime Suzaki was concerned that the bureaucracy of the company had become too large, and there was a management shakeup in 1986. The headquarters was reorganized into three divisions with 11 subdivisions. Early retirement was sought for some, and younger key staff were promoted. Responding to changing times, the company entered the video rental business and began importing directly from mainland China via a trading department set up within the company.

In response to the growing use of credit cards in Japan, Kotobukiya began accepting various cards and formed a partnership with Visa to issue a new card. The company began to consider permitting shopping by telephone, allowing customers at selected stores to arrange purchase and delivery from home or office. Kotobukiya, like most large Japanese companies at this time, took advantage of the booming Japanese stock market and engaged in zaitech--financial engineering--to generate profits. The company also looked to the European warrant market to raise capital, with a $100 million issue in the United Kingdom in 1988. Further consolidation occurred in 1988 and 1989 when 24 Kotobukiya stores were closed. This resulted in a less than 1 percent drop in sales during that period, indicating the soundness of management decisions. The management relied on its up-to-date computer system to identify the most inefficient stores.

In 1990 the company's founder Sueko Suzaki died at the age of 86, having long since retired from active management within the company she started. Following her death, her son Hajime took over as chairman of Kotobukiya, leaving the post of president open to a nonfamily member, Yutaka Yonekawa. Hajime's son Shigeru was a managing director in the company. Although the collapse of the Japanese stock market in 1990 and 1991 did not immediately weaken Japan's consumer spending boom, which had begun in the late 1980s, it affected corporate earnings considerably. Companies that had engaged in stock and real estate speculation were hit hard, although Kotobukiya was not as exposed as some companies. With the credit squeeze and raising of interest rates imposed by the Bank of Japan, funds for expansion and investment became increasingly scarce. In the wake of this, net operating profits decreased slightly in 1990 to ¥F5.6 billion or $39 million.

In 1990 the company pursued its policy of careful investment in training and facilities, concentrating on the expansion of point-of-sales information control systems and the refurbishing of stores to meet customer demand. Trade negotiations between Japan and the United States then emphasized the large-scale retail stores. The United States wanted to see certain retailing and distribution restrictions for foreign companies lifted to promote increased competition in this sector. Kotobukiya management conceded that retailing trends were hard to predict and it therefore responded to what it saw as current trends. Uncertain how long the consumer boom would continue, Hajime Suzaki and the management of Kotobukiya were content to adopt a cautious approach to expansion in the first half of the 1990s.

Suffering Under Economic Recession in the 1990s

By 1991, sales in Japan had begun to drop off considerably as the country entered recession. As Kotobukiya's sales dropped 1.5 percent to ¥135,735 million, the company was surpassed by its rival, Uneed, as the number one-selling supermarket operator in the Kyushu region. Still, Kotobukiya managed to offset the decline in sales with the increased efficiency of its point of sales system, thus maintaining solid profitability. As of yet, no major change of strategy seemed necessary. The company planned to continue its course of opening new stores, expanding existing stores, and freeing itself of unprofitable stores. In 1994, the company announced plans to open a women's wear shop in Taipei as a preliminary step to position itself to enter the mainland China market. Further, in February 1995, Kotobukiya became the first Japanese company to list bonds on the Hong Kong Stock Exchange, a move aimed at raising capital for the construction of new retail outlets.

In April 1995, however, in what was perhaps the first sign of trouble at Kotobukiya, Hajime Suzaki, the company's cofounder and top advisor, announced his resignation, as well as plans to sell his family's 20 million shares in the company, citing differences with Nishi-Nippon Bank, the company's main creditor bank and a significant force on its board of directors. Suzaki contended that Kotobukiya's survival would depend on the introduction of support from another major retailer, which he hoped to attain with the sale of his family's shares, about 20 percent of the total shares issued by the company. Nishi-Nippon opposed the sale. After various other attempts to raise capital proved insufficient, Kotobukiya announced in August 1999 that it would close its representative offices in Hong Kong, South Korea, and Shanghai within the business year, leaving one office in Taiwan as its only remaining overseas operation. The closures were deemed necessary to save the company an estimated ¥80 million annually.

Even with such drastic measures, circumstances for Kotobukiya did not improve measurably, and by September 2001, the company announced a negative net worth of ¥14.8 billion. Further, the company then held ¥170 billion in interest-bearing debt. After a failed attempt to secure a capital tie-up with Sun Live Co., another southwestern-Japan-based supermarket operator, Kotobukiya was forced to file for federal bankruptcy protection in December 2001, which further resulted in its delisting from the Osaka Securities Exchange.

Initially, Kotobukiya planned to cope with its financial difficulties by shutting down 44 of its 134 retail outlets, a 30 percent downsizing that entailed laying off all of its 2,200 full-time employees. Indeed, the company resolved to give up its status as the biggest supermarket in Kyushu, and to concentrate mainly on selling foodstuffs, rather than the broad range of household appliances and other goods it had formerly carried, in order to reduce costs. By January 2002, however Kotobukiya's restructuring plan was further thwarted by the refusal of many of its suppliers to deliver goods, fearing that the ailing company would be unable to make payments on them. Kotobukiya was subsequently forced to halt operations at all of its retail outlets. In February 2002, it laid off essentially all of its workforce.

After failing to find a single sponsor to take over the bulk of its operations, Kotobukiya resolved to parcel off its stores to a number of companies in hopes of securing re-employment agreements for its employees. The biggest buyer was Chiba Prefecture-based Aeon Co. (formerly Jusco Co.), a nationwide supermarket chain that agreed to take over 50 of Kotobukiya's outlets, for an estimated price of more than ¥10 billion. Aeon aspired to be one of the ten largest retailers in the world by 2010. Other prospective buyers of remaining Kotobukiya outlets included Hiroshima-based Izumi Co. and Kagoshima-based Taiyo Co.

By July 2002, Kotobukiya had submitted a ten-year rehabilitation proposal to the Kumamoto District Court. Under the plan, the company would repay ¥37.7 billion in debt by reshaping itself as a real estate management company and earning profits from the rental or sales of its various properties in Kyushu and Yamaguchi. Following the fulfillment of its repayment obligations, Kotobukiya planned to liquidate itself entirely. The company was among 14,687 cases of recession-induced bankruptcy in Japan in 2001, a postwar record.

Principal Subsidiaries: Gruppe Co. Ltd.; Kyushu Consultants Co. Ltd.; Kotobukiya Bakery Co. Ltd.; Kyushu Region Spar Honbu Co. Ltd.; Bouquet Co. Ltd. (90%); Tohya Department Store Co. Ltd. (50%); Tohya Shoji Co. Ltd. (50%); Sakura Department Store Co. Ltd. (55%).


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