The environment in the distribution business is changing drastically. The era of a sellers' market dominated by manufacturers and distributors is being supplanted by one of a buyers' market shaped by customers' needs. To adapt to this change, the IY Group is endeavoring to remake ourselves to embody this new model of distribution: one based on the customer's needs. Toward this end, we are reevaluating the distribution business's existing structure and tenets from the ground up, and exhaustively reforming our modes of operation. By carrying through with such operational reforms, we will also eliminate various losses and address environmental problems and other social issues.—Toshifumi Suzuki, president and CEO
Ito-Yokado Co., Ltd. and its 58 subsidiaries and affiliated companies—known collectively as the Ito-Yokado Group (or IY Group)—represent the largest retailing group in Japan and one of the 15 largest in the world, in terms of sales. It is also one of the most diversified. The group is one of the top supermarket companies in Japan, with nearly 190 superstores (which feature both food and nonfood merchandise) mostly operating under the Ito-Yokado name, more than 90 York Benimaru supermarkets, and another 60 supermarkets doing business as York Mart or Sanei. The group also includes 30 Daikuma discount stores, four Robinson's Japan department stores, and more than 60 specialty stores under the names Mary Ann (women's clothing), Oshman's Japan (sporting goods), and Steps (menswear). Another key group sector is convenience stores, in which Ito-Yokado holds majority stakes in Seven-Eleven Japan, Japan's largest convenience store chain with more than 8,650 outlets, and 7-Eleven, Inc., the largest such chain in the United States with in excess of 5,750 units. In restaurants, Ito-Yokado has majority ownership of Denny's Japan, the Japanese version of the U.S. chain, which operates more than 530 outlets, and some 460 additional restaurants under the names Famil and York Bussan. Other operations include the manufacturing and processing of food products, the operating of superstores in China through a joint venture, and ownership of a publishing firm. In 2001 Ito-Yokado established IYBank, a branch-free bank that within months of its creation had more than 1,550 automatic teller machines (ATMs) located within Seven-Eleven stores in Japan.
Ito-Yokado developed from a subsidiary of Yokado Clothing Store—Yokado Yohin-ten in Japanese—established by Binyu Yoshikawa in 1920. The store was located in the Asakusa area of Tokyo and its main customers were prosperous members of the emerging Japanese middle class. Japan was in a period of high economic growth following its military defeat of China and Russia in conflicts in 1897 and 1904. Western goods such as home appliances and business suits were in high demand, and stores specializing in such goods flourished. By 1930, Yoshikawa's business had expanded to include four stores in the Asakusa area, but sales suffered in the late stages of World War II, as rationing of basic goods was introduced by Japan's military government. The public had very little money to spend on nonessential goods and the stores were forced to close because of bombing raids by the U.S. Air Force in the first half of 1945. The original store in Asakusa was destroyed in the air raids, and the other stores were badly damaged. Yoshikawa's situation was similar to that of numerous small retailers in postwar Tokyo and, like them, he began the painful task of rebuilding his business. He chose to relocate to the Kitasenju part of Tokyo, not far from Asakusa. Like his old stores, the new store sold goods imported from the West, such as clothes and cosmetics, but it also stocked household goods.
During the 1950s the Japanese economy was growing rapidly, fueled by exports and growing consumer demand. Yoshikawa gave his nephew Masatoshi Ito's parents control of the Yokado store in 1958, and they established Yokado Co., Ltd. It was here that the history of Ito-Yokado really began. Ito was determined to make his mark on the company. In 1961, at the age of 39, Ito traveled to the United States and Europe to gather information on Western retailing methods. This flow of information from the West to Japan was occurring in most sectors of the Japanese business world at the time. Ito studied the major U.S. retailing chains and was convinced that the future of consumer goods retailing in Japan lay in the establishment of such chains. Following his return to Japan, Ito began to take an active role in the family business. In October 1961 a second Yokado store was opened in the Tokyo region of Akabane, and this came about largely as a result of Ito's efforts. He succeeded in raising the capital to open another store in 1963 and two more in 1964. The stores were based on large U.S. retail outlets, and stocked food as well as clothes and household goods. In 1965, to avoid confusion with the original Yokado stores, the name was changed from Yokado Co., Ltd. to Ito-Yokado Co., Ltd., with Ito as president. He continued his policy of making the company a major supermarket chain by opening nine new Ito-Yokado stores between 1965 and 1970. They included a supermarket in Noda, Chiba prefecture, the first store outside Tokyo.
1970s to Mid-1980s: Diversification through Establishment of Several Chains
By the early 1970s Ito-Yokado was a medium-sized but fast-growing supermarket chain in Tokyo, and in 1972 it obtained a listing on the Second Section of the Tokyo Stock Exchange. Also in this year the corporate logo, which became a familiar sight all over Japan, was conceived. It consists of a white dove on a background of red and blue. Japan's economy, led by consumer spending, was booming, and Ito wished to expand his company's business into other areas. In 1972 the restaurant chain Famil was established with the opening of a family diner in Tokyo. Like the Ito-Yokado supermarkets, the Famil chain was aimed at the middle-class family market. The company's diversification into the restaurant business continued in the following year when, under license from the U.S. chain Denny's, Denny's Japan Co. Ltd. was formed. The plan was to open restaurants with a visible Western brand name in the Tokyo suburbs by the side of major roads. The first store, in Tokyo, was highly successful, and Denny's restaurants were soon opening up all over Japan. In 1973 Ito-Yokado was listed on the First Section of the Tokyo Stock Exchange, and the company acquired a stake in the Fukushima-based supermarket chain Benimaru Co. Ltd. A joint-venture company, York-Benimaru, was established. Ito-Yokado contributed its knowledge of chain retailing as well as the familiar Ito-Yokado company logo. Established in 1948, the Benimaru chain of supermarkets thus became an affiliate of Ito-Yokado, and aided in the latter company's plans for nationwide expansion.
In 1973 under license from the Dallas-based Southland Corporation, Ito-Yokado established York Seven Inc. (renamed Seven-Eleven Japan in 1978), with a majority shareholding retained by Ito-Yokado. At the time 7-Eleven was the leading convenience-store franchise in the United States, and Ito was determined to establish his company's dominance in the Japanese market with the aid of the 7-Eleven brand name (rendered as "Seven-Eleven" in Japan). The stores were extremely successful and were opened at the rate of about 100 a year, initially in the Kanto region and subsequently all over Japan. Like the Denny's restaurants, Ito-Yokado's Seven-Eleven stores were mainly located in suburban regions near major roads.
In the middle to late 1970s Japanese consumers were becoming increasingly concerned about the quality of the goods they bought, as well as the cost. Young Japanese consumers, notably women, were displaying a growing fashion-consciousness and discernment in their shopping. In 1978 Ito-Yokado established Mary Ann Co. Ltd., a chain store specializing in fashionable women's clothing, and the stores became boutiques within shopping centers. The expansion of the Ito-Yokado stores continued. The stores became known as "superstores" because of their large size and abundant floor space. They began to stock such goods as electrical appliances and furniture, and many of them were multilevel. In the 1970s Ito-Yokado opened more than 70 new flagship (Ito-Yokado) stores, with the expansion mainly occurring in the prefectures of Tokyo, Kanagawa, and Chiba. In 1975, meantime, Ito-Yokado launched a new supermarket chain called York Mart; the new supermarkets were located in markets not large enough to support an Ito-Yokado superstore.
In 1978 Ito-Yokado increased its penetration of the retail sector in Kanagawa by its purchase of Daikuma Co. Ltd., a Kanagawa-based chain specializing in discount retailing. The stores sold everything from clothes to television sets in warehouse-like buildings. The Ito-Yokado logo was not incorporated into these stores. In 1978 Ito-Yokado joined forces with Japan's most prestigious department store chain, Matsuzakaya Co. Ltd., to establish a department store in Hokkaido, Japan's northernmost island. The store was 90 percent owned by Ito-Yokado and was called York-Matsuzakaya. This venture highlighted the company's aim to expand into every sector of retailing in Japan. In 1981 Steps Co. Ltd., a chain of menswear stores, was established to complement the existing Mary Ann chain. That same year, Seven-Eleven Japan was listed on the First Section of the Tokyo Stock Exchange. By 1982 a computerized point-of-sale (POS) stock monitoring system was introduced throughout the chain. The system speeded up the checkout process and also enabled information such as the time of purchase and type of customer to be recorded. The information was sent to the mainframe computer at Seven-Eleven Japan's headquarters, which then returned information to the individual store to aid in ordering decisions. The presence of a bar code on all products sold and a scanner capable of identifying the code made the system possible. With the high rate of stock turnover and slim profit margins on sales, this became a vital ingredient in the chain's success. POS systems were introduced into all Ito-Yokado stores by 1985.
In 1984 Ito-Yokado made further inroads into the department store business in Japan with the establishment of Robinson's Japan Co. Ltd., a wholly owned subsidiary of Ito-Yokado. Although the name suggested foreign influence, the concept was conceived by Ito-Yokado. The first store opened in 1985 in Kasukabe, Saitama prefecture, near Tokyo, and sold a range of luxury goods in a relaxed atmosphere, contrasting with the more frantic pace of the Ito-Yokado superstores. In 1990 a second Robinson's store was opened in Utsunomiya, Tochigi prefecture. Ito-Yokado entered the sporting goods market with the establishment of Oshman's Japan Co. Ltd., also in 1984. By 1986 the Ito-Yokado chain was well established in the Kanto region as one of the leading retail chains. This was also true in the northern Japanese island of Hokkaido, and northern Honshu. However, the company had yet to open a store in Japan's second largest metropolitan area, the Kansai plain. In 1986 Ito-Yokado's first store in Kansai opened in Osaka.
Late 1980s and Beyond: Expanding Overseas
The company, with Masatoshi Ito still at the helm, began expansion overseas in 1989 with the opening of a liaison office in Seattle, Washington. In the same year Seven-Eleven Japan acquired the 58 branches of 7-Eleven in Hawaii, at the request of parent company Southland Corporation. It was apparent that Southland was in financial difficulty, and—according to Seven-Eleven Japan's president, Toshifumi Suzuki—was not responding to the changing U.S. retail market. In reorganizing the stores in Hawaii, Suzuki noticed that the amount of inventory present at a given time was three times the average for his stores in Japan. In addition the stores in Japan had an average floor space of 100 square meters and daily sales of ¥650,000. The equivalent figures for the stores in Hawaii were 170 square meters and ¥400,000. Suzuki realized that tight inventory control was the key to success, and in 1991 Ito-Yokado acquired a 70 percent stake in Southland Corporation, with the full cooperation of the latter firm's management, for $430 million. One of the prerequisites put forward by Ito-Yokado before the purchase was that Southland's management would have to be prepared to listen and learn from Seven-Eleven Japan. This represented a major purchase for Ito-Yokado and pushed the group's annual sales past the ¥4 trillion mark, the largest for a Japanese-owned retail group.
In 1992 Ito-Yokado became the latest Japanese company that investigators found had made payoffs to local gangsters, known as sokaiya, in order to prevent the mobsters from disrupting annual meetings. In the wake of the scandal, Ito resigned as president but remained on the company board with the title of honorary chairman. Toshifumi Suzuki, a company vice-president in charge of Seven-Eleven Japan, was promoted to president.
One of Suzuki's first major undertakings was to turn around the fortunes of the 7-Eleven chain. Among the key initial moves were the shuttering of 1,180 loss-making U.S. stores by 1994, a massive store remodeling effort, an overhaul of the merchandise mix, and the replacement of "insult pricing"—the huge markups that customers were forced to pay for convenience—with an "everyday fair pricing" policy featuring lower prices on much of the inventory. Southland also replaced its in-house distribution system with a third-party arrangement with McLane Co., Inc., a subsidiary of Wal-Mart Stores, Inc., the U.S. retail giant. McLane was the country's largest convenience store distributor and began providing coast-to-coast distribution service to the 7-Eleven chain. Another key strategy that Southland adopted to revitalize the chain was to improve the quality and value of the convenience items offered by the stores. This included moving toward daily deliveries of fresh perishables and the introduction of new ready-to-eat fresh foods, such as sandwiches and pastries, and eventually dinner entrees.
Perhaps the most important initiative, however, was the implementation of a chainwide proprietary retail information system, similar to the system already in use at Seven-Eleven Japan. Development of the system began in 1994 and was rolled out nationwide over the remainder of the decade. The system was designed to enable each store to improve its inventory management, reduce the incidence of out-of-stock items, and tailor its product mix to better match the needs of its customers. Southland returned to the black by 1994, then posted steadily rising profits into the 21st century. During the late 1990s Southland began adding more stores than it was closing, as growth was put back on the agenda. During 1998, 299 stores were either opened or acquired while 96 were closed. Another 165 were opened in 1999 and 120 more in 2000. In April 1999, meantime, the nearly fully recovered Southland Corporation changed its name to 7-Eleven, Inc. in a move reflecting the fact that the corporation was involved in only one business.
Back in Japan, Ito-Yokado struggled throughout the 1990s with the stagnant Japanese economy but remained profitable by retaining its keen cost-control strategy and its cautious approach to expansion. Seeking to increase the percentage of imported goods that it sold in Japan from 15 percent to 30 percent, Ito-Yokado reached agreements in 1993 and 1994 with the world's two largest retailers, Wal-Mart and Germany's Metro, to import and sell some of the retail giants' goods. In the early and mid-1990s, Ito-Yokado opened only about five stores per year in Japan, with most of them concentrated in eastern Japan, near the group's distribution centers. The group also entered the rapidly expanding Chinese market for the first time in the late 1990s through joint ventures. In November 1997 a superstore was opened in Cheng Du, Sichuan, then another one was opened in Beijing in April 1998. Although initially unprofitable, the two stores showed steadily improving performance, laying the groundwork for further expansion in that nation.
Despite the group's slow pace of retail growth, Suzuki continued to seek new growth opportunities. Ito-Yokado branched out into magazine publishing in 1995 with the establishment of Shiba Park Publishing, which launched a new women's magazine called saita that year. In the late 1990s and early 21st century, the group became increasingly involved in the e-commerce sector, particularly through Seven-Eleven Japan. In February 2000, for example, 7dream.com made its debut. Through this web site, Seven-Eleven customers in Japan could order products at any time over the Internet and then pick up and pay for their order at a prearranged time at a nearby store. The group also entered banking in May 2001, when IYBank began operations. IYBank was a branch-free, ATM-only bank offering lower ATM fees than other banks. The new bank aimed to install 3,650 automatic teller machines at Seven-Eleven convenience stores in its first year of operation, all of which would operate 24 hours a day, year-round. This would far eclipse the four largest banking groups in Japan combined, which together had only about 1,000 24-hour ATMs.
The retail environment in Japan around the turn of the millennium was a particularly troubled one, with some prominent Japanese retailers declaring bankruptcy. Supermarkets and department stores, including those operated by Ito-Yokado, were hit the hardest, but Ito-Yokado remained safely profitable due almost entirely to its highly successful convenience store operations in both Japan and the United States. The group did, however, see its net income tumble 28.5 percent in fiscal 2000 and then increase just 2.6 percent the following year. Ito-Yokado's continued profitability in such difficult economic times proved the wisdom of Ito's strategy of diversification and seemed likely to keep secure the group's position at the top of Japanese retailing.
Principal Subsidiaries: Seven-Eleven Japan Co., Ltd. (50.7%); Denny's Japan Co., Ltd. (51.6%); Daikuma Co., Ltd. (85.7%); York Mart Co., Ltd. (89.9%); IYBank Co., Ltd.; 7-Eleven, Inc. (72.7%).
Principal Competitors: The Daiei, Inc.; AEON Co., Ltd.; Mycal Corporation; The Seiyu, Ltd.; Uny Co., Ltd.; Ultramar Diamond Shamrock Corporation; Tosco Corporation; FamilyMart Company Ltd.; Wal-Mart Stores, Inc.; Carrefour SA.