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The Daiei, Inc.


4-1-1, Minatojima Nakamachi
Chuo-ku, Kobe 650

Telephone: (81) 78 302-5001
Fax: (81) 78 302-5572

Public Company
Incorporated: 1957
Employees: 16,612
Sales: ¥3.2 trillion (1995) (US $30 billion)
Stock Exchanges: Tokyo Osaka NASDAQ Brussels American
SICs: 5300 General Merchandise Stores; 5331 Variety Stores; 5411 Grocery Stores; 5140 Groceries & Related Products; 5130 Apparel, Piece Goods, & Notions; 5090 Miscellaneous Durable Goods

Company Perspectives:

In order to create stores adapted to the lifestyles and the needs of our customers, Daiei has adopted a system of companies that hold distinct functions. With this structure as a foundation, Daiei is striving to create sales areas and product lines adapted to each locality as well as to strengthen product development and purchasing capabilities. We have continued to put together a low-cost mass-merchandising system through increased attention to improved productivity and to more efficient store operations. Daiei has also worked tirelessly to recover from the effects of the Great Hanshin Earthquake. Daiei's basic policy is "For our Customers--Good Products at Lower Prices for a More Bountiful Society." With this as our motto, we will continue to implement sound measures to realize our goal of Everyday Low Prices.

Company History:

The Daiei, Inc. is Japan's largest retailer, ranking sixth among the world's leading retailers. Daiei founder, Chairman and CEO Isao Nakauchi, once boasted that his company sells "everything except ladies and opium." Indeed, the group includes more than 7,700 outlets in more than 50 retail categories, from supermarkets to department stores to warehouse clubs and convenience stores. The company even has more than 400 "superstores," each featuring a massive supermarket on the ground floor and a department store on the upper floors. Not limited to retailing, Daiei also owns and operates the Fukuoka Dome and Fukuoka Daiei Hawks, a major league baseball team, as well as Western-style fast food restaurants, a financial services network, and real estate.

1950s Origins

Nakauchi founded Daiei in his hometown of Osaka in 1957; the company's name is a complicated play on words that means both prosperity of Osaka and big prosperity. A pharmacist's son, Nakauchi had made a small fortune in the years after World War II by participating in a venture that sold penicillin at above the legal price. His brother and some associates were arrested for their roles in the scheme, but the experience taught Nakauchi that risk taking and making money were inseparable. His first Daiei store was a pharmacy called Housewives' Store Daiei. He gave its parent company the name Daiei Pharmaceutical Company. Japan's post-Korean War depression was then reaching its lowest point, and Osaka shoppers appreciated Daiei's discount pricing policy. Its initial success soon inspired him to open more stores in the Osaka area.

The poor economic conditions also proved fortuitous for Daiei at the wholesale level. Manufacturers were grateful for the fact that Nakauchi always paid cash for their goods. He also bought whatever surpluses overextended manufacturers may have accumulated and passed on the savings to consumers. Thus Daiei quickly ceased to be merely a drug store chain; as Nakauchi would recall years later, "We soon moved from drugs into candies and other foods and from cosmetics and toiletries into hard goods." In 1970 the company dropped the focus on specialized retailing and shortened its name to its current form.

Achieves National Dominance in 1970s

Daiei expanded to become a nationwide chain. By the time it celebrated its fifteenth anniversary in 1972, the company was operating 75 superstores and had become Japan's largest supermarket operator and second largest retailer. It had achieved such rapid and overwhelming success by breaking many of Japanese retailing's time-honored rules. In a nation where small shops often banded together in cartels to keep prices artificially high, Daiei was a high-volume, low-price retailer. "Even our barbers and laundries have self-protective cartels," Nakauchi once complained. Nakauchi, an unlikely but open admirer of Mao Tse-tung's strategic wisdom, cast Daiei in such a mold to draw on the strength of "the masses," offering quality goods at the lowest possible prices. In 1970, when outraged consumers realized that Japanese television sets were being sold for less in the United States than at home, Daiei leapt into the breach, signing a marketing deal with Crown Radio and selling Crown sets under their own name for less than half the going rate. Daiei was a pioneer in introducing the concept of house brands to Japanese consumers, who were used to paying higher prices for recognized brand names. The following year, Daiei acquired Crown and added more electronics goods and household appliances to the Daiei name. Nakauchi kept his overhead low by opening stores in the suburbs, rather than the densely populated, high-rent urban areas favored by Japanese department stores. For his iconoclasm in a consensus-oriented society, he was reviled by ex-friends, threatened by irate competitors, and ostracized by the business establishment, but this treatment did not deter him from his vision of revolutionizing Japanese retailing, an arduous process he once compared to Mao's travails.

In the 1970s the company began to internationalize, diversifying its range of goods and services even further. In 1972 it created Daiei U.S.A. as a wholly owned subsidiary and opened a branch in a Honolulu shopping center. Taking advantage of the liberalization of Japanese laws regarding the presence of foreign retailers, Daiei entered into joint ventures to open branches of U.S. department store Joseph Magnin and Swift & Company's Dipper Dan Ice Cream Shoppe chain in Japan.

In 1974 Daiei surpassed the sales of department store giant Mitsukoshi to become Japan's largest retailer. Once again, Nakauchi's ambitions were scarcely satisfied. In the spring of that year, Daiei began selling J.C. Penney merchandise as part of an arrangement with the U.S. retailer to test its popularity in Japan. The venture proved successful, and several months later, Daiei and J.C. Penney entered into a joint venture to open stores in Japan under the Penney name, beginning in 1976. Under the agreement, Daiei and Penney each owned 47.5 percent, with the remaining five percent going to trading company C. Itoh.

In 1978 Daiei continued to capitalize on the popularity of Western goods in Japan when it became the sole Japanese agent for British department store Marks & Spencer. Daiei chose Marks & Spencer merchandise because of its reputation for price competitiveness, especially in food and clothing. For its part, Marks & Spencer, which already had a substantial presence in Hong Kong, saw Japan as its largest remaining potential export market.

Diversification into Fast Food Intensifies in the 1980s

In 1979 Daiei joined with Wendy's International to open Wendy's fast food restaurants and Victoria Station steak houses in Japan. Wendy's Japanese rollout did not progress as quickly as hoped because of the inflexibility of the American parent organization. Portions and stores, for example, were too big for Japanese tastes. And although the chain expanded too fast early on, it had fewer than 30 restaurants by 1988 and the operation had yet to earn a profit.

Other cross-cultural ventures undertaken during the decade were more successful. In 1980 Daiei made its first serious incursion into the U.S. market when it acquired in its entirety Holiday Mart, a three-store discount chain in Honolulu, Hawaii. It also opened its first U.S. purchasing office. Not least of all, it joined with Au Printemps to open branches of that venerable French department store in Japan; the first Au Printemps Japon opened in Kobe in 1981, followed by stores in Sapporo in 1982 and in Tokyo the year after that.

Daiei's supermarket operations continued to flourish. At the outset of the 1980s, Daiei controlled one-fifth of the entire Japanese food retail market. In 1981 it reorganized that side of its business somewhat when it merged its Sanko affiliate with food store chain Maruetsu. Daiei and Maruetsu each owned 50 percent of the new company, which immediately became the nation's ninth largest retailer, boasting 140 branches. Also in 1981, Daiei acquired a 10.5 percent stake in Takashimaya, another department store chain, making it that company's principal shareholder.

In 1984 Daiei's sales reached ¥1.4 trillion, and its chain of superstores had grown to 160. Daiei continued to expand at a breakneck pace, opening a branch in Tokyo's expensive Ginza district during this same period. Nakauchi financed this continuous augmentation with heavy borrowing, and the cost of financing this debt forced the company to post a ¥11.9 billion loss in 1984, despite its massive sales. The next year, it lost ¥8.8 billion, spurring speculation among some analysts that Daiei's sixty-something year-old founder and CEO had lost his Midas touch.

Nakauchi insisted all along that these deficits were part of his plan and that continued expansion would pay off in the long run. Daiei had cleverly spread its borrowing among four different banks--contrary to the usual Japanese corporate practice of borrowing from one bank, which then allowed that bank to become the company's principal stockholder. This wise move enabled Daiei to preserve its independence; indeed, Nakauchi has always been Daiei's principal shareholder. In 1986 the company returned to profitability, earning ¥1.1 billion, and by 1987 it was healthy enough to acquire bankrupt sewing machine manufacturer Riccar at the request of the Ministry of International Trade and Industry. In that same year, it announced a five-year plan to install an electronic information network to link all of its branches, offices, and affiliates, starting with an ¥11 billion point-of-sale (POS) system for its superstores. POS systems give retailers quick and accurate information on sales and inventories, information that can be used to improve inventory control.

Retail Powerhouse Rolls on in the 1990s

Although some Japanese retailers began to follow Isao Nakauchi's price-slashing lead in the 1990s, none could keep up with his pace. He created Japan's first wholesale membership club in 1992. (Like Sam Walton's groundbreaking stores, the new chain operated under the name Kuo's, an alternate pronunciation of Nakauchi's given name.) In 1992 he brought "everyday low pricing" to the country, even abbreviating the concept as "EDLP" in Roman letters for advertisements. Daiei's Big-A Co. box stores hoped to mimic ALDI's international success with limited lines of nonperishable staples in bare-bones stores. But even this was not enough for Nakauchi; in 1995, he announced his goal to slash consumer goods prices in half by 2010. This strategy continued to enjoy success: in the mid-1990s, Daiei accounted for 13 percent of Japan's grocery sales.

Nakauchi formed a Chinese joint venture and opened his first supermarket there in 1995. He also continued to invest in his Hawaiian operations, acquiring a supermarket in 1994 and expanding his shopping center there two years later. In 1993, the company opened the first phase of its Fukuoka Dome in Japan, home of the Fukuoka Daiei Hawks baseball team. By 1998 this twin-domed retail and entertainment complex was expected to have a 1,000-room hotel, amusement rides, and shopping.

Daiei's revenues increased to more than ¥3 trillion in fiscal 1995 (ended February 28), but its net income slid dramatically, from ¥10 billion in 1992 to ¥5.4 billion in 1994. Nature conspired to inflict a ¥50.7 billion loss on the group in 1995, when a January earthquake demolished eight superstores in the Kobe area. Daiei experienced a partial rebound in fiscal 1996, when it recorded a ¥5 billion profit.

The Daiei's erratic fiscal performance again raised the question of its future leadership. Although septuagenarian founder and CEO Isao Nakauchi appeared unmotivated to relinquish control of the company, he had prepared for that eventuality by grooming son Jun Nakauchi as executive vice-president and chief operating officer.

Principal Operating Units: Beijing Liaison Office (China); Seoul Liaison Office (Korea); Shanghai Liaison Office (China); Taipei Liaison Office (Taiwan, R.O.C.); Hong Kong Liaison Office; Bangkok Liaison Office (Thailand); Hi-Daiei Trading Co., Ltd. (Philippines); Jakarta Liaison Office (Indonesia); Sydney Liaison Office (Australia); D International, Inc. (United States); Los Angeles Liaison Office (United States); New York Liaison Office (United States); Amsterdam Liaison Office (Netherlands); Milano Liaison Office (Italy); Printemps Ginza S.A., Paris Office (France); London Liaison Office (United Kingdom); Kaheka Office (United States).

Further Reading:

Bulman, Robin, "Price-Cutting Effort by Store Group in Japan May Help US Exporters," Journal of Commerce and Commercial, April 18, 1994, p. 3A.
Butterfield, Fox, "Japan's Retailing Colossus," The New York Times, November 3, 1974.
"Daiei's Discount Empire Prospers," World Business Weekly, January 12, 1981.
Holden, Ted, "A Retail Rebel Has the Establishment Quaking," Business Week, April 1, 1991, pp. 39-40.
"Japan: Mao in the Supermarket," Time, June 28, 1971.
Markowitz, Arthur, "Daiei Opens Kuo's, Japan's First Club," Discount Store News, October 5, 1992, pp. 1-2.
Merrefield, David, "Big-A Powers Growth at Daiei," Supermarket News, October 5, 1992, pp. 11-15.
------, "Japan's Pricing Pioneer," Supermarket News, October 5, 1992, pp. 11-15.
O'Brien, Tim, "Japan's Fukuoka Dome Set To Open in March," Amusement Business, September 28, 1992, pp. 1-2.
"The Perils of Popularity," The Economist, August 24, 1996, p. 53.
"Retailers Get Ready To Move into the U.S.," Business Week, August 4, 1980.
Sherrid, Pamela, "What Barriers?" Forbes, October 10, 1983, p. 180.
Simmons, Tim, "Big Business," Supermarket News, October 5, 1992, p. 2.
Smith, Lee, and Griffiths, Philip Jones, "Japan's Autocratic Managers," Fortune, January 7, 1985, pp. 56-65.
Zwiebach, Elliot, "Daiei Net Tumbles in Quake Wake," Supermarket News, May 22, 1995, p. 23.

Source: International Directory of Company Histories, Vol. 17. St. James Press, 1997.

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