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The Daiei, Inc.

The Daiei, Inc.

4-1-1, Minatojima Nakamachi
Chuo-ku, Kobe 650-0046
Japan
Telephone: (81)78 302-5001
Fax: (81)78 302-5572
Web site: http://www.daiei.co.jp

Public Company
Incorporated:
1957
Employees: 13,776
Sales: $25.8 billion (2000)
Stock Exchanges: Tokyo Osaka NASDAQ Brussels American
Ticker Symbol: DAIRY
NAIC: 45211 Department Stores; 45299 All Other General Merchandise Stores; 44512 Convenience Stores; 42241 General Line Grocery Wholesalers; 42231 Piece Goods, Notions, and Other Dry Goods Wholesalers; 42199 Other Miscellaneous Durable Goods Wholesalers

The Daiei, Inc. operates as one of Japans largest retailers and was ranked 20th among the worlds leading retailers at the end of the 20th century. Daiei founder and former chairman and CEOIsao Nakauchionce boasted that his company sells everything except ladies and opium. Indeed, the group operates many outlets, from supermarkets to department stores to warehouse clubs and convenience stores. Not limited to retailing, Daiei also owns and operates the Fukuoka Dome and Fukuoka Daiei Hawksa major league baseball teamas well as Western-style fast food restaurants, a financial services network, and other real estate ventures. The Asian economic crisis of the late 1990s, however, forced Daiei to restructure its operations, close some stores, sell off other subsidiaries, and sell a portion of its interest in Lawson convenience stores.

1950s Origins

Isao Nakauchi founded Daiei in his hometown of Osaka in 1957; the companys name is a complicated play on words that means both prosperity of Osaka and big prosperity. A pharmacists 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. Japans post-Korean War depression was then reaching its lowest point, and Osaka shoppers appreciated Daieis discount pricing policy. Its initial success soon inspired him to open more stores in the Osaka area.

The poor economic conditions of the time 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.

Daiei Achieves National Dominance in 1970s

Daiei soon expanded to become a nationwide chain in Japan. By the time it celebrated its fifteenth anniversary in 1972, the company was operating 75 superstores and had become Japans largest supermarket operator and second largest retailer. It had achieved this rapid and overwhelming success by breaking many of Japanese retailings 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-tungs 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. In 1971, Daiei actually 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. This treatment, however, did not deter him from his vision of revolutionizing Japanese retailing, an arduous process he once compared to Maos 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 & Companys Dipper Dan Ice Cream Shoppe chain in Japan.

In 1974, Daiei surpassed the sales of department store giant Mitsukoshi to become Japans largest retailer. Once again, though, Nakauchis 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 5 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 and Spencer. Daiei chose Marks and Spencer merchandise because of its reputation for price competitiveness, especially in food and clothing. For its part, Marks and Spencer, which already had a substantial presence in Hong Kong, saw Japan as its largest remaining potential export market.

Diversification into Fast Food in the 1980s

In 1979, Daiei joined with Wendys International to open Wendys fast-food restaurants and Victoria Station steak houses in Japan. Wendys Japanese rollout did not progress as quickly as had been hoped, however, 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, when the operation still 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 Japan opened in Kobe in 1981, followed by stores in Sapporo in 1982, and in Tokyo the year after that.

Meanwhile, Daieis 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 nations 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 companys principal shareholder.

In 1984, Daieis 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 Tokyos 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, Daiei lost ¥8.8 billion, spurring speculation among some analysts that Daieis 60-something year-old founder and CEO had lost his Midas touch.

Company Perspectives:

For our CustomersGood 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.

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 bankscontrary to the usual Japanese corporate practice of borrowing from one bank, which then allowed that bank to become the companys principal stockholder. This wise move enabled Daiei to preserve its independence. 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 inventoriesinformation that can be used to improve inventory control.

Retail Powerhouse Rolls on in the 1990s

Although some Japanese retailers began to follow Isao Nakauchis price-slashing lead in the 1990s, none could keep up with his pace. He created Japans first wholesale membership club in 1992. Like Sam Waltons groundbreaking Wal-Mart and Sams Club stores, the new chain operated under the name Kuos, an alternate pronunciation of Nakauchis given name. In 1992, he brought everyday low pricing to the country, even abbreviating the concept as EDLP in Roman letters for advertisements. Meanwhile, Daieis Big-A Co. box stores hoped to mimic ALDIs 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 Japans 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 also incorporate a 1,000-room hotel, amusement rides, and shopping.

Daieis revenues increased to more than ¥3 trillion in fiscal 1995, but its net income had 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, though, when it recorded a ¥5 billion profit.

The Daieis erratic fiscal performance in the mid-1990s again raised a question about its future leadership. Although septuagenarian founder and CEO Isao Nakauchi appeared unmotivated to relinquish control of the company, he had been preparing for that eventuality by grooming son Jun Nakauchi as the companys executive vice-president.

Daiei Falters Along with the Asian Economy in the Late 1990s

In 1997, Japan lifted its long-standing ban on the formation of holding companies and Daiei formed K.K. Daiei Holding Corporation to control its non-retail business interests. Its expansion efforts were put on hold, however, as sales and net income fell once again due to the economic crisis sweeping through Asia in late 1997. The unstable economy caused consumer spending to fall and spelled disaster for the firm as most of its sales stemmed from domestic operations.

As the crisis continued into 1998, Daiei began to sell its real estate assets, restructure its operations, and sell off its unprofitable stores. Sales continued to fall and it was not Nakauchis son, but instead Tadasu Toba, who took over the presidency of the ailing firm. Working along with chairman Nakauchi, Toba initiated a major restructuring effort in 1999, which included the sale of Recruit Co. and the Ala Moana Center shopping mall in Hawaii. Sales climbed slightly over the previous year, but net income still fell dramatically.

A Rocky Entrance Into the New Millennium

Daiei entered the 21st century battered and bruised from a continued lack of consumer spending. The firm initiated an IPO of its subsidiary Lawson Inc., but failed to raise the funds it had anticipated from the public offering. At the same time, tension between Toba and Nakauchi began to grow as the founder disagreed with the new presidents plan to sell off more of the companys assets. At the same time, the Daieis long-standing position as Japans leading retailerheld since 1972was suddenly taken over by convenience store operator 7-Eleven Japan Co. in 2000.

In October of that year, an insider trading scandal related to the purchase of consumer finance unit Daiei OMC Inc.s stock became public. As a result, Toba relinquished the presidency, remaining a director of the firm. Nakauchi also resigned, but remained an advisor to the firm. Kunio Takagi, a Daiei executive, assumed the presidency.

Key Dates:

1957:
Isao Nakauchi establishes Daiei as a pharmacy called Housewives Store Daiei.
1970:
The company expands its focus and adopts its present name.
1972:
By now, the firm operates 75 superstores and subsidiary Daiei U.S.A. is formed.
1974:
The company becomes Japans largest retailer.
1976:
Daiei partners with J.C. Penney to open stores in Japan under the Penney name.
1980:
The Holiday Mart chain is acquired in Honolulu, Hawaii.
1981:
Company reorganizes its food retail operations.
1984:
The firm records losses due to expenses related to its aggressive expansion.
1987:
Profitability is restored and a plan to install an electronic information network within its branches, offices, and stores is developed.
1992:
Nakauchi creates Japans first wholesale membership club.
1995:
Daiei enters the Chinese market; an earthquake demolishes eight superstores in the Kobe area.
1997:
The company begins to falter as economic conditions worsen in Asia.
1998:
The firm begins to restructure itself and sells off unprofitable assets.
2000:
Daiei loses its top retailing position in Japan to Seven-Eleven Japan Co.

The following month, Takagi outlined a restructuring plan designed to restore the company to its former glory. Included in the plan was the consolidation of the non-profitable assets of the Daiei Holding Corp. and the issuance of ¥120 billion in new shares. It also called for the closure of 32 outlets and 4,000 job cuts over a three-year period, and the sale of most of its interest in Lawson.

The company continued to focus on relieving its debt load in 2001 by selling off many of its subsidiaries. Under the leadership of Takagi, management aimed to reduce the number of its business units to 112 by February 2002. The firms rocky past and the countrys uncertain economic future, however, were sure to be major factors in determining whether or not Takagi would succeed in pulling Daiei out of financial straits.

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. (U.S.); Los Angeles Liaison Office (U.S.); New York Liaison Office (U.S.); Amsterdam Liaison Office (Netherlands); Milano Liaison Office (Italy); Printemps Ginza S.A., Paris Office (France); London Liaison Office (U.K.); Kaheka Office (U.S.).

Principal Competitors

Ito-Yokado Co. Ltd.; JUSCO Co. Ltd.; Mycal Corporation.

Further Reading

Belson, Ken, Japan: This Time, It Could Get Nasty, Business Week, January 15, 2001.

Bulman, Robin, Price-Cutting Effort by Store Group in Japan May Help U.S. Exporters, Journal of Commerce and Commercial, April 18, 1994, p. 3A.

Butterfield, Fox, Japans Retailing Colossus, New York Times, November 3, 1974.

Daiei Founder Steps Down As Chairman, AsiaPulse News, October 11, 2000.

Daiei Hopes to Earn 20 Billion Yen in FY02, Daily Yomiuri, November 23, 2000.

Daiei President Denies Insider Trading, Daily Yomiuri, October 4, 2000.

Daieis Discount Empire Prospers, World Business Weekly, January 12, 1981.

Daiei to Cut Subsidiaries, Daily Yomiuri, December 1, 2000.

Daiei to Issue New Shares for Restructuring, Mainichi Daily, November 28, 2000.

Economic Forum Daiei Rift Shows Company Owners No Longer Have Free Rein, Daily Yomiuri, October 18, 2000.

Holden, Ted, A Retail Rebel Has the Establishment Quaking, Business Week, April 1, 1991, pp. 3940.

Japan: Mao in the Supermarket, Time, June 28, 1971.

Japans Daiei Group to Sell Lawson Shares to Mitsubishi Group, AsiaPulse News, February 22, 2001.

Japan Showing the Strain, Grocer, July 29, 2000.

Markowitz, Arthur, Daiei Opens Kuos, Japans First Club, Discount Store News, October 5, 1992, pp. 12.

Merrefield, David, Big-A Powers Growth at Daiei, Supermarket News, October 5, 1992, pp. 1115.

, Japans Pricing Pioneer, Supermarket News, October 5, 1992, pp. 1115.

OBrien, Tim, Japans Fukuoka Dome Set To Open in March, Amusement Business, September 28, 1992, pp. 12.

The Perils of Popularity, Economist, August 24, 1996, p. 53.

Retailers Get Ready To Move into the U.S., Business Week, August 4, 1980.

Seven-Eleven Japan to Overtake Daiei As Top Retailer, AsiaPulse News, April 24, 2000.

Sherrid, Pamela, What Barriers? Forbes, October 10, 1983, p. 180.

Simmons, Tim, Big Business, Supermarket News, October 5, 1992, p. 2.

Smith, Lee, and Philip Jones Griffiths, Japans Autocratic Managers, Fortune, January 7, 1985, pp. 5665.

Zwiebach, Elliot, Daiei Net Tumbles in Quake Wake, Supermarket News, May 22, 1995, p. 23.

Douglas Sun
updates: April Dougal Gasbarre,
Christina M. Stansell

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The Daiei, Inc.

The Daiei, Inc.

4-1-1, Minatojima Nakamachi
Chuo-ku, Kobe 650
Japan
(81) 78 302-5001
Fax: (81) 78 302-5572
Internet: http://isr.co.jp/daiei/index.html

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

The Daiei, Inc. is Japans largest retailer, ranking sixth among the worlds 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 companys name is a complicated play on words that means both prosperity of Osaka and big prosperity. A pharmacists 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. Japans post-Korean War depression was then reaching its lowest point, and Osaka shoppers appreciated Daieis 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 Japans largest supermarket operator and second largest retailer. It had achieved such rapid and overwhelming success by breaking many of Japanese retailings 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-tungs 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 Maos 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 & Companys Dipper Dan Ice Cream Shoppe chain in Japan.

In 1974 Daiei surpassed the sales of department store giant Mitsukoshi to become Japans largest retailer. Once again, Nakauchis 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 Wendys International to open Wendys fast food restaurants and Victoria Station steak houses in Japan. Wendys 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.

Daieis 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 nations 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 companys principal shareholder.

In 1984 Daieis 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 Tokyos 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 Daieis sixty-something year-old founder and CEO had lost his Midas touch.

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. Daieis 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.

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 bankscontrary to the usual Japanese corporate practice of borrowing from one bank, which then allowed that bank to become the companys principal stockholder. This wise move enabled Daiei to preserve its independence; indeed, Nakauchi has always been Daieis 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 Nakauchis price-slashing lead in the 1990s, none could keep up with his pace. He created Japans first wholesale membership club in 1992. (Like Sam Waltons groundbreaking stores, the new chain operated under the name Kuos, an alternate pronunciation of Nakauchis given name.) In 1992 he brought everyday low pricing to the country, even abbreviating the concept as EDLP in Roman letters for advertisements. Daieis Big-A Co. box stores hoped to mimic ALDIs 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 Japans 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.

Daieis 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 Daieis 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, Japans Retailing Colossus, The New York Times, November 3, 1974.

Daieis 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 Kuos, Japans 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.

, Japans Pricing Pioneer, Supermarket News, October 5, 1992, pp. 11-15.

O Brien, Tim, Japans 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, Japans Autocratic Managers, Fortune, January 7, 1985, pp. 56-65.

Zwiebach, Elliot, Daiei Net Tumbles in Quake Wake, Supermarket News, May 22, 1995, p. 23.

Douglas Sun

updated by April Dougal Gasbarre

Cite this article
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"The Daiei, Inc.." International Directory of Company Histories. . Encyclopedia.com. 22 Aug. 2017 <http://www.encyclopedia.com>.

"The Daiei, Inc.." International Directory of Company Histories. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/books/politics-and-business-magazines/daiei-inc-0

"The Daiei, Inc.." International Directory of Company Histories. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/daiei-inc-0

The Daiei, Inc.

The Daiei, Inc.

4-1-1, Minatojima Nakamachi
Chuo-ku, Kobe 650
Japan
(078) 302-5001
Fax: (078) 302-5572

Public Company
Incorporated: 1957
Employees: 16,797
Sales: ¥2.19 trillion (US$16.12 billion)
Stock Exchanges: Tokyo Osaka NASDAQ

The Daiei, Inc. is Japans largest retailer in terms of sales. Although most often described as a supermarket chain, its merchandise is not limited to food; it operates more than 200 superstores under its own name. Daiei sells a broad range of products at low prices and operates thousands of specialty and convenience stores, ranging from fast-food restaurants to department stores, bearing Western names like Wendys, Big Boy, Au Printemps, and Joseph Magnin. Daiei Chairman and CEO Isao Nakauchi once boasted that his company sells everything except ladies and opium.

Nakauchi founded Daiei in his hometown of Osaka in 1957; the companys name is a complicated play on words that means both prosperity of Osaka and big prosperity. A pharmacists 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. Japans post-Korean-War depression was then reaching its lowest point, and Osaka shoppers appreciated Daieis discount pricing policy. Its initial success soon inspired him to open more stores in the Osaka area.

The depression 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 up 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.

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 Japans largest supermarket operator and second-largest retailer. It had achieved such rapid and overwhelming success by breaking many of Japanese retailings 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-tungs strategic wisdom, cast Daiei in such a mold in order 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 Maos 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 & Companys Dipper Dan Ice Cream Shoppe chain in Japan.

In 1974 Daiei surpassed the sales of department store giant Mitsukoshi to become Japans largest retailer. Once again, Nakauchis 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%, with the remaining 5% 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. The next year Daiei joined with Wendys International to open Wendys fast-food restaurants and Victoria Station steak houses in Japan. 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 Japan opened in Kobe in 1981, followed by stores in Sapporo in 1982 and in Tokyo the year after that.

Daieis supermarket operations continued to flourish. As the decade turned, 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% of the new company, which immediately became the nations ninth-largest retailer, boasting 140 branches. Also in 1981, Daiei acquired a 10.5% stake in Takashimaya, another department store chain, making it that companys principal shareholder.

In 1984 Daieis sales reached ¥1.4 trillion, and its chain of superstores had grown to 160. Daiei continued to expand at a breakneck pace. The company opened a branch in Tokyos expensive Ginza district. Daiei financed this continuous augmentation with heavy borrowing, and the cost of financing its 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.

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 bankscontrary to the usual Japanese corporate practice of borrowing from one bank, which then allowed that bank to become a companys principal stockholder. This wise move enabled Daiei to preserve its independence; indeed, Nakauchi has always been Daieis principal shareholder. In 1986 the company returned to profitability, earning ¥1.1 billion. In 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. In 1988, Daiei announced plans to enter the hotel business by building a recreation complex in Fukuoka City.

Daiei continued to expand and thrive under the guidance of its founder and only chief executive. Sales and profits have both increased steadily in recent years. The revolution that Isao Nakauchi had preached and sought to bring about shows some signs of getting underway; the Japanese retail market is reaching the limits of its growth, forcing retailers to fight for market share by cutting prices. Some have followed Daieis lead in buying foreign goods directly from manufacturers instead of going through Japanese trading companies. As he nears retirement age, this singular manan aggressive capitalist who quotes Chairman Mao and a blunt, outspoken iconoclast in a society that discourages dissension and requires politenessshould, despite his restless ambition, take some measure of satisfaction in the success that his company has achieved.

Principal Subsidiaries

Robelt Co., Ltd.; Daiei Convenience Systems; Pacific Sports Co., Ltd.; Lobelia Co., Ltd.; Daichu, Inc.; The Deiei (U.S.A.), Inc.; Cordoba, Inc. (85%); Joseph Magnin; Japan Ltd.; Riccar Co., Ltd.

Further Reading

Japan: Mao in the Supermarket, Time, June 28, 1971; Butterfield, Fox, Japans Retailing Colossus, The New York Times, November 3, 1974; Retailers Get Ready to Move into the U.S., Business Week, August 4, 1980; Daieis Discount Empire Prospers, World Business Weekly, January 12, 1981.

Douglas Sun

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"The Daiei, Inc.." International Directory of Company Histories. . Encyclopedia.com. 22 Aug. 2017 <http://www.encyclopedia.com>.

"The Daiei, Inc.." International Directory of Company Histories. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/books/politics-and-business-magazines/daiei-inc-1

"The Daiei, Inc.." International Directory of Company Histories. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/daiei-inc-1