Hankyu Department Stores, Inc.

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Hankyu Department Stores, Inc.

8-7 Kakuda-cho
Osaka 530
(06) 361 1381
Fax: (06) 367 8145

Public Company
Incorporated: 1947
Employees: 5,185
Sales: ¥384.77 billion (US$3.08 billion)
Stock Exchange: Tokyo

Hankyu Department Stores, Inc. is one of Japans ten largest department store organizations and one of the three main companies of the Hankyu and Toho Group, whose nucleus is the Hankyu Corporation, a traffic and transportation company. Its primary bases of operation are found in the Kansai region and the Tokyo metropolitan area, where, together, the company has eight department stores and a smaller boutique.

Although the first Hankyu Department Store did not open until 1929, the history of the company dates back to 1907 when the Japanese entrepreneur Ichizo Kobayashi helped found the Mino-Arima Electric Railway Company, the forerunner to the Hankyu Corporation. To promote the use of the railway, Kobayashi developed a number of leisure facilities at sites along the track. The foremost of these was the Takarazuka Resort, famous for its Girls Revue, an all-women theater group, whose international reputation gained the group much valuable publicity. In 1918 Kobayashi attempted to expand the Mino-Arima railway company to run trains from Mino-Arima to Kobe. Unable to acquire permission to do so, he had to settle for a line from Osaka to Kobe. It was at this time that the company changed its name to Hankyu Corporation. The name Hankyu derived from a combination of the Chinese characters for Osaka, which can be read as Han, and the word Kyu which means express.

To promote the use of the railway further, Kobayashi opened the first Hankyu department store at Umeda railway station in the city of Osaka in 1929. It became the first railway terminal department store, designed to serve several hundred thousand daily commuters, and as such heralded a new wave of Japanese retailers. This wave was characterized by the opening of department stores by railroad companies on prime sites along the railway lines, in particular at important terminals and main interchange stations, and using capital from their parent companies. The railway lines often originated within the stores themselves.

Hankyu Department Stores opened its second store in 1936 in Kobe, but growth soon came to a virtual standstill because of World War II. During the war, the company was enlisted to help the cause of the Japanese army. It donated money, and the escalators and lifts of the stores were stripped to provide the army with much-needed metal. During World War II the department stores also became focal points for control and distribution of all consumer goods by the government. The store in Osaka was damaged by an Allied bombing raid.

After the war the American forces who were now occupying Japan also used Hankyu and other department stores as distribution points for food and clothing, which were in short supply. In 1947 the Hankyu Corporation was reorganized into two smaller companies on the instructions of the U.S. occupying forces who were looking to reduce the power of Japans big conglomerates in the wake of the war. The transport group became Hankyu Corporation and the retail business became Hankyu Department Stores, Inc. This breakup was seen to be in Hankyu Department Stores favor, as the transport side of the company was facing a series of strikes by railwaymen demanding better conditions. This industrial action might have affected the department stores had they remained within the same group.

It was not until Japans postwar boom years that Hankyu Department Stores really began to prosper, at a time when Japan was experiencing rapid growth in income levels, personal consumption, and the general standard of living. Together with the system of floating exchange rates and the resultant appreciation of the yen which made imported goods cheaper and therefore more competitive, Japans retail industry expanded, opening it to a wider variety of consumer goods, including imports. Between 1953 and 1959 Hankyu Department Stores opened three more stores: Tokyo Oi in 1953; Su-kiyabashi Hankyu in 1956; and, in the United States, Los Angeles Hankyu in 1967.

The Tokyo Oi store was a landmark in the companys development, taking the reputation of Hankyu Department Stores out of the suburbs and placing it firmly in the city and in the national consideration. This standing was enhanced by the opening of the second Tokyo store in 1956.

Los Angeles Hankyu was originally a retail store but because of the appreciation of the yen it became too expensive to maintain import goods from Japan. Los Angeles Hankyu therefore became a buying center for the Japanese stores and has remained as such.

The next boom in Hankyu Department Stores history took place in the 1970s when additional stores were opened: Senri Hankyu in Senri, a satellite town of Osaka, in 1970 and Shijo-Kawaramachi Hankyu in Kyoto in 1976.

Each store Hankyu Department Stores opened exploited its strategic location. The Umeda Main Store is situated in the commercial area which surrounds Umeda, in the city of Osaka. Umeda is one of the largest railway terminals in Japan, and Hankyu Department Stores expects good sales growth from this store as Osaka becomes one of the nations major international cities with the completion of Kansai International Airport.

Senri Hankyu was created to cater to families in the nearby housing development district, providing locally oriented goods and services. It was also the pioneer store in the metropolitan suburbs. The store in the international port of Kobe was conveniently located for the users of Sannomiya terminal station. The Kyoto and Sukiyabashi stores both targeted young Japanese women who were starting to enjoy an increase in status and jobs. The early 1980s, however, saw a downturn in sales due to the worldwide recession, and in fiscal year 1983 the Japan Economic Journal reported that sales by Japans 200 leading retailers rose by only 5.3%. The department stores slowed growth was also due in part to changing lifestyles in Japan. Despite Japanese womens greater disposable income they began to look more toward convenience stores and supermarkets, which grew rapidly. Department stores responded to this switch in allegiance with a range of measures designed to woo consumers back to their stores. They commissioned market research to discover what consumers wanted, and they extended shopping hours so that working women could shop after work. Hankyu Department Stores and other department store retailers transformed their shops, making them not only places to shop, but also entertainment and cultural centers encompassing restaurants, recreational areas for children, golf ranges and tennis courts, educational facilities, theaters, and art exhibitions. They also invested in sponsoring events. Hankyu Department Stores regularly sponsors cultural events. The company puts particular emphasis on introducing the traditional crafts and cultures of foreign countries, illustrated by its British Fair and French Fair, as well as its Wonders of China and 9,000 year-old Art and Culture of Jordan exhibitions. Hankyu Department Stores also supports Japanese baseball and is one of the many major retailers that owns a team, Hankyus being the Hankyu Braves.

Hankyu Department Stores continued to expand, opening another two stores, Yurakucho in 1984 and Kawanishi Hankyu in 1989. Meanwhile, the company responded to the increasing popularity of the Western-style department store by adopting the decoration, fittings, and look of the modern department stores of America and Europe. In the Ginza shopping area, which caters for 200,000 shoppers per day, the company has used this theme in its Yurakucho store, complementing the more traditional-style store, Sukibayashi Hankyu.

In 1988 the companys pretax profits rose by 14.3% thanks to the longer shopping hours and increased sales in high-profit items, including accessories, handbags, and imported clothes such as American jeans. Imported products, or those seen to have a Western flavor, are particularly popular with Japanese consumers, and Hankyu Department Stores has responded to this by developing its own brand of childrens clothing, Potato Chips, which has been highly successful and is even sold in other major department stores. In its Yurakucho store in central Tokyo the company only stocks exclusive overseas labels.

The company is also known for its high quality foodstuffs and has responded to changes in eating habits, especially the trend toward gourmet food, by introducing a wide assortment of value-added products and more ready-to-serve products.

In 1989 the success of Hankyu Department Stores attracted the interest of the American retailer Bloomingdales, and in November of that year the company approached Hankyu Department Stores with an invitation to participate in a buy-out of the chain. Hankyu Department Stores president Shoji Fukumitsu met with Bloomingdales chairman Marvin Traub but turned down a reported financing of US$250 million out of the $1.2 billion to $1.3 billion needed for the buy-out.

Profitability of department stores throughout Japan and for Hankyu Department Store fell as a result of the Japanese governments introduction of consumption tax on April 1, 1989. A large increase in sales volume in March 1989, just prior to the introduction of the tax, was followed by a slump in April. The slump was shortlived, however, mainly due to the fact that the tax only had a slight impact on commodity prices. Consumer spending recovered soon after, but greater emphasis was placed on better quality.

Hankyu Department Stores seems to be entering one of its strongest periods of growth, with a large number of developments planned for the next few years. However, Hankyu, like other Japanese department stores, faces a challenge from the relaxation of legal limitations on large-scale retail stores, triggered by Japan-U.S. Structural Impediments Initiative talks. This will inevitably lead to intensified competition in Japans distribution and retail industries in the coming years.

In preparation, the company is looking to develop a variety of management measures including entering new markets and expanding its business base. The company plans to open a store in Kobe Harbor Land, one of Japans largest waterfront development projects. The new store will have a sales floor of approximately 30,000 square meters and its opening is scheduled for fiscal year 1992. Adjoining the store will be a restaurant of a similar size.

Further expansion includes a plan to open a new store in Takarazuka, a place of symbolic significance for the Hankyu and Toho Group because of its associations with the first store. In this the company hopes to deepen its market through the formation of a store network encompassing a large part of the commercial sphere in northern Hanshin (Osaka-Kobe) area at sites centered on the Hankyu Railways service area.

A new affiliated merchandising company, Hankyu Ings Co., Ltd., will be established, separate from the merchandising function of Hankyu Main Store (Umeda). There will also be further product development of attractive, economical overseas brands and materials which the company sees as essential if it is to survive the retail wars of the future.

The company also plans to expand overseas with the development of a food business in Bangkok, Thailand, through a joint venture with Central Department Store, the leading local operator. The new company, Central Hankyu Ltd., will have capital of 20 million bahts, 51 % provided by Central and 49% by Hankyu.

Hankyu will occupy one floor of the Thai store, selling foodstuffs. The companys policy states that its stores are to exist mainly for the people of that country, not as souvenir stores for Japanese tourists. Combined with the fact that the company has started expanding overseas, Hankyu Department Stores is set to continue as one of Japans major retailers.

Principal Subsidiaries

Hankyu Kyoei Bussan Inc; Hankyu Foods Industry Co., Ltd.; Hankyu Oasis Inc.; Kyoei Seicha Co. Ltd; Able Co., Ltd; Hankyu Seisakusho Co., Ltd; Kitano Shokuhin Co., Ltd; Esaka Transportation Co., Ltd.

Rachel Loos