H2O Retailing will acquire Izumiya in June, creating a new, top 10 retail group. An increasing spate of mergers between leading chains has been on the cards for sometime, and this is the biggest regional merger so far. As with mergers led by Arcs in Tohoku two years ago, other regional chains will rush to consolidate too.
The merger of H2O Retailing with Izumiya was announced at the start of February. H2O is the group behind Hankyu Hanshin Department Stores, a successful SC operation, and several smaller retail offshoots such as Hankyu Oasis supermarkets. Izumiya is a top GMS chain with a large presence in Kansai and southern Honshu, as well as some stores around Kyushu, Nagoya and even a couple in Kanto, numbering 90 stores in total. Together the two firms will create a group with close to ¥900 billion in sales and jump into the top 10 retail businesses. The merger will be formally completed in June, at which point Izumiya will be delisted and become a wholly owned subsidiary of H2O Retailing.
More significantly still, depending on the geographical and sector definitions you use, reports suggest that the two groups combined have a total retail market share of 23-30% in the Kansai region alone, so not surprisingly the news comes as something of a shock for rival chains in the same area. H2O has been surging ahead in recent years, capped by the reopening of its flagship Hankyu Umeda department store in late 2012, the launch of a new men’s store in Yurakucho in Tokyo, and one of the country’s top SCs in the form of Nishinomiya Gardens. Izumiya has been less successful, failing to keep pace with larger rival Izumi in southern Japan, and is under pressure from both national firms like Aeon and smaller, niche players in local markets.
Both firms have looked for tie-ups in the past. H2O walked away from a tie-up with Takashimaya, and Izumiya has a private brand development deal with Uny but the new agreement will supersede these older alliances of convenience in favour of a direct takeover. As with department store mergers, the acquisition will allow for a depth of restructuring of group operations that is often impossible with entrenched management. The merger of food operations across H2O’s supermarket interests and Izumiya’s GMS chain alone will provide significant efficiencies, and H2O’s growing expertise in apparel private branding through its department stores may help Izumiya stop the contraction in apparel sales.
H2O is clearly looking to consolidate its geographical strength while adding scale and variety in terms of operations and formats. It will certainly achieve this by buying a major GMS chain. Izumiya itself, which doesn’t seem to build the most inspiring of stores or SCs, will gain from H2O’s clear expertise in store design and SC management, as well as access to a significantly larger and more diverse buying operation. Izumiya’s SCs in particular could benefit from H2O’s skills in driving traffic to malls, as seen at its award winning Nishinomiya Gardens SC.
This is the second, major M&A deal in the regions in the past two years, although it dwarfs the efforts of Arcs up in Tohoku. It also follows on from Seven & I’s four big takeovers announced last month. As deals like these happen, and firms like Aeon and Seven & I take increasing share nationwide, other first and second tier retailers are feeling increasingly insecure, and already discussing possible mergers with friendly neighbours. 2014 could be a bumper year for retail M&A as a result.
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