RIP: Aeon to delete Daiei

Oct 15

Aeon will shortly make Daiei a wholly owned subsidiary and delist the company’s stock. This means that what was once Japan’s biggest retailer by far has finally suffered the fate of similarly indebted retailers over the past 20 years – one that it had previously avoided thanks to government support and funding. The simultaneous confirmation that Aeon will also wipe out the Daiei brand has saddened many in the industry, but Japanese retailing has now changed to the point that few will have been surprised.

“Aeon isn’t a retailer, it’s just an estate agent.”  So said Isao Nakauchi, founder and long-time CEO of Daiei to JC over a beer at one of his hotels in the late 1990s. Nakauchi’s inference was that Aeon was not a real retailer and so not real competition. In Nakauchi’s mind it didn’t exist ‘For the Customers’ as he himself had positioned Daiei. The proclamation, although true at the time, was the kind of damning criticism that reflected not only how much Nakauchi understood retailing, but also his honesty and forthrightness.

Although Nakauchi viewed his own company as the real retailer, Daiei was already burdened with interest bearing debts of more than ¥2 trillion – way in excess of its annual turnover. These were debts that Nakauchi, the last of the great retail emperors, was wholly responsible for, buying up ailing firms across retail, travel, hotels, TV and radio stations, restaurants, and even a professional baseball team. Nakauchi insisted he was not empire-building but saving iconic but struggling companies and, more importantly, Daiei’s bankers seemed always willing to fund yet more expansion in cash flow, a leniency which led to Daiei’s collapse.

Daiei was a financial train wreck long before its eventual capitulation in 2004 when it was put under the supervision of the Industrial Revitalisation Corporation. It never actually went bankrupt – the government refused to allow the country’s largest, most visible retailer to implode officially. Walmart was eager to take over, but with Aeon already too powerful having acquired Yaohan and Mycal as well as many smaller firms, the IRC needed to find a domestic firm to handle Daiei’s rehab. Aeon was allowed to take a large stake in Maruetsu, one of Daiei’s largest affiliates, but a compromise was reached by Marubeni taking over Daiei. While on paper this seemed reasonable – Marubeni was a major Daiei supplier and had minor supermarket interests of its own – the decision to hand the country’s largest retail operation to a non-retailer was always likely to be temporary.

In 2007, in a move that shocked precisely no one, Marubeni invited Aeon back into the equation to help manage the ongoing restructuring process and inject some much needed retail knowhow. The only irony was that Aeon came on board just as Daiei posted two consecutive years of record pretax profit. It slumped into the red the following year and has stayed there ever since. Aeon had to wait six more years while Marubeni endured a series of major losses, but in July 2013 Marubeni finally agreed to sell its stake in Daiei to Aeon – some press reports claimed that Marubeni did toy with the idea of selling to Walmart, but this smacks more of pacifying anyone aware that, by selling Daiei to Aeon, Aeon’s dominance in the retail sector effectively becomes unassailable.

Last month Aeon CEO Motoya Okada then confirmed that Daiei will become a full Aeon subsidiary as soon as January 2015. Some 60 stores in Hokkaido and Kyushu will be immediately absorbed into existing Aeon operations in those areas, while in Honshu all of the remaining 280 Daiei stores will either be closed or rebranded, with any surviving stores likely to focus on food. Those currently competing with existing Aeon stores will be closed sooner rather than later. Daiei has a number of station located stores, which Aeon will seek to leverage, and it has already started work on integrating Daiei’s highly rated Big A discount supermarket located in Tokyo. Within two to three years, the Daiei name will disappear.

Aeon was cautious in announcing the removal of the Daiei name. Even though there are quite a few recent precedents, Daiei is still a retailer that has been embedded in many communities around the country for literally decades – Nakauchi’s legacy of debt was of little importance to many loyal consumers who knew Daiei as the first retailer ever to stand-up to the price fixing shenanigans of Japan’s powerful manufacturers. Many will be sad to see the name go, but when asked, Okada noted that modern retail requires strong brands and it is Aeon’s central aim to unify its branding into a much reduced portfolio. In that the venerable name of Daiei no longer has a place.