OSAKA — Sogo Co., a financially strapped department store chain, is in talks with longtime rival Mitsukoshi Ltd. on selling its flagship store in a prime Osaka shopping district, sources close to the talks said Tuesday.
Sogo has also been in talks with Daimaru Inc., which has an outlet next to Sogo’s Shinsaibashi district flagship, but it is now leaning toward striking a deal with Mitsukoshi, which is offering a better price, the sources said.
The deal with Mitsukoshi is expected to be valued at nearly 30 billion yen, an amount exceeding what Sogo could get from Daimaru, they said.
Sogo is expected to decide on the deal as early as next month, they said.
The sale of properties, including the Osaka store, is a key part of Sogo’s reconstruction program.
Sogo’s business troubles have recently come under closer scrutiny after it asked the Industrial Bank of Japan and 72 other creditors to waive claims on 639 billion yen in outstanding liabilities in a bid to rehabilitate itself.
The Osaka flagship, which has about 32,000 sq. meters in floor space, plunged into the red when sales dropped 12.7 percent to 45.6 billion yen in the year that ended in February.
The deal, if realized, would benefit Mitsukoshi. It has long been looking to relocate its Osaka outlet, which has less floor space than its Sogo neighbor and is away from the city’s major shopping areas of Namba and Umeda.
Mitsukoshi’s outlet in Osaka’s Kitahama district was damaged in the 1995 Great Hanshin Earthquake and its floor space was halved to 12,000 sq. meters.
Earnings for Mitsukoshi’s Osaka outlet have since plummeted.
Securing a foothold in Osaka’s central district, where the Shinsaibashi shopping arcade is located, has thus been a key aim for the Tokyo-based chain. In 1997, it tried but failed to purchase land next to JR Osaka Station, in the Umeda district.
Mitsukoshi appears to have found it more advantageous to purchase and renovate Sogo’s Osaka store than to build a branch from scratch in Osaka’s central shopping area.
By purchasing the Sogo store, which opens on to Shinsaibashi and Midosuji Boulevard, Mitsukoshi can save on construction costs, the sources said.