The Sogo department store group unveiled a comprehensive revival plan Wednesday that includes the closure of nine of its 22 existing stores and the slashing of the group’s workforce by 3,100 employees to 6,000.
Osaka-based Sogo Co. and the remaining 12 other companies in the group, including its Yokohama and Chiba outlets, will continue operations and merge in February to create a new department store carrying the same Sogo brand name, company officials said.
The nine department stores, including Kinshicho Sogo in Tokyo’s Sumida Ward, Sapporo Sogo in Hokkaido and Toyota Sogo in Aichi Prefecture, will be separated from Sogo’s restructuring efforts, according to the plan, which was submitted to the Tokyo District Court the same day.
If no buyer is found for these stores, they will shut down as Sogo outlets at the end of December after holding monthlong farewell bargain sales, the officials said.
However, Funabashi Sogo in Chiba Prefecture — one of the nine outlets earmarked for closure — is currently trying to find a new owner and is planning to continue operations as a different department store, they said.
In addition to the 2,100 employees of the nine stores targeted under the plan, about 1,000 workers from other Sogo group companies will lose their jobs as part of the group’s restructuring efforts.
According to the restructuring plan, the 13 firms that plan to continue operations will return a total of 93 billion yen to their creditors by borrowing the money from the Industrial Bank of Japan, the group’s main creditor bank. The total debt of the 13 firms is estimated at 1.58 trillion yen.
As the Sogo group is asking its creditors to forgive most of its debt, the semigovernmental Deposit Insurance Corp., which had to accept the Sogo group’s debt after Shinsei Bank opted not to take it on, will consequently give up 150 billion yen in loans to the retailer, according to Sogo.
Shigeaki Wada, special adviser to Sogo and expected to become the firm’s president, said Wednesday that the revival plan is necessary to rebuild a new Sogo.
Wada, the former chairman of Seibu Department Stores Ltd., also said the Sogo group will seek assistance from Seibu to make store operations more efficient.
The new Sogo is expected to earn 481 billion yen in sales and 13.8 billion yen in operating profit in fiscal 2010.
The Osaka flagship store will be temporarily closed and will reopen three to four years later as a symbol of the new Sogo. Workers at the store will be laid off and Sogo’s Kansai head office in
Osaka will be integrated into its Tokyo head office.
The revival plan must be approved by more than half of Sogo group’s creditors and by the Tokyo District Court as Sogo and its group firms filed for court-mandated corporate rehabilitation on July 12.
Billions to boost sales
Failed department store chain Sogo Co. lost 27.4 billion yen between 1992 and 1994 in dubious transactions in furs, handbags and other accessories in a bid to show higher sales, industry sources said Wednesday.
These items were sold to retailers and after the sales were recorded, Sogo repurchased them and built up an inventory estimated at 16 billion yen, with most of the goods remaining unsold, the sources said.
Sogo conducted an internal investigation into the case from the autumn of 1994 and wrote off the 27.4 billion yen in the business year that ended on Feb. 28, 1995, they said.
In the spring of 1995, two board members resigned to take responsibility for the loss.
The current Sogo management team has decided not to file a damages suit over the losses because the officials in charge at the time have resigned, the sources said.
Sogo’s wholesale division started importing furs and accessories from around 1983 for sale to retailers, but around 10 of the buyers were unable to meet payments as their sales went down along with falling personal consumption in the 1990s after the collapse of the bubble economy, the sources said.
Sogo then started relaxing payment terms by extending the periods of bills issued by retailers and repurchasing sold goods to provide working capital to these retailers. In some cases, Sogo even turned its credit into loans if the buyers could not meet the repayment terms, they said.
While these measures appear to have been taken in a bid to save the retailers, Sogo officials were also keen to boost the company’s sales figures, as the bills were logged in Sogo’s sales records, the sources said.
The 10 retailers all eventually collapsed and the inventory was passed on to a Sogo affiliate in Tokyo that went bankrupt in July.
The Sogo group, with debts of 1.87 trillion yen, filed for protection from creditors with the Tokyo District Court in July and has been scaling back operations in Japan and abroad.