Daiei Inc. has grabbed the public’s attention in recent months with its dramatic struggle to survive, culminating last week with President Kunio Takagi’s resignation after being forced to seek help from the Industrial Revitalization Corp. of Japan.
While it can be seen as just another case of a failing business receiving a government bailout, many consider the retailer’s fall as a significant event in the history of the postwar economy.
“In short, Daiei was a retail champion in the postwar period,” said Motoshige Ito, an economics professor at University of Tokyo. “It embodied Japan’s rapid economic growth.”
Daiei is credited with pioneering the Japanese “supermarket,” a store that carries groceries, clothing and a range of household items.
Yasuyuki Sasaki, retail analyst at Credit Suisse First Boston Securities (Japan) Ltd., said the development of numerous supermarket operations, such as distribution centers, store-label merchandise and discount outlets, can be traced to Daiei.
“It might not be the precise originator of these practices, but it was Daiei that introduced them on such a large scale,” he said.
“Daiei was a very progressive company, adopting new retail methods ahead of others.”
Company founder Isao Nakauchi, once a frontline soldier in World War II, was a self-styled revolutionary who destroyed the traditional pricing system controlled by manufacturers.
He took the concept of the retail revolution and spread it across the nation, stressing consumer sovereignty — the right of shoppers to determine prices.
His passion to bring cheaper food to consumers was driven by his experience of nearly dying of starvation in the Philippine jungle — a bitter memory he has never forgotten.
He started what is now Daiei in 1957, when it was called Housewives Store Daiei, in Osaka.
The huge discounts brought in crowds of shoppers. The store’s success led to other branches, and the chain took off.
“Daiei’s prices were very low, and its impact was huge,” said Takayuki Suzuki, an independent retail analyst.
Suzuki watched the rise of the chain while working at rival Seiyu Ltd., where he spent 20 years before leaving in 1988.
The discounter inevitably had problems dealing with manufacturers, which were used to dictating the prices retailers charged for their products.
“Nakauchi worked hard to stand on an equal footing with them, by aggressively opening stores and therefore increasing his volume of orders,” Suzuki said.
One of the most talked-about feuds with manufacturers was the “30-year war” with Matsushita Electric Industrial Co.
In the 1960s, Daiei began selling such Matsushita products as color TVs and refrigerators at low prices. According to media reports at the time, the consumer-electronics giant tried to block supply to the rogue retailer by threatening to terminate business with any wholesaler that sold to Daiei.
The manufacturers’ reasoning behind their pricing system was that huge discounts would not only slash their profit margins but would also devastate independent retail businesses.
In fact, many small stores were forced to shut down as Daiei expanded. But the chain was welcomed by consumers.
“We had high expectations for Daiei and its retail revolution,” said Hotoko Shimizu, a founding member of Housewives Association, a consumer advocate group started nearly 50 years ago.
During the early postwar years, the average family was forced to spend a large proportion of its income on food. By providing mass-produced items at low prices, Daiei was “a friend for housewives, who had to fight for the family’s livelihood,” Shimizu said.
Daiei rode its popular support to the top of the retail world in 1972, when it knocked off department store operator Mitsukoshi Ltd. as the largest retailer in terms of revenue.
But the chain gradually lost its powerful appeal as people became more affluent and were no longer simply content with full stomachs.
“Times changed. Consumers started wanting different things from others,” Shimizu said. “Daiei was not be able to fulfill consumer needs anymore.”
By the late 1970s, Daiei was not the only store boasting low prices, and specialty chains sprang up to cater to increasingly fickle consumer tastes.
But Daiei continued its aggressive expansion and built a conglomerate that included restaurants, hotels and a pro baseball team, amassing huge debts in the process.
Since its inception, Daiei has grown by taking on debt.
Its system of expansion has been to buy land for a new store, borrow money using the property as collateral and buy another piece of land, which would then be put up as collateral for another loan.
It was a fatal formula. Its debts snowballed once land prices began falling when the bubble burst in the early 1990s.
Credit Suisse’s Sasaki said it is easy to criticize Daiei now. “What I can say is that these measures were absolutely right at that time.”
Sasaki argues that the paradigm has changed, and Daiei seeking IRCJ help is a sign of the sea change in the financial and social system, in which the paternalistic bank-led economy is giving way to a less-forgiving market-oriented one.
“It is a sort of revolution. And revolution demands some victims,” he said. “Daiei is one of the most visible victims.”
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