Shrinking market forces tieup

Bic Camera-Kojima union seeks to survive tight electronics sector


Bic Camera Inc., the nation’s fifth-biggest retailer of home electronics, is buying a majority stake in Kojima Co., the seventh-largest, to create what will be the No. 2 player in the industry following behemoth Yamada Denki Co.

Kojima, once the industry leader, decided to go under the umbrella of a competitor against the backdrop of the shrinking retail market for home electronics as seen in a drop in demand for flat-screen TVs. Japan’s decreasing population is also applying downward pressure on the market.

Consumers rushed to buy flat-screen TVs ahead of the switch from analog to digital terrestrial broadcasting format in most parts of the country last July.

Retailers have also been hurt by the government’s termination of an incentive program to encourage consumers to buy or replace energy-saving TVs, air conditioners and refrigerators.

Shipments nationwide of flat-screen TVs fell 35.4 percent from a year earlier to 16,602,000 units in fiscal 2011, and industry analysts are predicting another drop in fiscal 2012. Along with slumping sales, declining prices of TVs amid deflation have also been eating into the bottom lines of electronics retailers.

Other key products such as personal computers have also come under deflationary pricing pressures.

Bic Camera moved TVs from shelves on the first floor to the second floor at its flagship outlet in Tokyo’s Yurakucho district ahead of the yearend sales season last year. Smartphones and other cellphones have since occupied the first-floor shelves.

At a board meeting held at Kojima’s head office in Utsunomiya, Tochigi Prefecture, on Friday morning, President Etsuo Terasaki, who presided over the meeting, made the proposal for a business and capital alliance with Bic Camera.

It turned out that everyone except Chairman Toshiaki Kojima, a member of the founding family and the top shareholder in Kojima, voted in favor.

The chairman insisted the firm can survive alone. Terasaki later told reporters: “We had a different perception of the industry (from the chairman). It’s a pity.”

The two companies started negotiations three years ago, Bic Camera President Hiroyuki Miyajima told a news conference after the announcement of the stake acquisition.

On the Tokyo Stock Exchange, shares in Kojima and Bic Camera climbed Friday as reports appeared about the two companies’ plan ahead of the official announcement after the closing bell.

Kojima soared 16 percent to close at ¥420, while Bic Camera gained 1.3 percent, to ¥39,000.

The stock of industry leader Yamada Denki, meanwhile, tumbled 8 percent to ¥4,100, the lowest for this year, on the view “it will face a threat from the emergence of a powerful rival” after the Bic Camera-Kojima alliance, said an official at a brokerage.

Yamada Denki is the No. 1 retailer, with ¥2.15 trillion in sales in the year that ended in March 2011. Bic Camera and Kojima had combined sales of ¥1.06 trillion in their latest reporting years. Bic Camera’s Miyajima said his company and Kojima are No. 1 in combined revenue in Internet sales of electronics products.

“The market size of the (home electronics) retail industry will further contract 20 to 30 percent in the years ahead. We will see who’s the winner and who’s the loser several years down the road,” said an analyst at a brokerage who declined to be named.

Adding to the retailers’ woes are electronics manufacturers’ poor earnings. Sony Corp. and Panasonic Corp. reported record losses for their business years that ended in March.

Industry analysts speculate manufacturers will be more selective in providing sales rebates to major electronics retailers, which have been using them to support earnings.

Retailers also may have to give up hopes of receiving other support from manufacturers, such as temporary sales staff.

Tomofumi Yoshida, a researcher at the Distribution Economics Institute of Japan, predicted: “A reorganization of the industry may come through an action by a foreign player, such as the acquisition of (home electronics retailer) Laox Co. by a Chinese company.” Laox became a subsidiary of Chinese electronics retailer Suning Appliance Co. in 2009.

Due to the weak economy, mass retailers such as Bic Camera are branching out and are now offering such items as food, cosmetics and other household products in the hope of overcoming falling sales of their mainstay electronics items.

But what they are doing is “an all-encompassing approach like a department store,” said an analyst. New product offerings “have not grown to become strategic items for them.”

A further consolidation may come in the electronics retailing business. Kojima’s Terasaki said his company will likely close 40 to 50 outlets in the coming three years or so, though it has no plans for any mass layoffs.