(The original article in Japanese was posted on February 4, 2022)

 

On February 1, Seven & i Holdings Co., Ltd. issued a press release regarding media reports on the sale of Sogo & Seibu Co., Ltd., saying that the company is “examining all possibilities including the sales of shares of Sogo & Seibu, but nothing has been decided as to the content of the report." However, amid growing pressure from so-called “activist shareholders” who urge the company to concentrate on the convenience store business, it seems to be inevitable to discard the struggling department store unit with no prospect of restructuring initiatives. Presumably, the company is in final negotiations of the transfer procedures mainly with prospective investment funds.

Sales of department stores nationwide in Japan reached over 4 trillion yen in 2021, the second year of the spread of the COVID-19 pandemic, which showed a moderate increase from the previous year when department stores were forced to close for a long period of time due to the spread of the virus. But then, the sales stayed about 20% lower than those before the outbreak of COVID-19. In the first place, the fact that the market size which used to reach 12 trillion yen, has shrunk to one-third, is attributable to a drastic change in consumer behavior in line with the evolution of technologies and the disappearance of the middle class which was the integral customer segment. In other words, the change was derived from structural factors, and the coronavirus disaster worked as a trigger to accelerate the changing movement.

Back in 2006, Mr. Toshifumi Suzuki (then chairman) was the key person who started to challenge the acquisition of Sogo & Seibu. His aims at that time were roughly as follows: "Unlike the US market where the retail business is divided into subcategories to meet respective needs of different customers in different social groups, in the Japanese market, customers go shopping freely back and forth between basic daily stores and specialty stores depending on the situation. Therefore, large synergetic effects are expected among business categories focusing on the customer information, and a new model that integrates real stores and online operations is anticipated to be developed." After all, the strategic synergies created by supermarkets, convenience stores, and department stores did not reach the expected level in both real and online businesses, while the efficiency promotion measures based on Seven-Eleven initiatives, such as introducing its private brand "Seven Premium" products into department stores, has taken away the specialty appeal from a department store.

In any case, the department store unit managed to cope with the fast-moving environment of the market by means of closing local stores, converting store management shifting to a shopping complex-type operation, and reducing the workforce. Besides, a glimpse of "brilliance" of department stores is somewhat apparent in presenting a pop-up shop meaning “Apparel store that does not sell clothes," produced by a Generation Zer, Ms. Sayuri Miwa. Also, another new development to show an identity of a department store is a media-based OMO* store with Ms. Asako Tsuji appointed as a creative director, who advocates the creation of business opportunities that are promoted with principle and social consciousness.

Sogo & Seibu's corporate message this year is "I am Me" and "My heart and I will embrace things cited as needless". In fact, they are actually cited as needless by the activist shareholders as well as the parent company, and now is the crucial moment whether they can survive as “something essential" for consumers and new shareholders continuously or not.

 

*OMO store: Acronym for Online to Offline store. A store business model that connects a real store-counter and ecommerce sites seamlessly, where an entire system including its concept, customers, products, and information is coordinated in an integrated manner.

 

This Week’s Focus, February 4

Takashi Mizukoshi, the President