Seibu joins critical list in Japan

Seibu, one of Japan's highest-profile department store chains, is in critical financial trouble, and could be close to joining Sogo on the growing list of major Japanese collapses.

Seibu, one of Japan's highest-profile department store chains, is in critical financial trouble, and could be close to joining Sogo on the growing list of major Japanese collapses.

The group, which has outlets in most Japanese cities, has struggled through a tough decade of post-bubble trading, and has recently lost market share to discount competitors. Now it is looking to one such trading company, Itochu, for a deal to ensure its survival.

Privately held Seibu is crippled by nearly Â¥450bn (£3bn) in interest-bearing debts, and must also contribute Â¥50bn to the Saison retailing group to help write off the debts of Seiyo Kankyo Kaihatsu, a real estate concern that went bust in July.

According to local analysts, Seibu might only last another few months as an independent company before being forced into bankruptcy. It has now said, however, that it wants to sell a 4.7 per cent stake to Itochu for ¥7.5bn. It also hopes Itochu will buy a 20 per cent holding in Seibu affiliate Yoshinoya D&C for a further ¥23bn.

The moves are widely understood to be the first in a series of rescue efforts that could end in the merger of the groups within about 18 months.

So far, the partnership is in the form of a friendly alliance under which the Itochu trading company and Seibu exchange personnel, technology and certain other resources.

Unlike Sogo, whose attempts to reduce its mountain of debt were negligible, Seibu has at least made valiant efforts. In the past, department stores have looked to their suppliers for help in returning to profitability, usually by means of opaque understandings and relationships on the part of the management.

Seibu, however, has tried developing its own products and enlarged the number of outlets it controls directly.

Though observers roundly praised the group for this strategy, it has made little impact on the continuing financial strife.

In another initiative, Seibu has taken the major step of securitising the ownership of its flagship store in north Tokyo. The move is expected to raise ¥108bn, though this then leaves Seibu with the problem of paying ¥6bn a year to rent it back.

Despite the partnership with Itochu, analysts are pessimistic, suggesting the move has come too late to save a dying concern. Many say the collapse of Sogo, which followed the Japanese government's refusal to bail out the company with further state loans, marked a turning point in the way the country conducts its business. Many of Japan's oldest firms are finding their practices well out of date, and state sympathy has dried up.

In a curious twist, Seibu's problems may now be worsened by the imminent departure of its chairman, Hiroshi Kometani. He resigned last week to take the position of chairman of Sogo, and to lead the failed company's grim efforts to salvage something from its collapse.