A Retail Rebel Has The Establishment QuakingTed Holden
Kobe retailer Isao Nakauchi may be a maverick in Japan, but the self-made billionaire would be right at home in the U. S. Back in 1957, he opened a drugstore modeled after one he'd seen in a James Cagney gangster movie. For a firsthand look at American retailers, he then visited Sears, Roebuck & Co. stores and Safeway Inc. supermarkets and was most impressed by their competitive pricing. Today, in a brazen departure from traditional Japanese retailing practices, his Daiei Inc. chain of 204 stores is treating Japan to American-style discounting.
Now, Nakauchi is bucking the Establishment again. In what would be the largest takeover in Japanese history, the 68-year-old entrepreneur wants to swallow up two Tokyo rivals and become the undisputed retail giant in the capital. His cut-rate stores are already shaking up Japan's protective distribution system, where manufacturers tend to dictate prices to retailers. Along the way, he's making it easier for competitively priced U. S. products to reach Japanese consumers.
QUIET WAR. On Mar. 14, Nakauchi launched a $460 million tender offer for 28% of Maruetsu Inc., a 176-store chain in Tokyo. Daiei already owns 11%. He is also pressing for a 33% stake in Chujitsuya Co., a Tokyo supermarket chain he has been eyeing for years.
Nakauchi hopes to acquire the shares from Shuwa Corp., a troubled real estate developer with large holdings in the two retailers. Last December, in a calculated move, Nakauchi loaned Shuwa $815 million. Now, strapped for cash, Shuwa may be forced to hand over its shares to Nakauchi. "He won't be content until he makes Daiei the most powerful retailer in all parts of Japan," says Takayuki Suzuki, an analyst at Merrill Lynch Japan Inc. in Tokyo.
His bid is hardly welcome news for the country's leading manufacturers, who resent Nakauchi's price-slashing. Matsushita Electric Industrial Co., for example, has refused to sell to Nakauchi since the early 1970s, when he sold its color TVs at half price. On most goods, he undercuts competitors by 15%. "He'd like to put our distributors out of business," gripes one big manufacturer.
If Nakauchi grabs both retailers, his Tokyo stores would leap from 49 to 253 and sales would jump by $4.5 billion. His empire would easily overtake archrival Ito-Yokado Co., with 88 stores in Tokyo.
Given Nakauchi's credo to offer consumers the best deal possible, U. S. exporters have reason to be heartened. Daiei already rings up annual sales of $14 billion, including $1 billion in imports. Its massive stores offer everything from Kansas beef to Coleman outdoor goods. As Japan slowly strips away the red tape that hampers the opening of new stores, Nakauchi will be able to expand faster and put more U. S. products on their shelves.
PINSTRIPES. His hardball tactics extend to the baseball diamond. In 1988, Nakauchi bought a Japanese baseball team for $32 million, but many doubt it was for love of the game. In 1993, he will move the team to Fukuoka, where Daiei has only one store. There, he plans to build a $2.2 billion sports complex, which will feature a hotel, amusement park, and, of course, a Daiei outlet. Nakauchi may even move into the American League. Last summer, two New York Yankee owners approached him about buying their 9.6% share. He denies any interest.
On or off the field, Nakauchi has a history of playing by his own rules. According to corporate legend, when Japanese army officials came to his college campus to recruit students in 1941, the 19-year-old Nakauchi protested by donning clunky wooden sandals instead of official dress shoes. After four years in the army, he tried to sell medical supplies at discount prices--but outraged suppliers put him out of business. Four decades later, he is still fighting the same battles with suppliers. But these days, Nakauchi is likely to win.