Daiei: Will restructuring mean uprooting?
By Andrew Gomes
Advertiser Staff Writer
Daiei next year will mark its 30th anniversary of doing business in Hawai'i, as well as the tail-end of a three-year restructuring of its parent company in Japan.
Gregory Yamamoto The Honolulu Advertiser
Many shoppers at Daiei fear that financial troubles in Japan will mean losing a retailer that won over their hearts.
Gregory Yamamoto The Honolulu Advertiser
The retailer's Kobe-based parent company, The Daiei Inc., unveiled a reorganization plan early last year that includes closing unprofitable stores and subsidiaries, selling major assets, leasing store space to other retailers, reducing wages and cutting one-third of the company's work force.
The plan also involves renovating some stores and transforming 250 general merchandise and discount outlets into new-concept "category value centers."
So far, there has been no word on what will happen to the company's four Hawai'i stores. Only a few small changes have been made at the outlets in Honolulu, Kailua, Pearl City and Waipahu. And Takashi Ichikawa, president of Honolulu-based The Daiei (USA) Inc., and Herb Gushikuma, the company's general manager, have declined to comment publicly on possible plans for the Hawai'i stores.
While it is possible that the retailer will retain, and even upgrade, its longtime holdings in the Islands, some customers worry about possible closures. In addition, local retail analysts say they believe Daiei Inc. will divest the Hawai'i stores, whether they are profitable or not.
Frumpy but familiar
Daiei entered the Hawai'i market in 1972 and has evolved into a Japanese-influenced cross between Wal-Mart and a Chinatown market.
The company's first Hawai'i store, at Pearlridge Center next to Liberty House, was the first outside Japan. It offered more than 1,000 items, a little more than half from Japan.
More than 400 company officials, Japanese dignitaries and media representatives attended the store opening. Three years later, the Pearlridge Daiei was expanded into a three-level "superstore."
In 1980, the company bought Holiday Mart, a local retailer, and gained three stores in Honolulu, Kailua and Pearl City. It anticipated sales that year of $80 million.
Daiei closed the Pearlridge superstore in 1986 because of disappointing sales. It then bought bought a shuttered GEM store in Waipahu in 1994.
Excluding the relatively new Waipahu location, Daiei's Hawai'i stores have been relatively unchanged over time. The well-worn main store on Kaheka Street has an in-store post office, Western Union, shoe and luggage repair service, bank, dry cleaner and pharmacy. A half dozen takeout restaurants and a coin-operated laundry are outside.
On the store shelves can be found nearly everything from automobile oil filters to live lobster; beer to basketballs; air conditioners to underwear; kona crab kukui nut poke to bicycle tires; vacuum cleaners to fresh-baked bread.
"You can get damn-near anything," said John Morton, an Ala Wai Harbor resident who has been shopping at Daiei for 13 years and appreciates its selection of Japanese specialty products and sushi.
Some customers, aware of Daiei Inc.'s financial troubles in Japan, worry about the retailer's future in Hawai'i. F.G. Liva, who lives next door to the Kaheka Daiei and shops there once a week, simply hopes for the best.
"I hope it doesn't close down here," he said.
Doug Lee, a Manoa resident who's been shopping at Daiei for more than 10 years, said he'd miss it if it did close.
"It would mean finding two or three other stores to replace it," he said.
As Daiei Inc. goes about its reorganization plan in Japan, there are some signs that local Daiei managers are trying to improve business in the company's Hawai'i operations.
The Kailua store was renovated earlier this year. New cash registers were installed, the site was painted and received new shelving, and a fresh fish department was added.
Former managers and current employees have said there are plans to renovate the other three stores. Employees also say cuts have been made in the company's estimated staff of 400 to improve efficiency.
Still, local retail and real estate experts believe Japan's second-largest retailer will exit the Hawai'i market to consolidate operations at home where the company is still burdened by enormous debt.
Daiei Inc. took on more than 2 trillion yen in debt to expand into real estate, leisure travel, restaurant and other businesses during the 1980s.
The interest-bearing liabilities began to strain the company in the 1990s as revenue shrank.
Daiei Inc. posted losses of 21.9 billion yen ($209 million) last year, and 41.3 billion yen ($357 million) the year before.
In the company's most recent fiscal year, Daiei Inc. reported a profit, largely because of massive asset sales. Net income for the 12 months ended Feb. 28 totaled 45.9 billion yen ($378 million).
The company projects it will make money this year in its core supermarket business, but efforts to reduce liabilities will continue. The company's goal is to shave roughly $3 billion off $21 billion of debt in 2001.
Selling the four Hawai'i stores, each of which are about 100,000 square feet on leasehold land, would contribute little cash to that effort. But getting rid of the stores would reduce expenses and allow the company to better focus on operations at home, analysts said.
Of Hawai'i's four Daiei stores, the Kailua store is the most valuable, according to Roger Lyons, retail specialist at CB Richard Ellis Hawai'i Inc. That's because it potentially provides enough space for a big-box retailer such as Costco or Eagle Hardware & Garden, both of which have been unable to find space on the Windward side.
The Honolulu store also is in a desirable location, especially given the intent of Wal-Mart, Sam's Club and Home Depot to locate a store in town.
Daiei's Waipahu and Pearl City locations are less desirable, Lyons said.
Marty Plotnick, president of Honolulu market research firm Creative Resources Inc., said the value of the stores doesn't matter to Daiei Inc. "They'll take whatever they can get," he said. "It gets it off the books."
Small drop in bucket
Plotnick doesn't see how the local stores can escape Daiei Inc.'s mission to cut expenses.
"It's not going to have anything to do with our market or our economy," he said.
"The Hawai'i stores could very well be profitable, but to the corporation it's a gnat. It doesn't represent (much) in the scheme of Daiei business."
Daiei Inc. last year had unconsolidated revenue of more than 2 trillion yen, or nearly $17 billion at current exchange rates. The Hawai'i Daiei stores had estimated sales of around $135 million, or three-quarters of a percent of parent company revenues.
Several industry observers believe Daiei Inc.'s concerns for local employees may have delayed dealing with the four stores here.
"This is a real tough one for them because they don't want to abandon their people here," said Steve Sombrero, senior vice president in charge of international business development for Chaney Brooks & Co.
Retail analysts note that the company could sell the Hawai'i stores to local managers but stipulate that they continue operations and keep employees. Similar deals have occurred at Shirokiya and restaurant chain Kyotaru Hawai'i Corp. In both cases, the new owners only carried on one of several locations.
Kazuyo Takagi, a Kailua resident and regular Daiei customer, said it would be nice if local managers acquired the store at which she does most of her grocery shopping.
"Without Daiei, I think it will be really bad for me. For Japanese people here it's really a nice store."
Reach Andrew Gomes at firstname.lastname@example.org or 525-8065.
Correction: Steve Sombrero works for Chaney Brooks & Co. His employer was misidentified in a previous version of this story.