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The Honolulu Advertiser
Posted on: Sunday, February 5, 2006

Daiei’s sale in the bag

By Andrew Gomes
Advertiser Staff Writer

Japan’s discount retail chain takes over four Hawai'i stores this month.

MARTHA P. HERNANDEZ | The Honolulu Advertiser

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Don Quijote stores in Japan


Don Quijote employees


year Don Quijote established


estimated Don Quijote spending to upgrade Hawaiçi stores


Don Quijote annual sales for the fiscal year that ended June 30, 2005

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Two students in Japan browse some of the diverse merchandise jam-packed into a Don Quijote store in Tokyo’s Shinjuku area.

Paul Hochberg

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Hawai'i consumers used to shopping at Daiei soon will experience a new and rising force in Japanese discount retailing when Don Quijote Co. takes over Daiei's four O'ahu stores this month in its first expansion outside Japan.

Named after the 17th-century Spanish novel about a fictional character imagining he is an errant knight, Don Quijote is not your ordinary discount retail chain.

The retailer, nicknamed Donki, is known for its cartoonish penguin mascot that sometimes sports knightly armor or a Santa hat, its late-night operating hours and narrow aisles jam-packed with discounted merchandise from pencils to packaged food to Louis Vuitton handbags.

"They seem to sell everything," said Steven Matsuo, a Kane'ohe resident who travels to Japan on business. "It's almost like how we look at Longs, except more extreme. Almost anything you can think of, you can find at Don Quijote."

Sporting goods, DVDs, prescription drugs and perfume. Home appliances, clothing, pet food and automobile accessories. And more, all chaotically crammed into what the company describes as the "compression display" — an overwhelming variety and quantity of merchandise densely arranged, piled and even hung from the ceiling to give shoppers a feeling they are hunting for treasure in a kind of retail jungle.

"Stores with this unique merchandise-stocking method have opened the way to new shopping pleasure derived from encountering unexpected items ... and have become the driving force behind our enduring popularity," the company said in its latest annual report.

"Donki is like a jungle," said Kohei Hakamada, an international customer-services agent for local real-estate firm Chaney, Brooks & Co. "It's fun to search in the store. It's kind of like an amusement park for the shopper."

The amusement theme is extended in some cases outside Donki stores, one of which opened in March in Osaka, featuring what the company said was the world's first oval Ferris wheel attached to a building. Another store had a carnival thrill ride installed on the roof.

Whether shoppers can expect Don Quijote to replicate parts or all of its Japan store format in Hawai'i is uncertain. The company has yet to announce details of its plans for Daiei's stores on Kaheka Street near Ala Moana Center, and in Pearl City, Waipahu and Kailua.

The planned purchase, announced by Daiei and Don Quijote in December, was expected to be completed on Wednesday.

Last week, a Don Quijote spokesman said the acquisition would be delayed by about two weeks, at which time the company could provide more information on its plans.

A local Daiei official said Don Quijote is expected to retain Daiei's roughly 950 Hawai'i employees.

It could take a while for customers to see any in-store changes, which could be phased in slowly, according to retail-industry observers.

Mitsuo Takahashi, senior managing director of Don Quijote, in December estimated the company would spend about $8 million to upgrade the Daiei stores, maintaining their format with the possible addition of more Japanese goods.

The Daiei name would be changed, but Takahashi at the time said it hadn't been decided if the stores would be called Don Quijote or something else.

In Japan, Don Quijote has evolved over 25 years after being founded in 1980 as Just Co. Ltd. to sell miscellaneous goods. The company primarily existed as a wholesaler until 1989, when it opened its first Don Quijote retail store.

The business changed its name to Don Quijote Co. in 1995, issued shares to the public a year later and began expanding with mostly small convenience store shops more like Price Busters than Daiei.

In the last few years, Don Quijote began opening large, often multistory discount stores jamming a broader selection of goods into 20,000 square feet or so of space (about the size of an average Longs Drugs). It's typical for stores to stay open until 3 a.m. or 5 a.m., though many are open 24 hours.

Local resident Paul Hochberg, who runs a business specializing in placing U.S. products on television in Japan, rummaged his way through a big Don Quijote store a couple of weeks ago and found himself somewhat bewildered by the experience.

"There was so much product," he said. "The product is basically busting out to the street. It was an incredible amalgamation of product, from vacuum cleaners to headshop-style psychedelica.

"It was just packed," he said, recalling displays that included a line of French-maid costumes. "I was like, 'That's weird.' I was looking for small things at a good price."

Hochberg said he bought a pair of scissors and an anti-static computer screen cleaner brush.

Former Hawai'i resident Marshall Hughes, who lived in Japan for 12 years until recently, said he occasionally shopped at Don Quijote because of the low prices. He said checkout lines could sometimes be insufferably long, and theme music in stores was incessant. Merchandise quality could be poor, he added.

"I can't believe the elevators and stairs have ever passed any kind of safety inspection," he said.

Don Quijote has drawn criticism over store safety, especially after a fire — one of several suspected arson fires — killed three people in 2004. The company said it has enhanced fire-prevention systems.

Some regular customers of Daiei say the familiar but worn stores could use improvements, though they hope changes by a new owner don't result in higher prices.

Takashi Ichikura, executive director of marketing firm Hawai'i Tourism Japan, said Don Quijote may sell a lot of luxury-brand merchandise as well as loads of items found in a 99-cent store, but everything is consistently sold at discounted prices.

"That's what they're good at," he said. "People going to Don Quijote assume that things are available at a very discounted price. You get the feeling when you walk in that everything is discounted."

Hochberg said it would be fair to call Don Quijote a no-frills shopping environment. "Nice is not how I would describe it," he said. "It was really for bargain hunters. A lot of people love the stores because of the variety."

Matsuo, the Kane'ohe resident who's been to Don Quijote, said he'd like to see the retailer replicate its format in Hawai'i. "It creates excitement," he said. "If they bring in the real Don Quijote, it'll be a good match. We don't have anything like it here."

Ichikura, of Hawai'i Tourism Japan, said he suspects that Don Quijote will bring its broader product range of discounted merchandise, and maintain other elements of Daiei like its produce, seafood and packaged-food selections.

"People going to Daiei are looking for Japanese food," he said. "If Don Quijote gets rid of that, they are going to lose their market."

Daiei has built a following of mostly longtime kama'aina, more recent immigrants and some visitors since opening its first Hawai'i store in 1972 at Pearlridge Center.

The Pearlridge store was the first for The Daiei Inc. outside Japan. The relatively small outlet with more than 1,000 items was expanded in 1975 into a three-level "superstore."

In 1980, Daiei bought local retailer Holiday Mart, and gained three stores in Honolulu, Kailua and Pearl City that some people still refer to as Holiday Mart.

Daiei closed the Pearlridge superstore in 1986 because of disappointing sales. It regained a fourth store in 1994 when it bought a shuttered GEM store in Waipahu.

Daiei officials have said the Hawai'i stores have generally been profitable, but Japan's third-largest retailer in recent years has largely focused on reversing huge financial losses and shedding enormous debt taken on in the 1980s to expand into real estate, leisure travel, restaurants and other businesses.

Selling its Hawai'i stores, which had sales of $155.6 million in its fiscal year ended January 2005, allows Daiei to concentrate on core operations, according to Bloomberg News Service.

Bloomberg reported that Daiei would record a $12.5 million charge from the Hawai'i sale that also includes wholesale affiliate Oriental Seafoods Inc.

Don Quijote, by comparison, has been growing profits and aggressively expanding. The company operates 115 stores and employs about 1,800 people, including some at subsidiaries involved in real estate, marketing and wireless phone business.

Last year, the company opened 17 new stores, and aired its first TV commercial to increase name recognition. Last month, it launched a takeover bid for a 633-store bento take-out chain in Japan.

The company has reported higher sales and profits for nine consecutive years. In the most recent fiscal year ended June 30, Don Quijote reported a $65 million net profit on $2.1 billion in sales.

Two students in Japan browse some of the diverse merchandise jam-packed into a Don Quijote store in Tokyo's Shinjuku area.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.