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No. 355, April 1999

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American Companies in Japan


MERCHANDISING

Two big-name operators of superstores have restructured the ownership of their Japanese operations but in different directions. For its part, OFFICE DEPOT, INC. bought out equal partner DEODEO CORP. for approximately $28 million. The two formed a joint venture in 1996 to open a chain of discount office supply stores. Three Office Depots currently are in operation in the Tokyo metropolitan area. Another three are expected to open in the region during 1999. Office Depot also has three delivery centers in Japan. In part because of the buyout of DeoDeo's shares, Delray Beach, Florida-headquartered Office Depot expects to take a pretax write- off of $15 million to $20 million in the second quarter. It also is projecting a loss of $25 million to $30 million pretax on its Japanese operations in 1999. The pending write-off also is attributable to the planned consolidation of the Office Depot and the VIKING OFFICE PRODUCTS INC. businesses in Japan. The world's largest seller of office products acquired the big discount office products catalog seller last year. Viking, which moved into Japan right before the takeover, was scheduled to launch its initial direct mail effort across the country in the first week of April. It has built a distribution center near Fuji City in Shizuoka prefecture and expects to be able to provide next-day delivery to small businesses in more than 85 percent of Japan.

For its part, THE SPORTS AUTHORITY, INC. will cut its ownership in MEGA SPORTS CO., LTD. — a company formed with major supermarket operator JUSCO CO., LTD. in 1995 to open discount sporting goods superstores — to 19 percent from 51 percent. Jusco will acquire those shares, paying the Fort Lauderdale, Florida company $13 million over five years. The Sports Authority said that it had decided that it was not in the company's best financial interests to invest more money in the needed expansion of its Japanese operations. The firm's head added that Jusco has the capacity to oversee the chain's growth since it continues to build and operate shopping centers that will include new locations for The Sports Authority. Mega Sports currently operates 13 stores under license from the American retailer.

JC PENNEY CO., INC.'s expansion into the Japanese market will come to a close in June. That is when it and partner DEODEO CORP. will end a 1996 alliance initiated to open home furnishings stores across the country under the JC Penney Home Collections name. Almost from the start, however, the two had problems figuring out the product selection that would appeal to Japanese consumers (see Japan-U.S. Business Report No. 344, May 1998, p. 15). Appliance retailer DeoDeo will rename the six JC Penney Home Collections stores that have been opened once the tie-up is dissolved.

The company that will oversee the opening of freestanding and in-store Liz Claiborne and Dana Buchman shops in Japan finally has been set up (see Japan-U.S. Business Report No. 347, August 1998, p. 15). Women's career clothing and sportswear designer LIZ CLAIBORNE INC. has a 19 percent interest in LIZ JAPAN, LTD. Supermarket operator JUSCO CO., LTD. owns the balance of the Chiba prefecture joint venture. The partners still expect to open their first location, an in-store shop in a major department store, this year.

Seattle's other specialty coffee company is attracting some major Japanese corporate backing as it expands its domestic outlets. In May 1998, a venture capital fund run by MITSUI & CO., LTD. invested in TULLY'S COFFEE CORP.'s local operation. Now, a venture capital subsidiary of MITSUBISHI CORP. has partnered with the company. In addition to providing capital, the affiliate of the trader will help Tully's Coffee find real estate for new store locations, provide management expertise and help with financing. Five Tully's Coffee stores, all located in Tokyo, are in business. Another 25 are scheduled to open in FY 1999.

In a pairing that is unusual even in Japan, affiliates of MOBIL CORP. and EASTMAN KODAK CO. have tied up to offer one-hour film developing at gas stations. MOBIL SEKIYU K.K. and KODAK IMAGEX, LTD. already have opened a self-serve gas station in Chiba, Chiba prefecture with a drive-through photo processing minilab. Others are planned.

An exchange rate of ¥120=$1.00 was used in this report.aaaaaa

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