Tokyo - The weekend collapse of Nagasakiya, the mid-ranked supermarket store operator, was another sign that Japan`s traditional "convoy system" of doing business was breathing its last, analysts said yesterday.
The retailer said at the weekend that it and three group firms had failed with combined debts of `432,4 billion (R17,8 billion).
Nagasakiya, the group`s core firm, went under with liabilities of `303,9 billion, a record failure for a Japanese retailer because of sour investments and weak sales.
The four firms filed for court protection from creditors under the corporate rehabilitation law, effectively declaring bankruptcy.
Their collapse had become inevitable after leading creditor Dai-Ichi Kangyo Bank (DKB) pulled the plug on any fresh lending to prop up the group, analysts said.
DKB is merging this year with Fuji Bank and Industrial Bank of Japan to create the world`s largest banking group, and along with other Japanese banks is trying to clear bad loans dating from the late 1980s speculative boom.
Banks, which traditionally formed the anchor for a "convoy" of businesses affiliated with each other, are pulling out of the system by offloading cross-shareholdings to raise cash and pay off debt.
The overhang of the "bubble economy" had also put paid to Nagasakiya, whose aggressive expansion strategy went sour when the economy slumped.
"The bankruptcy of Nagasakiya was only a matter of time since the firm was so burdened with debts incurred during its investment spree during the bubble economy," said Junichi Kanamori, retail analyst for Societe Generale Securities.
"Once its main bank DKB decided to abandon Nagasakiya, its lifeline was cut off and the result is what we now know of," he said.
Kanamori said DKB could no longer afford to keep loss-making clients such as Nagasakiya as it prepared for a merger soon.
"The bank is sifting through which firms to keep and which to abandon, and Nagasakiya belongs to the latter part."
He said the Japanese retailing sector was being hit by more competition, including price wars, as companies try to survive in the current harsh economic climate.
Hiroki Ihara, a retail analyst at Okasan Economic Research Institute said, "There are winners and losers in the retail industry and Nagasakiya belongs to the latter group."
He said the firm`s excess investment during the bubble economy backfired on it and its sales never recovered because of depressed consumer spending. "Usually banks keep lending money to retailers because of a non-stop flow of merchandise in the industry," he said.
He said but for DKB to terminate its lending meant that it gave up on Nagasakiya because the retailer had no prospects for profitability in the future.
The strong, like Seven-Eleven convenience store chain operator Ito-Yokado, would survive, while others were forced to implement drastic restructuring measures to stay in the game, both analysts agreed.
Struggling Daiei, Japan`s biggest supermarket operator, said last month that it was selling a 20 percent stake in its Lawson convenience store chain to trading house Mitsubishi for `170 billion. The sale will give Daiei a much-needed cash boost to help bring down its huge consolidated debt of nearly `1,2 trillion. - AFP