HMV Japan Flagship Store at Shibuya Closes In 2010

Japanese convenience store chain Lawson Inc. (TYO: 2651) announced on October 28, 2010 that it will acquire music retailer HMV Japan K.K. from Daiwa Securities SMBC Principal Investments Co. Ltd. for 1.8 billion Yen (US$21.9 million).

The acquisition will allow Lawson to strengthen its stores’ weak music CD and DVD sales. According to Lawson’s own press release, this purchase will enable Lawson to create extensive entertainment merchandise and full range services in all formats, by enhancing the merchandise offerings through its Lawson & HMV stores, Loppi (Lawson’s multi media kiosks) and all its online storefronts, and by utilizing HMV Japan’s highly reliable brand for music and video software, as well as HMV’s leading market share in Japan for these products in both actual store and Internet sales. Industry analysts concur that this strategic move will likely attract more young consumers, the largest segment of customers of convenient stores, by tapping HMV Japan online sales expertise and its more than 4.7 million loyal members.

HMV Japan posted a net profit of 877,000 yen for the fiscal term that ended in April, 2009, but saw a net loss of 4.6 billion yen for the 2010 fiscal year. In an attempt to turn around its business, the company has initiated many cost-cutting measures including the reduction of the number of its stores from 57 to 37 in April of 2010. Its parent company, Daiwa Securities SMBC Principal Investments Co. Ltd. has been looking for a buyer for its struggling subsidiary since the recent slump in the music retail industry.

Culture Convenience Club (TYO: 4756), operator of Japan’s Tsutaya movie and music rental chain, had shown strong interest in buying HMV Japan earlier this year, but negotiations had broken down after both parties failed to agree on a purchase price.

Lawson stores form the 2nd largest convenience (Konbini) store chain (after 7-Eleven) in Japan and currently operate in all 47 prefectures of Japan and in Shanghai, China. It actually originated in the U.S. as Lawson’s Milk Company in 1939. It expanded into a chain of Lawson’s stores throughout the 40s and 50s and was bought by Consolidated Foods in 1959. In 1975, Consolidated signed a deal with Daiei Inc. to establish a series of Lawson stores in Japan. The first Lawson convenience store opened in Osaka in June 1975 and was operated by Daiei Lawson Co. Ltd. which later changed its name to Lawson Japan, Inc.

In 1985, Consolidated Foods changed its name to Sara Lee and sold all its Lawson stores in the U.S. to Dairy Mart which then renamed all the Lawson stores to Dairy Mart stores. From that time on, Lawson stores no longer existed on U.S. soil. In 2002, Dairy Mart was purchased by Quebec based Alimentation Couche-Tard (ACT) which then proceeded to rebrand all the Dairy Mart stores as Circle K stores.

Lawson posted a net profit of 12.56 billion yen for the fiscal year ended February 28, 2010 and has a fiscal forecast of 22 billion yen in profit for 2011.

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South Korea’s Shinsegae Group and Lotte Group square off in a battle for supremacy in the retail industry.

Last year, Shinsegae Group opened its latest luxury department store on the home turf of archrival Lotte Group, igniting another round of aggressive competitions for customers. Shinsegae Centum City, the 510,000 square meters (approximately 5.5 million square feet) colossal shopping and entertainment complex has eclipsed even Macy’s New York City Herald Square flagship store to set a new Guinness Record as the largest department store in the world.

Located on a former airport site in the coastal city of Busan, Korea, Shinsegae Centum City is comprised of a 14-story east wing which houses an 8-floor department store, restaurants, a gym and a golf driving range, as well as a 9-story west wing which features an indoor ice skating rink, concert hall, multiplex cinema, an art gallery, and spa facilities. It costs 1.025 trillion won (US$1.09 billion) to build.

Not to be outdone, Lotte Group is already building its own new colossal project, Lotte World, in Busan. It features a Las Vegas Bellagio like water fountain that is supposed to be the largest in the world. A planned skyscraper with a scheduled completion in 2016 would be among the tallest in Asia.

Shinsegae and Lotte have arrived at the top of the retail game through different paths. Lotte’s empire is built on its high-end department stores, a segment where it claims three times the market share of Shinsegae. The foundation of Shinsegae’s business empire is built on its discount E-Mart stores, and this lower end retail market is where Shinsegae claims three times the market share that the discount Lotte Mart attracts. In 2009, for the first time in its operating history, Shinsegae overtook Lotte in total revenue, posting $11.4 billion in sales compared to Lotte’s $10.7 billion.

This fierce domestic battle is continuing overseas. Shinsegae now operates 26 discount stores in china and plans to open another 100 stores there by 2015. Lotte operates 79 discount stores in China as well as many other outlets in Vietnam and Indonesia. This year, Lotte continues its expansion by opening a hotel in Russia, right next to the high-end department store it founded there in 2007.

Anyway, the Clash Of Titans Continues….