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Monday, February 27, 2012

J. Front Retailing To Buy A Stake In Parco

In a move that will further consolidate the competitive department store market in Japan, J. Front Retailing will acquire a 33.2% share of shopping mall operator Parco Co.

With the acquisition of Parco, J. Front Retailing will expand its department store holdings, already operating Daimaru & Matsuzakaya as well as the acquisition last year of Lifestyling Holdings.

As sales at department stores have been decreasing for the past 15 years due to an aging Japanese population, competition and a culture among department store executives to react slowly to change if at all, consolidation through mergers and acquisitions became commonplace. 

As competition in the department stores industry increases both internally and externally, many department store operators are vying for the holy-grail of customers; those in their 20’s and 30’s. 

Parco’s customer reach and strategic locations in major city centers have long made Parco an acquisition target; showing why Aeon was interested and bought a 12.3% minority stake last year. 

With the initial share purchase and any subsequent acquisition of additional shares that would give J. Front Retailing majority ownership of Parco, would also give them a strong foothold into the twenty and thirty-something customer group.

After the initial and any subsequent acquisition of Parco by J. Front Retailing what will Aeon do?

This question is also important in the overall context of competition in the department store market in Japan.  As Aeon may find out a Parco operated by J. Front Retailing will no longer work for them, but what will it do against the other department stores; Isetan Mitsukoshi, H20 Retailing, and Takashimaya?

Since Parco was not a major department store player it will not likely lessen competition among department stores though it will likely give J. Front Retailing a competitive edge in geographic locations, new and diverse brands as well as a strong entry into the desirable twenty and thirty-something customer group.

What do you think of the acquisition and any subsequent acquisition of Parco by J. Front Retailing?  Do you think there will be additional consolidation in Japan’s department store industry through closures and mergers and acquisitions in the near future?

Information J. Front Retailing, Japan Department Stores Association & Nikkei

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