By  on August 24, 2007

TOKYO — Isetan Co. Ltd. and Mitsukoshi Ltd. said Thursday they have agreed to merge and form a new holding company in April. The agreement is subject to approval at a shareholders' meeting of each company in November.

The combination will create Japan's biggest department store group with total sales of 1.58 trillion yen, or $13.9 billion at current exchange. It will surpass J. Front Retailing Co., which is being formed next month through the integration of Daimaru and Matsuzakaya and will have total sales of 1.17 trillion yen, or $10.3 billion.

Isetan and Mitsukoshi will merge to form the company Isetan Mitsukoshi Holdings Ltd., at the stock transfer ratio of one new share for one existing Isetan share and 0.34 new share for one existing Mitsukoshi share. This is after the consideration of share prices of both companies in the last three months and other factors, the companies explained.

Isetan and Mitsukoshi, in explaining the background and purpose of their integration, said department stores in Japan are confronted with a shrinking market because of an ageing and declining population. They also are facing greater competition from other retail channels, including general merchandise stores, drugstores, large-scale discount stores and convenience stores.

The merger, the companies said, will enable them to combine their resources, ranging from information systems and technology to procurement, merchandising and marketing know-how. They also will be able to maximize the strength of their individual Isetan and Mitsukoshi brands.

"Isetan and Mitsukoshi, while understanding and paying respect to the history and corporate culture of the other party, aim to become the 'top retail service group in the world' by making utmost use of the business strength of each company," the companies said in a statement.

A new lineup will put Takashimaya with sales of 1.49 trillion yen, or $13 billion, in third place, followed by Millennium Retailing Co., which was formed in 2003 through the integration of the Sogo and Seibu department stores, with 966.5 billion yen, or $8.48 billion. They will be followed by H2O Retailing Corp., a new joint holding company for the Hankyu and Hanshin department stores, which will make a start in October.Department store sales in Japan have been on a slide for the last 10 years, falling by 2 trillion yen, or $17.5 billion, in that time.

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