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Takashimaya, H20 Retailing Plan Merger

Tie-up is only the latest example of the consolidation sweeping the sector.

TOKYO — Japanese department store companies Takashimaya Co. and H2O Retailing Corp., the parent of Hankyu and Hanshin Department Stores, said Friday they are forming a strategic alliance and planning to merge their operations within the next three years.

The merger would create Japan’s second biggest department store group in terms of sales after Isetan Mitsukoshi Holdings Ltd., with annual revenue of about 1.5 trillion yen, or $15.2 billion.

Dollar figures were converted at average exchange rates for the period to which they refer.

Takashimaya and H2O will take reciprocal 10 percent stakes in each other by the end of February next year. The two retailing groups said they will collaborate in areas such as cooperative buying, distribution, cost reduction and personnel exchange.

Japan’s department stores have been struggling as the country’s economy stagnates and consumers rein in spending on clothes and other items. The Takashimaya and H2O tie-up is only the latest example of the consolidation sweeping the sector.

Last year was the year of the merger for Japanese retailers. Isetan and Mitsukoshi joined forces, as did Daimaru and Matsuzakaya Holdings, which combined to form J. Front Retailing Co. Ltd. Also last year, Hankyu and Hanshin merged to form H2O in a bid to better cope with the adverse market conditions.

“Consumers’ needs for merchandise and service have increased and department stores and other retailers are required to answer to these changes aptly and quickly,” Takashimaya and H2O said in a statement, referencing Japan’s aging population and other demographic shifts.

News of the merger comes against a backdrop of macroeconomic malaise in Japan. Even before the global fi nancial crisis began, many were warning the country was headed into a recession.

H2O Retailing operates four Hanshin and 11 Hankyu department stores, mainly in the Kansai region, comprising the cities of Osaka, Kyoto, Kobe and their surrounding areas. The company generated net profits of 9.45 billion yen, or $83.9 million and sales of 471.67 billion yen, or $4.14 billion, for the fiscal year ended last March.

Last month, Takashimaya, which has a network of 12 stores and four subsidiary retailers in Japan, issued a profit warning for the current fiscal year ending Feb. 28. Still, the company said Friday that its first-half net profit rose 29.2 percent to 8.79 billion yen, or $83.7 million, while sales slid 3.2 percent to 488.22 billion yen, or $4.65 billion.