SOGO COLLAPSE CONCERNS JAPAN VENDORS

Byline: Koji Hirano

TOKYO — Just as Japan’s economy was showing signs of recovery, the bankruptcy of Sogo, Japan’s giant department store group, is causing concern among fashion firms and casting a negative light on the nation’s retail scene.
Sogo, a group of 27 Japanese department stores, filed bankruptcy last week mainly due to the nation’s slow economy and the store’s highly leveraged, aggressive expansion, industry observers said. Sogo Co., the group’s core company, generated sales of $1.36 billion, at current exchange rate, but reported net losses of $1.31 billion for fiscal 1999, which ended in February 2000. The group’s total outstanding loans, including interest, amounted to $16.2 billion, according to the group.
Under a restructuring plan announced in April, the group said it could not meet its financial covenants and asked a total of 73 financial institutions to renounce loans. By the end of June, most of the financial institutions, including the Deposit Insurance Corp., showed intention to give up the claim against the group.
However, public reaction against the bailout was severe, and Shizuka Kamei, chairman of the policy affairs research council of the Liberal Democratic Party, “asked us to voluntarily withdraw the request of renouncement of the loan against the financial institutions,” said the group.
Industry sources anticipate enormous economic damage as a result of Sogo’s bankruptcy. Sogo has closed three stores and announced layoffs of 302 people. The store group has about 10,000 workers. The bankruptcy also puts intense pressure on lenders, and 60 institutions have said they may not be able to recover loans to Sogo group firms as scheduled or at all.
Akira Baba, chairman of Onward Kashiyama, said the bankruptcy of Sogo, which has stores at major cities throughout Japan, “may cause damage to local economies, heavier burden to the nation’s people, severe unemployment and a chain reaction of bankruptcies of about 10,000 companies that have business transactions with Sogo.”
Analysts said a full-scale takeover attempt was doubtful due to Sogo’s deep debt, but some individual units that are profitable could be bought.
In Japan, department stores have been facing a difficult period. Last year, shut downs included Tokyu Department Store’s Nihonbashi unit, Mitsukoshi’s men’s store in Shinjuku, and Kyoto Kintetsu Department Store’s Gifu unit. This year, Mitsukoshi announced staff reductions of 600 in order to reduce personnel costs $57 million.

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