JULY 31, 2000 VOL. 156 NO. 4
The Saison group, which includes Seibu department stores like this
one in Tokyo, faces restructuring after the failure of its property
unit last week.
to Let Go
Sogo, now Seiyo. Has Japan Inc. finally figured out that shaky companies
must fall if the wobbly economy is ever to rise again?
By DONALD MACINTYRE Tokyo
It all began in an army-surplus tent pitched in the dirt near a railway
terminal. Under those unlikely conditions in the Ikebukuro district of
northwest Tokyo, the Seibu department store chain was reborn after the
devastation of World War II. The neighborhooda seedy haunt of gangsters,
prostitutes and day laborershad turned into a thriving black market,
where farmers peddled their produce to desperately hungry families. Seibu
sold fruit, vegetables and fish. But that was just the beginning. As Japan
evolved into an economic superpower, Seiji Tsutsumi, the eldest of two
sons of one of Japan's greatest prewar railroad barons, built Seibu into
the Saison retailing empire, whose pioneering, often edgy take on style
and fashion helped shape Japan's emerging consumer society. For decades,
Japanese watched with fascination and awe as Seiji competed for wealth
and power with younger brother Yoshiaki, a railroad and hotel magnate
who became one of the richest men in the world.
Last week brought an end to what may be one of the last chapters in the
Tsutsumi saga: property developer Seiyo, a key part of the Saison group,
went bust with almost $5 billion in debt. As part of a deal to restructure
Saison, Tsutsumi will sell most of his remaining shareholdings to cover
some of Seiyo's loans, marking his final departure from the empire he
built. The financial daily Nihon Keizai Shimbun said his brother's rival
group, Seibu Railway, will take a stake in Seibu Department Stores, bringing
it into the orbit of his own conglomerate (a Saison Group representative
denied the report).
Seiyo's collapse was not simply another episode in a long-running sibling
rivalry. Coming a week after the failure of the Sogo department store
chain, it was a shocking reminder of just how deep Japan's economic problems
really are. A widely watched Bank of Japan survey released earlier this
month showed that business managers are growing more bullish. Personal
computer production and orders for machinery are rising. But the mood
has turned gloomy again amid worry over which company might implode next.
The Bank of Japan decided not to raise interest rates last week, evidently
concerned about the impact of higher rates on shaky borrowers.
The failure of Sogo and the Seiyo aftershock were also indications that
Japan Inc. is finally getting serious about restructuring. That, optimists
believe, should be good news for the economy down the road. "There are
still too many losers hanging around the market instead of exiting it,"
says Yoshifumi Suzuki, an analyst at credit research company Teikoku Databank.
"Now we know where the exit is."
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message was well timed. At last week's G-8 summit of eight leading industrial
nations in Okinawa, the host country was worried that some participants,
especially the U.S., would use the forum to chastize Japan anew for failing
to take bolder steps to revitalize its economy. In the end, such criticisms
were muted. Could the summiteers have failed to notice that Japan had
just let two big corporate dinosaurs fall into the tar pit? In any case,
the U.S. and Japan announced an agreement on a particularly thorny trade
issue with implications for Japanese companies: opening the country's
telecommunications industry to foreign competition. That deal is part
of an ongoing effort by the U.S. to force open some of Japan's most carefully
protected industries. If the process continues, more and more Japanese
firms will be facing unaccustomed competition. So politicians and even
ordinary Japanese are probably getting used to the idea that businesses
will have to swim in rougher seasor be allowed to go under.
edition's table of contents
Sogo had none of Seibu's panache, but both companies got into trouble
the same way: Tsutsumi and then Sogo president Hiroo Mizushima used their
powerful names to borrow scads of money from bankers who didn't ask many
questions. ("The collateral is me," Mizushima liked to say.) They overexpanded
during the 1980s real estate boom and paid the price when values fell
in the 1990s. Both companies put off the inevitable day of reckoning as
long as possible.
Sogo went under after Japan's politicians decided the public, already
fed up with taxpayer-financed bailouts of troubled banks, wouldn't tolerate
having to foot the bill to rescue a big private company. The squeeze on
Seiyo came from the banks: facing new pressures from overseas competition
and a deregulated financial system, they can no longer afford to keep
companies on life support forever. Sogo's lender, the Industrial Bank
of Japan, and Seiyo's, Dai-Ichi Kangyo, are due to merge, and both need
to clean up their balance sheets first. In the short term, the result
may be job losses that could puncture the nascent recovery. Still, with
Japan now the biggest debtor among the major industrialized powers, many
economists say the country needs to swallow strong medicine.
Seiji Tsutsumi has wielded influence only from the sidelines since stepping
down as chairman in 1991. But if his empire splinters, as some now expect,
it will be a sad denouement for a giant of Japanese business. Almost singlehandedly,
Tsutsumi modernized Japanese department stores, turning them into celebrations
of the glittering consumer culture that young Japanese embraced in the
In the 1950s, Japan was still poor, unsure it could ever scrabble back
from the war. Tsutsumi looked ahead and saw the coming revolution in lifestyles.
He set up an office in Paris, opening a window on a world of glamour that
was like something from another planet to Japanese at the time. He also
won the rights to represent a young French designer named Yves Saint Laurent.
After making a name for himself in New York, a young Japanese designer,
Issey Miyake, made his debut in Japan at a Seibu store. When Tsutsumi's
friend Yukio Mishima, the writer and right-wing extremist, needed designer
uniforms for the private army he was raising, he turned to Seibu's tailor.
He was wearing the Seibu-designed creation when he ritually disemboweled
himself in 1970.
But business was only one side of Tsutsumi. A maverick in Japan's staid
business community, he preferred poetry and books to golf. After a day's
work, Tsutsumi would retire to his study to write; using a pen name, he
published semi-biographical books and poetry to critical acclaim. Tsutsumi
used his wealthand borrowed moneyto spread culture, which
certainly didn't hurt his stores' image. His Parco department store featured
a theater, where his friends like playwright and author Kobo Abe staged
difficult avant-garde works. His Seibu Museum of Art promoted challenging
contemporary work that was hard to find elsewhere in Japan.
Tsutsumi's retailing group often flirted with debt problems; the first
sign was a failed store in Los Angeles in the 1960s. The debt grew heavier
in the 1980s as Tsutsumi moved into leisure, opening an exclusive hotel
on the Ginza where the likes of Elizabeth Taylor and Dustin Hoffman stayed.
He even upstaged his brother Yoshiaki, who ran a chain of business hotels
in Japan, by snapping up the luxury Inter-Continental Hotels group for
more than $2 billion.
By then, the party was about to start winding down. In the early 1990s,
Japanese stock and share prices collapsed, sending the economy into its
continuing tailspin. Debts mounted at the department store and at Seiyo,
which had bought land for golf courses and other resort projects that
nobody needed anymore. Department store profits slumped as consumers stopped
spending or turned to discount shops and convenience stores. Seiyo's banks
forgave some of its debts and suspended interest payments in a restructuring
plan worked out in 1995. But the company failed to turn itself around,
and last week the banks ran out of patience.
Sogo got caught in the same downdraft. Started in 1830 as a second-hand
kimono shop, it was a struggling three-store department chain when Mizushima
became president in 1962. Over the years, he transformed it into a retailing
colossus with 41 outlets in Japan and overseas. Mizushima used a neat
trick to expand, opening stores near busy railway stations and buying
nearby land. As business took off at the department store, surrounding
land rose in value, providing collateral for further expansion.
The method ran into trouble as land prices headed south. But Mizushima
continued to borrow. Known within the company as "the Emperor" or sometimes
"God," he seems to have cowed his bankers as well. By 1994, Sogo was in
default, but it was still opening new stores in 1998. When the end finally
came, the Emperor had racked up more than $17 billion in debt, making
his corporate collapse one of the biggest in postwar Japanese history.
Even two weeks ago Sogo was still trying to hang on. And why not? Many
lawmakers in the long-reigning Liberal Democratic Party have tried to
slow reform while supporting the use of public funds to prop up troubled
businesses. Mizushima had plenty of political friends. So when Sogo asked
its banks to forgive $6 billion in bad loans, it expected political backing.
But in a sign of how times have changed, one of Sogo's banks is now owned
by foreigners and wasn't willing to play along. That meant the government
would have had to put up nearly $1 billion to make the bailout work. When
the plan was announced in June, Sogo sales started slumping, right in
the middle of the summer gift-giving season, as angry consumers voted
with their wallets. The ldp, still smarting after urban voters deserted
it during recent elections, decided Sogo wasn't too big to fail after
The department store's collapse seems to signal that time is running out
for other deadbeats as well. And nowhere are there more of those than
in the construction business. Riddled with corruption and companies on
the edge of bankruptcy, the industry is trapping workers who would migrate
to more productive sectors if only the government let market forces operate.
But since 1992, the number of construction workers in Japan has actually
climbed, from 6.2 million to 6.6 million earlier this year. After Sogo's
demise and the recent arrest of a former Construction Minister on bribery
charges, "the government won't be able to bail out construction companies
aggressively now," says Kazutaka Kirishima, a senior economist at Sumitomo
Life Research Institute, a private think tank.
Whether the government has finally gotten market religion or is just doing
what is politically expedient, the change in approach comes none too soon.
Since 1998, Japan's treasury has guaranteed $200 billion in loans to struggling
businesses. Thousands have gone bust anyway, leaving taxpayers with the
bill. The government has also spent $270 billion to shore up its financial
system, more than the gross national product of Sweden, and more than
what the U.S. spent to clean up its savings-and-loan debacle. While Japan's
banks are still wobbly, they are strong enough to withstand more corporate
failures, says Setsuko Akiba, banking analyst at Deutsche Securities in
Tokyo. And with its budget deficit headed ever higher, Japan can't afford
to keep a finger in the dike any longer.
Seibu's department store arm can probably restructure successfully, analysts
say, though it hasn't been at the cutting edge of anything for years.
Saison group companies are going their own way, says Ken Fukazawa, who
writes about the group for Diamond, an economic weekly: "There is nobody
to hold it together." Tsutsumi, who declines interviews about his businesses,
is spending more time on his writing these days and running his non-profit
Saison Foundation, which supports small contemporary dance and theater
groups. Tsutsumi the man of letters hopes the foundation will perpetuate
something of his vision after he is gone. But the story of Tsutsumi the
businessman who showed Japan how to live welltoo wellis now
a cautionary tale for the new century.
With reporting by Sachiko Sakamaki/Tokyo
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