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Japanese retail giant Seven & i Holdings Co. is in the final stages of arrangements to sell its Sogo & Seibu Co. department store unit.
With convenience store unit Seven-Eleven Japan Co. earning the majority of Seven & i Holdings’ profits, Sogo & Seibu has become a burden on the group as it has not been able to overcome a long-standing slump.
The company is aiming to start negotiations this month with a buyer chosen from among several candidates under consideration, with the sale expected to be in the ¥200 billion range.
Seven & i acquired the predecessor of Sogo & Seibu, Millennium Retailing Inc., in 2006. The department store unit currently operates 10 outlets, including the Seibu Ikebukuro flagship in Toshima Ward, Tokyo, and the Sogo Yokohama store.
However, the spread of online shopping and the impact of coronavirus restrictions on store hours dealt a severe blow to the company’s already flagging business performance.
Sogo & Seibu logged a loss of ¥17.2 billion in the fiscal year that ended in February 2021.
A major Seven & i shareholder has urged the holding company to concentrate on its mainstay convenience store unit, with a view to offloading Sogo & Seibu and supermarket chain Ito-Yokado.
Slow to adapt
When Seven & i acquired Millennium Retailing Inc., it cemented the company’s status as a major player in the Japanese retail sector, with convenience stores, supermarkets, and department stores under its umbrella.
The department store chain was popular among shoppers, with branches at major stations in the Tokyo metropolitan area, including Seibu stores in Ikebukuro and Shibuya, and Sogo in Yokohama.
However, following the closure of several outlets, including Sogo stores in Osaka and Kobe, the chain currently operates only 10 branches nationwide, down from 28 in the fiscal year that ended in February 2007.
The unit struggled to implement drastic measures that were needed to improve profitability, with the popularity of online shopping and the rise of retailers such as Uniqlo also affecting their ability to attract customers.
Sogo & Seibu launched the Seven Premium brand in cooperation with Seven-Eleven and Ito-Yokado, but the move failed to improve the company’s business performance.
Pandemic pressure
While convenience stores and supermarkets have continued to operate throughout the pandemic, department stores were forced to close or shorten their opening hours because they were perceived to be focal points of crowding.
In the wake of strict border restrictions, department stores were also hit by the disappearance of foreign visitors, who accounted for a significant chunk of profits at major department stores before the pandemic.
In January, U.S. investment fund ValueAct Capital sent a letter to Seven & i, asking it to focus on its convenience store business.
The Japanese retail giant is likely to face tough negotiations with buyers over issues such as the value of the unit and the fate of Sogo & Seibu’s existing employees.
