Suzuki

By Takayuki Nishizawa
and Koichi Kuranuki

With annual sales of more than 5 trillion yen, the Ito-Yokado business group remains little affected by the country's prolonged slump in consumer spending, which has forced many other supermarket chain operators and leading department stores to take cost-cutting measures.

In fact, the group has been exploring new opportunities in the banking and electronic commerce sectors and devising one strategic plan after another. In terms of retail sales in fiscal 2000, convenience store operator Seven-Eleven Japan Co., the flagship subsidiary of Ito-Yokado Co., looks set to outperform the nation's largest supermarket chain operator Daiei Inc.

At Ito-Yokado group's headquarters in Minato Ward, Tokyo, a team comprising 50 people is working with Toshifumi Suzuki, the president and chief executive officer of Ito-Yokado Co. and representative of the group, to develop a new banking project.

The team, headed by Vice President Nobutake Sato, has been formed to enable the group to make inroads into the financial services sector. Managing Director Akira Miyauchi, who previously worked for Nomura Securities Co., is also on the team, along with middle managers specializing in treasury operation and systems development. In addition, former employees of the Bank of Japan and other major commercial banks have been recruited as advisers.

The group aims to launch its own bank, which has tentatively been given the name IY Bank, in October. Originally, the group planned to create a bank that would only provide payment services, such as automatic transfer services for settlement of goods, services and utilities bills.

However, Suzuki recently decided that the new bank would also handle consumer loans, an area in which profits are expected to rise in a couple of years. As part of the plan for the new bank, automatic teller machines will be installed at about 3,500 7-Eleven stores nationwide over a period of three years, with the aim of making the new bank profitable as soon as possible.

The group initially conceived the idea for the bank about 2-1/2 years ago, when the group learned that a large number of its customers wanted ATMs at convenience stores.

Then, in early 1999, the group considered entering a joint venture with the Bank of Tokyo-Mitsubishi and three other banks to establish an ATM network at 7-Eleven stores.

However, the plan was quickly abandoned because, as Suzuki explained, "If we had allowed existing banks to take control, it would have become impossible for us to achieve our original aim, which was to create a bank that complemented our core retail business."

In the autumn of 1999, the group briefly competed with Softbank Corp. and other companies in a bid to take over the failed Nippon Credit Bank, but soon dropped out of the race after becoming determined to enter the banking sector on its own.

Following are excerpts from a Yomiuri Shimbun interview with Suzuki.

Yomiuri Shimbun: What are the group's main reasons for entering the banking sector?

Suzuki: First of all, we want to offer our customers a wider range of convenient services--we want them to be able to do more than just buy bread or cosmetics at 7-Eleven stores.

It will be very convenient for customers to be able to remit money through 7-Eleven ATMs, especially at night. Shopowners operating in the vicinity of 7-Eleven stores will no longer have to take cash to night deposit safes--all they will have to do is visit their nearest 7-Eleven store to deposit the cash.

Why did you decide not to join forces with other banks?

At first, we thought that it would work for us to have bank ATMs at 7-Eleven stores through tie-ups with the four banks. However, we soon discovered that it was going to be very complicated for one store to effectively become the branch of one bank, while another store would be the branch of another bank.

Furthermore, our relationship with the banks would have become even more complicated in the future, if brokerages and insurance companies get the go-ahead to begin selling their services through convenience stores. Consequently, I changed my mind and decided we would create our own bank.

The planned bank is going to extend loans to consumers, is that right?

Initially, we thought that our bank should engage in lending as little as possible because it would mean hiring a whole new workforce (to do credit checks). But, we later realized that offering payment services alone would not be enough to make our bank profitable, and we became aware of the need to be flexible in dealing with card and consumer loans.

Why does the Ito-Yokado business group remain so profitable? How do you explain the remarkable growth of Seven-Eleven Japan in particular?

Seven-Eleven Japan has always evolved to suit the times and the needs of customers. One example is our launch of a service allowing customers to pay utility bills over the counter. Seven-Eleven Japan has continuously moved beyond traditional Japanese business practices and devised new business models for convenience stores.

In contrast, the supermarket operator in your group, Ito-Yokado, has been fighting an uphill battle to stay competitive in the market.

Despite what I have said, that Ito-Yokado must take a leap forward and usher in a new age, it still relies on past practices. About 20 years ago, I urged each store to reduce its inventory, which doubled profits. But the bursting of the bubble economy has exposed a lack of fundamental strategies by the firm, in particular, product lineup.

Consumers are not saying that supermarkets are no longer needed, but they are complaining that supermarkets today offer them too small a range of goods and services.

How do you expect to remedy the problems?

In the case of apparel, for example, it is my understanding that our customers would like to see a wider product range, from casual clothes to relatively formal wear.

Foreign retail operators will not be a threat to domestic retailers if Japanese stores offer an attractive lineup of products and services that please their customers.