Voters sink Sogo’s lifeboat

The collapse of the Sogo department store, the largest bankruptcy of a non-financial corporation yet seen in Japan, is significant in two important ways. It shows the fragility of economic recovery. Persistently slow growth may leave many more Japanese companies at risk and the country’s banks may suffer more bad debts. Second, it shows the old conservative consensus breaking down. Shinsei Bank, the old LTCB under new American ownership, refused to play along with a bank-led bail-out. And when politicians attempted a public rescue, an angry populace shouted it down. Painful corporate restructuring is at hand, reports Kevin Rafferty

Japanese Elvis lookalikes: but why aren't those kids in class?

Elvis lives! Well, on closer examination, it is not the King himself, but several younger Asian reincarnations jiving up and down to the blaring music of Elvis Presley on a hot summer Sunday afternoon. Their eyes squint against the sun and sweat makes their trademark quiffs glisten with a shine the King would have envied. Elvis sightings have been reported all over the world, but none are as strange as these in Harajuku, not least because it is literally a stone's throw from Omotesando, once of Tokyo's swankiest shopping streets.
Just 50 metres away from the Elvis prince-lings, more than a hundred young girls are conducting their own anti-fashion parade. In the boiling heat, most of them are dressed in heavy black drapes and wearing thick white make-up. Their accessories are individually kitschy, including silver teardrop eyelashes, cutesy lacey parasols, clumpy platform shoes, Fishnet stockings, feather boas, bright red and orange hair, but together they are outrageously over the top and as far removed from the image of conformist dark-suited and booted Japan as it would be possible to devise.
These girls are mere teenagers, the oldest 15 or 16 and some of them only 12, the age when traditionally Japanese children spent their time with their heads buried in their schoolbooks.
"They demonstrate a profound sense of unhappiness with the established order," says Kuniko Kurimura, senior consultant with the Centre for High Performance Development. "Japan has lost its way and is reeling from the loss of economic direction and political incompetence. However, in the past few weeks we have seen what may prove a deadly blow to the old order of Japan Inc. It is the disaster - maybe I should say debacle - of the bankruptcy of Sogo department store. It's still early yet, but Sogo could be a milestone for 21st century Japan similar to the arrival of Commodore Matthew Perry's black ships in leading to the Meiji Reformation [which was the start of Japan's transformation to becoming a modern industrial power]."
The Sogo story is simple in outline but complicated in detail. The department store group had been founded in 1830 as a second-hand kimono shop, and was still a struggling three-store chain when Hiroo Mizushima left Industrial Bank of Japan (IBJ) after a 20-year career with the bank to join Sogo. He became its president in 1962 and embarked on an ambitious expansion programme. He was a commanding Figure who knew how to use his connections, and he was wont to boast: "The collateral is me".

Sogo department store: its collapse may be a turning point for Japan Inc

Mizushima had realized the importance of the railway station as a focal point for life in a rapidly prospering Japan. New Sogo shops began to appear, many of them close to railway stations, where the store stimulated a range of commercial business and helped Sogo to buy surrounding land, which could be used as collateral for further expansion.
By the mid-1990s, Sogo had 27 stores in Japan and another 14 dotted throughout Asia (even though the actual ownership is complicated and convoluted through a maze of cross-holdings).
Then Japan's economic bubble burst and along with it Mizushima's boast. Land prices dropped. This year, Sogo Finally had to admit it could not repay its debts, totalling about ¥2 trillion (almost $18 billion).
Old favours undermined
Initially, it seemed that Sogo's powerful political connections would enable it to survive. IBJ led a consortium of 73 banks in putting together a package for forgiveness of ¥632 billion of Sogo's debts. But this was scuppered when one of the leading banks, Shinsei Bank, which had risen phoenix-like from the ashes of the former Long-Term Credit Bank, refused to go along with the deal. Even then all was not lost, and the government prepared to lend a hand. However, the politicians did not count on an outcry about such use of public money. Shamefacedly, the ruling politicians of the Liberal Democratic Party, which had just been battered in lower house elections, decided they had better yield to popular opinion if they wanted to win the election next year, so they left the store to File for protection from its creditors.

Kuroda: "direct impact will not be serious"

One temptation is to dismiss Sogo as a mere department store that failed. Other businesses have suffered and disappeared since the bursting of Japan's bubble, including some of the biggest banks. Sogo, by common consent, had been on life support for years, and a department store is hardly at the cutting edge of Japan's modern economy to the extent that it was imperative to rescue it.
But, apart from the size of the Sogo bankruptcy - the second biggest and the largest by any non-Financial concern - there are gloomy implications for Japan's Sisyphean struggle to get the economy moving again towards a respectable growth rate.
Government officials are still saying that growth is picking up. Haruhiko Kuroda, the vice-minister or senior international official at the ministry of Finance (MoF), admits that there are still problems, but says: "The economy is recovering, it is true. The household sector is still weak. The income situation is sluggish and personal consumption is almost Xat. The corporate sector is strong and companies are making good profits. Most economists are saying that perhaps the Japanese economy could grow by 1.5% to 2% even in the calendar year, although the government has not yet changed its forecast of 1%.
"The impact of Sogo itself will not be so serious. It is a department store and it is not concentrated in one particular part of Japan. It is diversified. So the direct impact will not be so serious. The indirect impact may be more damaging, on psychology, through the stock market and through the banking sector, on the small and medium-sized banks which have not yet built up enough reserves for bad loans."
Other leading players of Japan Inc have also sought to downplay the damage from Sogo.
  Page 1 of 4  Next | Single Page