Aeon Co., Ltd. Business Information, Profile, and History

Company Perspectives:

Customers prefer to shop at ÆON because they believe there is no better source for their daily necessities that so thoroughly addresses very real concerns for product reliability and food safety. Our private-brand TOPVALU products are carefully selected with all of these customer needs in mind, to support a healthy, worry-free and enjoyable lifestyle. The brand encompasses 2,400 products in the food, clothing, recreational, housewares and home-furnishing sectors. For nearly 10 years, ÆON has worked to bring the full force of its buying power and cost efficiency to TOPVALU products so as to deliver consistently low prices at an unswervingly high level of quality.

History of Aeon Co., Ltd.

Formerly known as JUSCO AEON Co., Ltd. is the largest retailer in Japan. Through ownership, joint ventures, and investments, AEON controls approximately 4,000 stores worldwide. Under the AEON corporate umbrella are 460 JUSCO superstores, 2,600 Mini Stop convenience stores, 665 supermarket stores, and 1,900 AEON Welcia drug stores. The company owns 60 percent of the women's apparel chain The Talbot and owns all of the U.K.-based apparel chain Laura Ashley.

Origins

The first self-service stores in Japan opened in the 1950s, and the sector grew rapidly despite the hostility of small shopkeepers. Early supermarkets operated on a local rather than a national scale, however, and were ill-equipped to withstand recessions. Many went out of business during the recession of 1964-65, and consequently the late 1960s was a period of consolidation among the survivors, many of which decided to form alliances or merge. It was against this background that JUSCO was formed in 1969 through the business tie-up of three companies--Okadaya, Futagi, and Shiro--in the Chubu and Kansai areas.

Okadaya Co., Ltd. had the longest pedigree of the three, having been founded in 1758. Until World War II, it was a store trading in clothing, including kimonos. After the war, it was restarted by Takuya Okada in a single building built on a devastated site and staffed by five employees. It grew into a chain of 14 department stores in the Mie prefecture but was still very much a regional enterprise in the late 1960s, when Okada, in the light of his observations in both Japan and the United States, decided that, for chain stores, size was becoming a critical issue. Larger chains, he realized, could achieve vital economies of scale in both buying and selling, as well as greater administrative efficiency.

Takuya Okada first broached the subject of a merger to Kazuichi Futagi, the president of Futagi Co., Ltd. This company had been established in 1937 as a clothing store. After the store was destroyed in the war, its proprietor reopened for business in 1945 with a stock of second-hand clothes. So successful was Futagi in rebuilding his business that by 1968, when the foundation of JUSCO was conceived, he had a chain of 26 stores in the Hyogo prefecture.

Shiro Co., Ltd, was a relative newcomer, a chain of 15 stores in the Osaka prefecture dating back to 1955. Its head, Jiro Inoue, learned of the proposed merger between Okadaya and Futagi and let it be known that he, too, would like to participate.

Headquarters for the new company was set up in February 1969, with capital of ¥150 million provided by the three participants in three equal parts. The actual merger was to follow slightly later, in 1970. The infant company was given the name Japan United Stores Company--soon abbreviated to JUSCO, which became the official name. Futagi was to be chairman and Okada president.

Shortly after the establishment of JUSCO, the vice-president designate, Inoue, died at the age of 41. Inoue's firm of Shiro was heavily indebted, so in the first instance only Okadaya and Futagi merged, keeping Shiro as a separate company called Keihan JUSCO. Okada used Okadaya's profits to help put Keihan JUSCO back on its feet, and it became part of JUSCO proper a few years later.

The foundation of JUSCO coincided with a retail boom, but that did not mean the climate was entirely hospitable to the new enterprise. Along with the economic effects of the oil crises of the 1970s, the company had to contend with stringent building restrictions. In 1973, the persistent lobbying of smaller retailers culminated in the enactment of the Large-Scale Retail Law by the Japanese National Assembly. As a result of the law, further strengthened in the late 1970s, the development of new supermarkets, especially those with floor areas of more than 500 square meters, was made subject to a lengthy planning application process that some said amounted to a veto by the smaller retailers. This legislation naturally put a damper on the internal growth of a company like JUSCO, which nonetheless continued to construct new stores and saw expansion by acquisition the natural course to take.

Throughout the 1970s, more and more local chains came under the JUSCO umbrella. The company acquired a reputation for harmonious cooperation with local businesses and communities, as Takuya Odaka illustrates in his memoirs with the story of the Ezuriko PAL Shopping Center. The citizens of Ezuriko, he recounts, actually sent a deputation to JUSCO's head office to ask for help in constructing a new shopping center.

The internationalization of JUSCO began during the 1970s, particularly with respect to the development of overseas buying operations. In 1973, JUSCO established the Miwon Fishery Co., Ltd., in South Korea, jointly with the local Miwon Co., Ltd. The following year saw the opening of agricultural ventures in Australia and Brazil.

There was a general trend during the 1970s for Japanese retailers to import. To gain leverage, JUSCO's largest competitor, Daiei, formed a buying group with 150 other companies for collective purchasing of overseas merchandise. In 1979, JUSCO, together with other leading retailers, formed a similar retail consortium, the Allied Import Company (AIC). In 1981, AIC would gain exclusive distribution rights in Japan over the products of the world's largest supermarket chain, Safeway of the United States.

In 1980, JUSCO's own-label products, known as White Brand, were launched. White Brand denoted a basic but high-quality product sold in plain packaging at the lowest possible price.

Expansion and Diversification in the 1980s

The 1980s were a period of rapid growth for chain stores. JUSCO was in the forefront of this movement and was usually ranked fourth among the supermarket chains in terms of turnover and second in profitability. Many of JUSCO's acquisitions were allowed to retain their identity as regional chains rather than being absorbed by the parent company. This afforded JUSCO a number of advantages, including cheaper advertising in local media and better levels of cooperation with suppliers.

Increasingly during the 1980s, JUSCO's strategy extended beyond the pursuit of market share in the supermarket sector. The company sought to compensate for government restrictions on the opening of new supermarkets and to cater to an ever more sophisticated Japanese consumer via diversification. It spawned an imaginative range of retail outlets, such as Nihon Direct, a mail-order business; discount store Big Barn; Blue Grass shops for teenagers; and Nishiki, a kimono store. There were also Autorama Life, a car sales company started in 1982, and JUSCO Car Life, which opened five years later to provide automobile maintenance services.

Another JUSCO venture, Mini Stop, was a chain of convenience stores providing not only 24-hour neighborhood shopping facilities but also fast food and some financial services for public utility charges. Appealing particularly to Japan's growing body of working women, Mini Stop, founded in 1980, had 340 stores by 1990.

JUSCO was also beginning to develop a variety of restaurant and fast-food operations to enable it to profit from the growing popularity of eating out in Japan. The first of the Gourmet D'Or Co., Ltd. restaurants, which were to form the company's most important chain, began appearing in 1979 and were originally known as Coq D'Or JUSCO Co., Ltd. These were Japanese-style family restaurants that catered to travelers and shoppers alike.

The 1980s also saw the continued expansion of JUSCO's overseas business. In 1988, the Financial Times called it "one of Japan's most internationally-minded retailers." It opened outlets in various parts of Southeast Asia, formed joint ventures with overseas companies to trade both in Japan and elsewhere, and systematically developed foreign lines of supply. It also raised capital abroad, issuing its first Eurobonds in 1976.

JUSCO had opened its first overseas store in Malaysia in 1985. This was operated by Jaya JUSCO Stores SDN. BHD., a company originally jointly owned with Cold Storage (Malaysia) and three other local companies. It was the first time that a Japanese company had entered into a significant joint venture in the Malaysian retail industry. JUSCO assumed operational control of Jaya JUSCO in 1988.

Since the latter part of the 1980s, JUSCO's retail operations in Asia have grown to include another Malaysian superstore, four in Hong Kong--including Hong Kong's biggest store, opened in the Kornhill Complex in 1987--and five in Thailand. In 1990, a chain of Mini Stop convenience stores was launched in South Korea under an agreement with the Korean Miwon Group.

One of JUSCO's best-known European joint ventures formed during the 1980s was its partnership with British fashion manufacturer and retailer Laura Ashley. Laura Ashley was Japan's first store opened in Tokyo's Ginza district in 1986. The appeal of the brand's "traditionally English" style to Japanese consumers was so strong that by the end of 1990 there were 36 shops, two-thirds of them existing within department stores such as Mitsukoshi, and there were plans to open a further 11 stores in 1991. During 1990, JUSCO increased its share in Laura Ashley Japan from 50 percent to 60 percent, giving it overall control, and also announced the purchase of a 15 percent stake in Laura Ashley UK for £29.9 million, a deal that rescued the British company from a heavily indebted state.

In the United States, JUSCO had made an important acquisition in 1988. The Talbots Inc. was a chain of fashion stores belonging to General Mills Inc., a Minneapolis-based corporation that had decided to focus on its core business in the food industry. JUSCO's purchase of The Talbots for $325 million was the first noteworthy foray by any Japanese firm into the U.S. retail business. JUSCO made a point of leaving the existing management in place and said that it hoped to apply the retailing expertise of its new subsidiary to its domestic operations. The chain grew rapidly in the United States after the takeover. The Talbots stores were also introduced in Japan: the first six establishments opened in 1990, against a five-year plan to open 50. JUSCO and General Mills's relationship predated the Talbot deal. Since 1982, they had been running a joint venture in Japan that proved to be one of JUSCO's most popular catering operations.

In 1990, a wholly owned JUSCO subsidiary, the AEON Forest Co. Ltd., was created to become head franchisee within Japan of The Body Shop. This U.K. company specializing in "environmentally friendly" toiletries was an ideal partner for JUSCO, which was increasingly seeking to be seen as a "green" enterprise. Japanese consumers had been becoming increasingly environmentally aware during the late 1980s, and the popularity of the first Body Shop in Tokyo solidified JUSCO's plan to open 50 stores in five years.

JUSCO was not just jumping on a "green" bandwagon. Co-founder Takuya Okada had always been interested in conservation and had encouraged a range of conservation projects such as tree-planting. The "JUSCO: in tune with the Earth" conservation project was launched shortly after the Body Shop tie-up, and JUSCO would soon begin experimenting with recycling of packaging in its own stores.

Throughout the 1980s, JUSCO was expanding its buying activities in the so-called Newly Industrializing Economies (NIEs), following a "develop and import" strategy whereby JUSCO would establish links with NIE companies--for example, City Knitting, a knitwear manufacturer in India, in 1988--with the aim of developing products suitable for the quality-sensitive Japanese consumer.

In 1987, The Economist noted that although 15 years earlier the top Japanese retailers had been department stores, the five biggest were now supermarket chains, with JUSCO in fourth place. The writer attributed the supermarkets' success in large part to their rapid adoption of information technology. For JUSCO, the second half of the 1980s in particular saw a sustained drive to harness the power of information technology to all aspects of the business. TOMM (Total On-Line Merchandising and Management) was an in-store system implemented in 1986 as part of a corporate information system due to be completed in 1989.

Jusco made great progress in the area of Point of Sale (POS) systems. POS systems automate the management of inventory, making it possible to fine-tune the reordering process and minimize the amount of money tied up in stock. POS also allows detailed analysis of turnover at each outlet, so that stocking policy can be attuned to local tastes. JUSCO had Fashion POS installed at all its outlets by 1990 and showed a marked improvement in turnover rates and profitability as a result. It was rapidly extending POS coverage to non-fashion lines.

On its 20th birthday in 1989, the JUSCO group adopted a new corporate identity. The parent company is still called JUSCO, and the directly owned superstores continue to bear that name; the group is collectively known as the AEON Group.

In the late 1980s, the group was becoming increasingly eager to propagate its image of a socially responsible "corporate citizen" on a global level. The AEON Group 1% Club was one manifestation of this concern. Formed in 1989, the Club collected 1 percent of the pretax profits of 31 member companies and used these funds to promote cultural activities and exchanges. In 1990, the club funded an expedition to Japan for a group of "young ambassadors" from Malaysia. In 1991, Takuya Okada--who was chairman and chief executive officer, having been succeeded by Hidenori Futagi as president in 1984--visited London at the time of the Japan Festival to promote a similar scheme for 30 U.K. high-school students.

In 1991, the group created its Environmental Foundation to sponsor academic research on conservation issues as well as such practical work as reforestation in Thailand. Group employees were also being encouraged to undertake environmental work in their local communities through a "Clean and Green" campaign.

Benefiting from Deregulation in the 1990s

In the early 1990s, the Japanese retail sector was being deregulated, partly in response to U.S. pressure to lower the barriers to entry that faced would-be overseas entrants. Legislation such as the Large Scale Retail Law was beginning to be relaxed under the Structural Impediments Initiative. As a consequence of the liberalization, the AEON group was likely to have a freer rein in opening new large outlets, as well as in expanding its discount-store activities.

Superstores, however, were becoming less central to the group's plans, since its research found, according to a 1991 company report, that "Japanese consumers, with more time and money than ever to spend on shopping, are starting to view the generalized superstore as inadequate." In response, AEON established what it calls "new retail formats with specific consumer targets and product categories," such as its FORUS fashion centers aimed at the youth market.

AEON also expects that it will increasingly become a developer of shopping centers containing a variety of specialized retail outlets under a single roof. AEON's NOA shopping center was one of the earliest centers of this kind. In 1991, its main development arm, AEON Kosan Co., Ltd., was engaged in the construction of another center. Another development company, Diamond City Co., Ltd., had been started as a joint venture with Mitsubishi Corporation in the year of JUSCO's founding; it, too, was expected to receive a new lease of life after the deregulation. As a retailer, AEON was retooling its specialty chains and restaurants with an eye toward their inclusion in the envisaged large-scale shopping complexes.

Other candidates for inclusion in the complexes include AEON's remarkably wide range of service companies. Nihon Credit Service Co., Ltd. was set up in 1981 to issue credit cards and provide other financial services, including automated teller machines, and insurance. In 1990, it began to operate in Hong Kong as well as Japan. AEON also has a marriage bureau, a travel agency, a tailoring service, and a series of sports and leisure centers.

Interviewed by the Financial Times in October 1991, chairman Takuya Okada said, "Now Japanese retailing companies have the opportunity to grow very significantly because the government's policies have shifted from encouraging manufacturing to encouraging consumer activities. I believe that the changes in retailing in the next 20 to 30 years will be far greater than those in the past 20 to 30 years."

AEON in the 21st Century

As Takuya Okada predicted, the Japanese retail industry did undergo significant change, but the forces of change arrived earlier than he anticipated. By the end of the 1990s, Japanese retailers faced competitive pressures that they never had to face before. Legislation that barred foreign retailers from entering the Japanese market no longer offered such protection. Foreign competitors such as France-based Carrefour and U.S.-based Wal-Mart Stores began building a presence in Japan, presenting Japanese retailers with a formidable new threat. The threat was met by Okada's son, Motoya Okada, who succeeded his father as president in 1997. The response to the incursion of foreign competitors was aggressive expansion, a plan of action the younger Okada pursued with zeal.

Okada, who earned his MBA at Babson College in Massachusetts, employed a strategy used by his father, one that was uncommon in Japan's retail sector. In 1997, Takuya Okada purchased a financially moribund supermarket company named Yaohan, a purchase that netted the AEON group 36 stores. At the time, Japanese retailers were not known to acquire failing or failed companies, but Motoya Okada followed his father's lead and began increasing the size of the company through the purchase of troubled retailers. AEON, which became the official name of the company in 2001, ranked as the fourth-largest retailer in Japan during the late 1980s. By 2000, the company had risen to the industry's number-two position. In December 2003, after acquiring the financially ailing Mycal Ltd., a combination that gave AEON a total of 1,053 supermarket stores, the company became the largest retailer in Japan, passing Ito-Yokado Co. in the sales rankings.

Through numerous acquisitions and internal expansion, AEON's progress from the number-four position to market dominance was achieved. However, Motoya Okada's ambitions did not end there. The AEON leader intended to make the company one of the ten largest retail concerns in the world by 2010, an objective that promised a slew of acquisitions, mergers, and joint venture partnerships in the coming years. At the start of the 21st century, AEON comprised a collection of companies that together represented considerable financial might. In the future, the company appeared likely to aggrandize its massive stature and rank as one of premier retailers in the world.

Principal Subsidiaries: AEON Stores (Hong Kong) Co., Ltd.; Mycalkyushu Corporation; Guangdong JUSCO Teem Stores Co., Ltd.; Taiwan AEON Stores Co., Ltd.; AEON Kyushu Co., Ltd.; Ryukyu JUSCO Co., Ltd.; Posful Corporation; Qingdao AEON Dongtai Co., Ltd.; AEON Co. (M) Bhd.; MYCAL Corporation; SIAM Jusco Co., Ltd.; Shenzhen AEON Friendship Co., Ltd.; Maxvalu Hokkaido Co., Ltd.; Maxvalu Nishinihon Co., Ltd.; Kasumi Co., Ltd.; Maxvalu Tohoku Co., Ltd.; Maxvalu Tokai Co., Ltd.; Maxvalu Chubu Co., Ltd.; Maxvalu Kyushu Co., Ltd.; Ministop Co., Ltd.; Bon Belta Isejin Co., Ltd.; Bon Belta Co., Ltd.; Tachibana Department Store Co., Ltd.; The Talbots, Inc.; Talbots Japan Co., Ltd.; Mega Sports Co., Ltd.; Abilities JUSCO Co., Ltd. Mega Petro Co., Ltd.; Blue Grass Co., Ltd.; Laura Ashley Japan Co., Ltd.; Claire's Nippon Co., Ltd.; Book Bahn Co., Ltd.; Cox Co., Ltd.; AEON Forest Co., Ltd.; Nustep Co., Ltd.; Petcity Co., Ltd.; Kraft Inc.; Medical Ikkou Co., Ltd.; IINO Co., Ltd.; CFS Corporation; Takiya Co., Ltd.; Green cross-Coa Co., Ltd.; Welpark Co., Ltd.; AEON Mall Co., Ltd.; LOC Development Co., Ltd.; Diamond City Co., Ltd.; Diamond Family Co., Ltd.; AEON Credit Service Co., Ltd.; AEON Credit Service (Asia) Co., Ltd.; AEON Credit Service (Taiwan) Co., Ltd.; AEON Thana Sinsap (Thailand) plc.; AEON Credit Card (Taiwan) Co., Ltd.; AEON Fantasy Co., Ltd.; Zwei Co., Ltd.; Quality Control Center Co., Ltd.; Jusvel Co., Ltd.; AEON Techno Service Co., Ltd.; Reform Studio Co., Ltd.; AEON Cinemas Co., Ltd.; Gourmet D'Or., Ltd.; MYCAL-IST, Inc.; Certo Corporation; Tasmania Feedlot Pty. Ltd.; Food Supply JUSCO Co., Ltd.; Aic, Inc.; AEON Visty Co., Ltd.

Principal Divisions: General Merchandise Stores; Supermarkets; Convenience Stores; Department Stores; Specialty Stores; Drug Stores; SC Development Operations; Financial Services; Food Services; Food Processing, Distribution, and Other Operations; E-Commerce Business.

Principal Competitors: The Daiei, Inc.; Isetan Company Ltd.; The Seiyu, Ltd.

Chronology

• Key Dates:
• 1758: The earliest predecessor to AEON, Okadaya Co., Ltd., begins trading in kimono fabrics and accessories.
• 1937: Futagi Co., Ltd. is formed.
• 1955: Shiro Co., Ltd. is formed
• 1969: To benefit from economies of scale, JUSCO is formed as a joint purchasing organization through a partnership agreement among Okadaya Co., Ltd., Futagi Co., Ltd., and Shiro Co., Ltd.
• 1980: JUSCO opens its first Mini Stop shop.
• 1985: The first overseas store, located in Malaysia, is opened.
• 1986: Laura Ashley Japan, a joint venture with U.K.-based Laura Ashley, is formed.
• 1988: JUSCO acquires Talbots Inc., a U.S.-based chain of fashion stores.
• 1994: JUSCO acquires Claire's Stores, the largest chain of fashion accessories stores in the United States.
• 1995: JUSCO acquires a stake in the U.S.-based sports-apparel chain The Sports Authority.
• 2001: JUSCO officially changes its name to AEON Co., Ltd.
• 2003: The acquisition of Mycal Ltd. makes AEON the largest retailer in Japan.