NICHII CO., LTD. History

Company History:

Nichii Co., Ltd. is one of Japan's largest retailers. Although often described as a supermarket chain, Nichii has been in fact more like a low-price general retailer; in Japan, the designation "supermarket" applies to any self-service store that employs more than 50 people. The company in the early 1990s has shifted its strategy to opening large-scale stores with more upscale merchandise. The company operates more than 250 stores in Japan, offering a broad range of merchandise from food to clothing. Nichii stores in Kansai have even sold tombstones at one time. Nichii also operates a five-acre shopping mall just south of downtown Yokohama, around which it plans to develop a self-contained residential community.

Nichii was founded in 1963 when three clothing retailers and a wholesaler in the Kansai area merged. The timing of this amalgamation was fortuitous. At that time the Japanese government had not yet seen supermarkets as a threat to the small, family-run shops whose market share it had protected so strenuously over the years, so supermarket chains had no government restrictions to impede their expansion. Nichii grew by opening new stores and merging with other retailers throughout Japan, a strategy that proved successful. Supermarkets doubled their percentage of total retail sales in Japan during the 1970s, but Nichii's growth outstripped that of its peers. By 1983 it had become the fifth-largest retail chain in the nation.

In 1979, however, the government imposed restrictions on supermarket expansion. Chains would have to gain clearance from the Ministry of International Trade and Industry (MITI) and local officials before building new stores, and those officials would often protect the small merchants in their areas by refusing to grant the necessary construction permits. In 1983 a former Nichii employee was convicted of trying to bribe municipal officials on behalf of his former employers. As a result, MITI decided to suspend all of the company's applications to open new stores for three months. The scandal, although embarrassing to Nichii, was widely regarded as a symbol of industry-wide frustration over the restrictions on expansion.

This frustration, combined with a decrease in profits for most Japanese retailers in 1982, led Nichii to consider merging with Uny, the nation's sixth-largest supermarket chain. To both companies, it seemed like a chance to expand despite the constrictive control of the government, although Uny, which was slated to become the surviving company, was more sanguine about the prospect of amalgamation than Nichii. The proposed merger, however, fell through in March of 1983 and both remained independent.

In the mid-1980s Nichii began to emphasize imported goods in its merchandise lines and to target young adults as its primary customers. In 1986 it opened a representative office in London. The next year, it merged its import operations into a single subsidiary, Nichii International. Between 1986 and 1990 Nichii's purchases of imported goods rose from ¥2.3 billion to ¥100 billion. In 1988 it officially adopted the name MYCAL Group to cover the parent company and all its subsidiaries. MYCAL is an acronym formed from the English words mind, young, casual, amenities, and life; it was adapted from the company's slogan for its new, youth-oriented retailing strategy: "Amenities for the casual lifestyle of the young and young-minded."

In 1988 Nichii acquired a substantial minority interest in Nissan Construction for ¥16.9 billion in cash. It was an unusually large deal as Japanese corporate acquisitions go, but Nichii needed Nissan Construction for large projects including its MYCAL Honmoku project. MYCAL Honmoku is located on the site of a former 30-acre U. S. military installation in the Shinhonmoku area of Yokohama, and the 5-acre shopping mall that forms its heart opened in 1989. The mall features more than 200 general retailers and service businesses, 38 restaurants, a sports club, 2 movie theaters, and a theater for live entertainment that is run as a joint venture with Harlem's famous Apollo Theater.

MYCAL Honmoku helped Nichii ride the crest of a new wave of consumerism in Japan. Price competition from discounters and eased government restrictions on imports and retail expansion combined with a growing sense among the Japanese of their own prosperity. The result was a buying power that produced a consumer boom in the late 1980s. As Nichii President and CEO Toshimine Kobayashi put it, "Our economy and our society are making dramatic changes, and we in the retail industry are right in the middle of it."

Nichii smartly combined this new consumerism with the longtime Japanese fascination with U.S. popular culture to produce a retail strategy, and aggressively imported U.S. goods to implement it. In December of 1990 the company sponsored a U.S. sporting event, a post-season college football all-star game played in Yokohama and televised in the United States on cable. During the broadcast, it ran commercials targeted to U.S. companies that might be interested in exporting their products to Japan through Nichii. For Kobayashi, marketing U.S. imports is not just a matter of selling individual products, but of selling a whole way of living. As he told a U.S. journalist: "We want to import your lifestyle. Not just jogging shoes but also your jogging T-shirts, jogging drinks--the whole concept has to come, not just the products. We aspire to your pleasant way of life. We want to buy it, so come sell it to us."

Nichii's ultimate goal had been to sell imported goods at prices competitive with domestically produced merchandise. This would not be an easy task, considering the cost of transporting goods to Japan, as well as the effect of tariffs and import restrictions. As of late 1989, Nichii had succeeded only with the Motta brand Italian cookies and candy. In the case of U.S. meat products imported from Cincinnati-based packer John Morrell, Nichii was charging more than double what U.S. consumers would pay for the same merchandise. For the long term, it remained to be seen whether or not Nichii would succeed in this goal, as well as whether or not its commitment to real estate development would produce a good return. For the near future, however, it will probably continue to benefit from a trend that seems more likely to strengthen than to weaken.

Principal Subsidiaries: Kyushu Nichii Co., Ltd. (97%); Hokkaido Nichii Co., Ltd. (76%); Tohoku Nichii Co., Ltd.; Sunhoyu Co., Ltd. (68%); Hokuho Co., Ltd. (62%); SUNMELT Co., Ltd. (65%); Allied Shinshu Co., Ltd. (83%); Muroran Family Department Co., Ltd. (70%); Aki Nichii Co., Ltd. (80%); Nichii Yokosan Co., Ltd. (60%); Niigata Nichii Co., Ltd.; Hamada Family Department Co., Ltd. (65%); Edoya Family Department Co., Ltd. (75%); Nippon Allied Chain Co., Ltd. (60%); Nichii International Corp.; DAC City Co., Ltd. (93%); Elleme Co., Ltd. (51%); Friend Co., Ltd.; McLord Co., Ltd. (60%); Sporsium Co., Ltd.; Athlete's Foot Japan Co., Ltd.; Japan Maintenance Co., Ltd. (75%); People Co., Ltd. (83%); Calos Co., Ltd.; Cohms Co., Ltd.; Nichii Financial Service Co., Ltd. (93%); Nichii Credit Service Co., Ltd. (93%); Automacsales Co., Ltd.; MYCAL Tours Co., Ltd.; Travel Joy Co., Ltd.; Nippon Insurance Agency Co., Ltd.; Nichii Co., of America, Inc. (U.S.A. ) ; Nichii Enterprises Co., Ltd. (Hong Kong); Ibis Co., Ltd. (79%).

Further Reading:

• "Protection Racket," The Economist, February 26, 1983.
• Rapoport, Carla, "Ready, Set, Sell-Japan is Buying," Fortune, September 11, 1989.

Source: International Directory of Company Histories, Vol. 5. St. James Press, 1992.

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