Marui Company Ltd.

4-3-2 Nakano
Nakano-ku
Tokyo 164-8701
Japan
Telephone: (+03) 3384 0101
Fax: (+03) 5343 6640
Web site: http://www.0101.co.jp

Public Company
Incorporated: 1937
Employees: 10,517
Sales: ¥558.8 billion ($4.69 billion) (2003)
Stock Exchanges: Tokyo
Ticker Symbol: 8252
NAIC: 452110 Department Stores

Marui Company Ltd. is one of the largest department store chains in Japan, operating stores near major railroad stations in Tokyo. The chain's customers are predominantly fashion-conscious women and wealthy young Japanese in their late teens to early 30s. The company's stores sell a wide variety of merchandise, ranging from men's and women's apparel and accessories to furniture. Marui pioneered the use of credit shopping in Japan, and its store credit card is used by millions. During 2003, the company acquired full ownership of Virgin Megastores Japan and opened the first Marui department store in the Kansai region.

Origins

Marui's history dates back to 1931, when founder Chuji Aoi opened a store selling household utensils and furniture in the downtown Tokyo district of Nakano. Aoi was an energetic young retailer who saw a market opportunity and acted on it. Born in Toyama prefecture on the west coast of Japan in 1904, he graduated from the Takaoka Technological High School at the age of 18 and joined a Tokyo trading and retailing company, Maruni. The company was part of Zenshiro Tasaka's Maruzen group which, as a retailing chain, still existed in the early 1990s. The stores within the group were the first in Japan to allow customers to buy goods on monthly installment plans. Tasaka had pioneered credit sales in Japan on the southern island of Kyushu in 1895 by selling lacquerware to customers on monthly installment plans. Chuji Aoi stayed with Maruni in Tokyo for nine years. Using savings and borrowed money, he then used his credit retailing experience to open his own store. The time seemed right for such an operation. The Tokyo region had been devastated in 1923 in the Great Kanto Earthquake. Although the city had largely been rebuilt, there was a high demand for furniture, and the prospect of credit sales was attractive to customers. The store was initially called Maruni, reflecting the initial capital provided by his old company. Aoi's venture flourished, and he increased his stock range to include clothes, shoes, electrical goods, and suitcases. By 1935, he had opened another store in nearby Asagaya. At the same time, the company name changed to Marui. In 1936, the business had expanded to such an extent that an adjacent building was acquired and the entire Nakano store renovated. The following year, in order to open a third store in the Tokyo district of Shimokitazawa, Aoi sold part of his share in the stores and formed Marui Co., Ltd., raising ¥50,000.

Postwar Growth

By 1939, Aoi had opened two more Marui stores in Tokyo. Although Japan's wartime economy boomed, it was not geared toward consumers. During the period 1941 to 1946, all Marui stores ceased business and were destroyed in the subsequent saturation bombing of Tokyo by the Allies. In August 1946, however, Aoi began selling furniture from the site of his old Nakano store. He was in effect starting again, and by 1947 he had rebuilt and reopened the store, with 1,190 square meters of sales space. Aoi had raised ¥200,000 in capital. Furniture was in high demand again in postwar Japan and the store flourished. By 1950, the number of stores had risen to five, and in that year four high school graduates joined the company as management trainees. The monthly payment schemes being offered by the company to customers were used to advertise Marui and differentiate it from its competitors. In 1951, many new products were stocked, such as baby clothes and bedding. A fleet of trucks was purchased for supplying and distributing goods to the stores, which by 1952 numbered eight. The first neon sign appeared over Marui's Shinjuku store in this year. In 1953, Japan's economic recovery began. Marui began advertising on the radio and selling gift vouchers that were valid in all eight stores. The company had become a chain with annual sales of more than ¥1 billion and 260 employees who had their own union. In 1955, customers were offered a ten-month payment scheme for selected goods. Opening hours were extended by instituting a shift system among the women counter sales staff—men counter staff did not participate.

Tadao Aoi, the son of the founder, joined the company in 1956 and was anxious to observe how credit sales chains operated in the United States. In 1957, he went on an inspection tour to look for new ideas. In 1959, Marui Advertising—now AIM Create Co., Ltd.—was formed to attend to the company's promotional needs. In the same year, Aoi established Maruishinpan to provide credit services to consumers. The following year saw the issue of the first Marui credit card and the establishment of Marui Transport—now Moving Co., Ltd.—which provided house-moving services.

The year 1961 was the 30th anniversary of the opening of Aoi's first store. There were by then 18 branches around Tokyo and sales totaled ¥5.7 billion. In 1962, the largest Marui branch was established by the renovation of the Shinjuku store. More than 2,000 square meters were added to the site, and the nine-story structure became one of the largest stores in the installment retail industry. The early 1960s marked a consumer boom in Japan and a time of expansion for Marui. In the period 1960 to 1967, sales floor space trebled to 35,000 square meters. A listing of Marui on the Tokyo Stock Exchange followed in 1963. In 1965, Aoi's son Tadao Aoi was promoted to vice-president in preparation for his eventual succession to the helm of Marui. The year 1966 was important for Marui as the company implemented its "scrap and build" policy of redeveloping its sites into large-scale stores that were cost-efficient and comfortable for customers. Most stores were affected.

Major capital investments were made in the operation of the stores with the introduction of an IBM 360 mainframe computer to handle the company's accounts and customers. To organize Marui's work force of 2,900, training schemes were introduced primarily for sales staff. By 1969, Japan had the second-largest gross national product in the world. A key part of this success lay in the high percentage of earnings that the average Japanese saved. The Japanese consumer at the time did not generally buy on credit. Marui's slogan at the time, "Play now, pay later," seemed to contradict this trend, but Marui provided for the young and not so cautious consumer who expected to be fairly well off in the near future. In 1971, the Marui Computer Centre was founded to centralize computer operations. Real estate and travel services began to be sold through Marui stores. An overseas trade department was set up within the company to handle imports of goods.

Success Continues in the 1970s and 1980s

An organizational change occurred in the company in 1972, with Chuji Aoi becoming chairman, allowing his son Tadao to take over the running of Marui as president. Tadao's brother Chuzaburo remained on the board of directors. In a 1974 cover story on world leaders, Time magazine featured Tadao Aoi along with the crown prince of Japan as representative of the country's rising leaders. In 1975, the Red Card, a house credit card, was offered to all Marui customers. The new cards had an initial interest rate charge of 9 percent, substantially higher than base rates, but the difficulty in arranging small consumer loans in Japan at the time attracted customers to Marui. In 1974, the company introduced on a trial basis a point-of-sales computer system to monitor transactions. The system was installed in all stores in 1977, linking them together and speeding up transaction time. This system greatly increased the number of Marui card holders. During this time, the number of Marui stores remained constant at 33, while the floor space was increased annually to reach 183,000 square meters in 1978. Constant renovation and the opening of specialty stores within existing stores accounted for the increase. Marui began to advertise its Red Card heavily and this, as well as the card's innovative nature, accounted for its success. The television and press advertisements were aimed primarily at the youth market and often won awards for their wit and originality. By the end of 1980, the number of card holders had reached four million. In the following year, Marui began offering consumer loans in the form of cash-dispensing services to customers.

At the company's 50th anniversary in 1981, it had annual sales of ¥260 billion and almost 7,000 employees. The company had by now developed expertise in the development of retail and credit control software. In 1984, Marui established the company M&C Systems to sell this knowledge to other retailers. Card holders could now withdraw money from all branches of Marui. Within a year, this feature had increased the number of holders to six million. Branches of Marui also had online information on exchange rates and other financial indicators.

Key Dates:

1931:: Chuji Aoi opens a store in the downtown Tokyo district of Nakano.
1937:: In order to expand, Aoi sells part of his shares in the stores and forms Marui Co. Ltd.
1947:: Aoi rebuilds his Nakano store and reopens for business.
1959:: The predecessor to advertising subsidiary AIM Create Co. Ltd. is established.
1960:: The first Marui credit card is issued.
1975:: The Red Card is launched.
1984:: M&C Systems is established.
1990:: Virgin Megastores Japan is created as a joint-venture.
2003:: Marui acquires full ownership of Virgin Megastores Japan.

In 1985, a new management division was added to the company to cope with the expanding work force. On the retail side, Marui continued the policy of expansion within existing sites and the opening of specialty boutiques within the stores. This strategy continued to be successful. By 1988, the combined membership figure for all card holders exceeded ten million. In 1990, Marui formed a joint venture with Richard Branson's Virgin Group in the United Kingdom in the establishment of Virgin Megastores Japan. The ownership of the company was split equally between Virgin and Marui, and the pilot plan was the opening of a small version of Virgin's UK megastores in Marui's Shinjuku branch. The deal gave Marui excellent international publicity and increased its prestige among young Japanese consumers. For Virgin, it provided a foothold in the lucrative Japanese retail market while avoiding the excessive costs of renting or buying prime floor space in Tokyo.

Financially, Marui continued to grow steadily, increasing profits even in the wake of Japan's market crash in fiscal year 1990. During this time period, Marui had 464 cash-dispensing machines in operation, 69 of them outside Marui stores. Recently established service centers, separate from the stores, offered a wide range of financial services. The policy of developing specialty boutiques, such as the "In The Room" store in the Shibuya branch of Marui, was successful. In 1991, the company continued its slow but steady opening of new stores and set its sights on expand to the residential areas around Tokyo and possibly Osaka.

Overcoming Problems in the 1990s and Beyond

Tadao Aoi remained at the helm of Marui during the 1990s and into the early years of the new century. His leadership skills were put to the test, however, when Japan's economy bottomed out in the early 1990s. Consumer spending slowed and sales began to dwindle. Sure enough, the company reported a fall in pretax profits in fiscal 1992—the first time profits had dropped off since it went public in 1963. Sales and profits continued to wane as many customers spent their dollars at discount stores, leaving Japan's department stores in a pinch.

Marui and its peers faced yet another challenge in April 1997 when Japan raised its consumption tax from 3 percent to 5 percent. This tax increase, along with the crisis in Asia's financial sector, further weakened consumer confidence. Tadao Aoi commented on industry conditions in a 1997 Nikkei Weekly article, claiming, "I don't think consumer spending will pick up for some time. The situation will be even harsher next year than this year because the Japanese economy has several structural problems that it must address. It will take time for financial institutions to resolve the bad load problem and for the government to put its fiscal house in order."

Indeed, the dilemmas facing Japan's retail sector continued into the new century. Marui, however, was undeterred. The company set a strict strategy in place and continued to restructure certain business operations in an attempt to shore up sales. It fared better than many of its competitors, securing an increase in revenues during fiscal 2001 along with a significant jump in net profit, which rose by 78.9 percent over the previous year.

As part of its plan to penetrate new markets, Marui opened its first store in the Kansai region in 2003. The six-floor Kobe store featured 7,000 meters of floor space and included over 70 different retail vendors. The company announced that it planned to open a new store in Osaka as well. The location was slated to open in autumn 2006. Marui also acquired the remaining shares of its Virgin Megastores joint venture in 2003.

Along with its slow expansion plans, Marui also streamlined certain operations. It began to shut down its consumer electronics and home appliances departments in 2003 after they failed to meet profit expectations. The firm also announced that it would transfer a significant portion of its employees to specific subsidiaries. Overall, job count at company headquarters would fall to about 300 management-level employees, while approximately 5,500 personnel would be moved to 11 different subsidiaries. Seven hundred Marui employees opted for an early retirement package. The restructuring was designed to elevate customer service by allowing employees to specialize in one particular business area.

By November 2002, Japan's consumer price index had declined for 38 consecutive months. In a January 2003 Nikkei Weekly article, an analyst from UBS Warburg Japan Ltd. claimed, "For the first time in a decade or so, both income and consumer sentiment are simultaneously declining. We expect sales of luxury and durable goods to decline, which will negatively impact segments of the sector, such as department stores and discount electronic retailers." This news did not bode well for Marui; however, the company remained optimistic about its future. While its growth remained dependent on a turnaround in the Japanese economy, Marui had proved in recent years that it could overcome the problems brought on by sluggish sales and weak consumer spending.

Principal Subsidiaries

AIM Create Co Ltd.; Moving Co Ltd.; M&C Systems Co Ltd.; CSC Service Co Ltd.; Zero First Co Ltd.

Principal Competitors

The Daimaru Inc.; Seibu Department Stores Ltd.; Takashimaya Company Ltd.; Mitsukoshi Ltd.

Marui Company Ltd

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