The big one-stop store format, financed by borrowing (2015)

A design that buys scale with debt

The heart of this decision was that it converted the revenue model built by cross-selling in 2005 into scale, by way of the shift to large stores. Where cross-selling was a design about the quality of earnings — where to place the gross profit on a single car — the move to big stores from 2015 was a design about scale and finance: how far to extend the network, and how to fund it. Hirota Yasuharu paid for land and buildings with borrowing and accepted a falling equity ratio in order to put growth first. It can be read as a decision to raise financial leverage and buy scale with it.

Buying scale with debt is a powerful growth engine for as long as demand keeps rising. But a body carrying heavy fixed assets and interest-bearing debt can turn, if the market shifts, into a body carrying a burden. Whether a big-store format that bets on the desire to see the actual car can keep drawing the traffic and earnings that bet requires; and how the swollen borrowings and thinned equity are to be repaired in the course of growth — the move to large stores left the company the fruit of scale and, with it, a question about the soundness of its finances.