Expanding on two fronts and raising ¥60 billion in the market — interest-bearing debt past ¥100 billion (1994)

The question left by a pattern of expansion

Yaohan Japan’s expansion was an attempt to do two things at once: defend against the market change brought by the relaxation of the Large-Scale Retail Store Law, and fulfil a long-held ambition to go abroad. By raising the money through bonds rather than equity, the company ensured that the repayment date would not move even if earnings fell short of plan, and that the gap between investment and cash generation could only be filled with more borrowing. Larger domestic stores and overseas openings were each, in themselves, the road that retailers of the era competed to take, and Wada’s overseas strategy had foresight in it. What lay at the root of the failure, rather, was sustaining through market funding a pattern in which investment for growth ran permanently ahead of its recovery.

Meeting a sense of crisis by opening more stores was also a natural choice for a regional supermarket left exposed by deregulation. But as long as capital spending in excess of pre-depreciation profit is financed in the market, one deviation from plan feeds straight through to cash flow. Where should defence and expansion have been wound up and switched to a managed contraction? That question is not confined to Yaohan Japan; it remains a live issue for every retailer that competed on scale through the loosening and eventual abolition of the Large-Scale Retail Store Law.