Parco - Company History

The company was not born as a retailer. In February 1953 Ikebukuro Station Building Co. was incorporated in Minami-Ikebukuro, Toshima-ku, Tokyo, for a narrow purpose: to refit and operate the east-side building of the national railway's Ikebukuro station. Within twenty months that purpose was gone. In October 1954 the Kyoto department store Marubutsu — founded in 1934 — took a capital stake and had the object of the business changed from running a station building to running a department store. The name followed in May 1957, to Tokyo Marubutsu, and in December of that year the store opened for trade.

It was the wrong decade to enter the business. Through the 1960s Japanese department stores competed by adding selling floor, and Tokyo Marubutsu had no answer to the expansion race. Ikebukuro was then a district with no connection to fashion, and Seibu Department Store stood next door. A 1963 listing on the registered-issue board of the Osaka district association of the securities dealers' association did nothing for trade, and the losses ran on.

By 1966, when Seibu Department Store bought the company, Tokyo Marubutsu carried an accumulated deficit of ¥1.8 billion and in some months lost ¥200 million. Seibu sent in Masuda Tsuji to rescue it. Masuda — born in Tokyo in 1926, a schoolmate of Seibu's Tsutsumi Seiji from middle school through the University of Tokyo, a former high-school social studies teacher who had joined Seibu Department Store in 1961 — looked at the business and concluded it was, in his word, dead.

Masuda's diagnosis was about the trade itself, not the store. "Rebuilding a retailer is hard," he said. "A manufacturer has plant, a trading house has capital — something decisive. In retail it is scattered across goods, service, the building; and even if you fix all of that, if the customer holds a bad image of the store there is nothing you can do." Too many variables, and the last one outside the company's hands. So he changed not the merchandise but the way money was earned. In June 1969 Tokyo Marubutsu closed its store; in November Parco Ikebukuro opened; in April 1970 the company took the name Parco. It had stopped buying and selling goods and become a developer and operator of fashion buildings, letting floor space to specialist tenants and collecting rent — "a total and thorough model change," in Masuda's phrase, which made the company, as he put it bluntly, a real-estate business.

The landlord's logic was literal. "Property sells for exactly what it is worth. Far from a station and it goes cheap; poor sunlight and you cannot charge high rent. Putting pretty flowers in the room does not enlarge the value." The trap he named was the belief that one more clever touch creates value regardless — the belief that puts shopping centres in bad locations. Parco therefore began each project from a hard appraisal of the site, and started from the assumption that the site was bad. Shibuya was the test: in June 1973 Parco Shibuya opened, with the Parco Theatre inside it, on a slope 900 metres from a station, in a district then rated below Shinjuku and Ginza, on a plot whose prospects were called hopeless. Masuda counted passers-by himself with a hand tally, set staff to studying the streets of ancient Rome, built a theatre, and turned the climb itself into the product with the slogan "shopping up the hill," while pushing power lines underground and widening pavements to make Koen-dori a street people would walk.

Advertising followed the same accounting: the budget was fixed at 3% of the combined sales of the tenants, split two-to-one between Parco and the tenants, and in fiscal 1975 the group of specialist shops spent about $4.7M (¥1bn) on it — enough to place Parco around 120th in a national ranking of advertisers. A department store or supermarket anchor pulls customers by itself; a collection of small shops with no anchor has to manufacture that pull, so the advertising becomes the anchor. The sociologist Ueno Chizuko later summarised the novelty as selling space instead of goods: Parco branded the box, took rent, ran the marketing for everyone at once, and added a theatre. Results followed — operating revenue rose from about ¥1.0 billion in the year to February 1972 past ¥4.0 billion by February 1976, tenant sales reached roughly ¥70 billion, and in the same year the company paid a dividend for the first time in thirteen years. The other side of the model showed in the balance sheet: deposits held from tenants reached $38.6M (¥11bn), over 70% of fixed liabilities, and borrowings climbed to $22.4M (¥7bn), flipping net interest into an outflow. Parco listed on the second section of the Tokyo Stock Exchange in January 1987 and moved to the first section in 1988 — the year an illegal payment to corporate racketeers by senior executives came to light. Masuda left the chairmanship in 1989 and never returned to business; Tsutsumi Seiji took the chair.

Openings continued without Masuda — Chofu and Nagoya in 1989, Hibarigaoka in 1993, Hiroshima in 1994, Utsunomiya in 1997 — alongside a house card in 1989, a Singapore subsidiary in 1991, and P'Parco in Ikebukuro in 1994. What did not continue was the scarcity of the format. Station buildings and department stores copied it until, as Ueno put it, being Parco-like was universal and Parco itself held neither differentiation nor added value. Within the Saison group, which by the late 1980s had become Japan's largest retail combine, Parco had been the maker of "Parco culture" and the centre of the group's image; that role was worth less once everyone had the same building.

In March 2000, after three straight years of falling revenue, Ito Isamu succeeded Yamada Masayoshi, who had run the company for twelve years. Ito re-examined the catchment and customer needs of all nineteen stores and pushed decision-making down to store managers, having found that slow head-office decisions were losing good tenants. He called 2000 the "second founding" and set a second earnings pillar beside the buildings: consulting, selling Parco's developer know-how to others, first delivered at JR Kyushu's Nagasaki station building in September 2000 with a target of 10% of operating profit by 2003. Governance was rebuilt too — a committee-based board structure from May 2003 — though an executive later observed that the listed Parco had caught the disease of large organisations and had stopped taking the risks it once did.

The decisive change was in the shareholder register. Saison broke up under the weight of its bubble-era property investment, and in 2001 the Parco shares held by Seibu Department Store and others passed to Mori Trust, which took about 20%. Mori Trust's chairman Mori Akira dated the relationship to that year: Parco could not refinance a maturing bond and asked him to take up new shares. He kept buying, to just over 33%, making Parco an equity-method affiliate. The operating business meanwhile stalled — consolidated revenue fell from ¥310.6 billion in the year to February 2002 to ¥257.6 billion by February 2005, recovered to ¥286.8 billion by February 2008, then slipped to ¥261.1 billion — even as ordinary profit rose from ¥7.1 billion to ¥10.0 billion over the same span. Revenue shrinking while profit improved is what a landlord's balance sheet looks like; it is also what makes a company look like an asset.

In January 2010 Mori Trust formally asked Parco to let it raise its stake to 49% through a third-party allotment. Parco's management was initially receptive, then reported in July that the board had not agreed. In August Parco signed a capital and business alliance with the Development Bank of Japan and issued about $170.9M (¥15bn) of convertible bonds — dilution of up to 18.7% on full conversion, arranged without telling the 33% shareholder who had rescued the 2001 refinancing. "Diluting us arbitrarily in that manner is not acceptable," Mori said. In February 2011 Aeon bought 12.31% from foreign funds and became the second-largest holder; after a summit with Mori Trust in March it hardened its terms to the resignation of president Hirano Shuichi, board seats including the chief executive, and eventual subsidiarisation. Mori Trust filed a shareholder proposal to replace the board and agreed to vote its shares together with Aeon — over 45% combined.

Parco fought publicly, Hirano arguing that Aeon's urban formats had no record of success, that integration would cut efficiency, and that scattering stores across provincial cities would dilute the brand. The settlement, in May 2011, was narrow: Hirano resigned, Mori Trust withdrew the proposal before the meeting, and Makiyama Kozo took over. The independence bought that way lasted a little over a year. Aeon agreed privately in January 2012 to buy 21% from Mori Trust, sounded Parco out the day before the decision, met opposition from management and tenants alike, and dropped it. In March 2012 J. Front Retailing — the owner of Daimaru and Matsuzakaya — took Mori Trust's 33% instead, and in August acquired control through a tender offer. The fit was in the gaps: J. Front was strong in Kansai and Nagoya among customers over forty, Parco held nineteen stations-side sites in places like Shibuya and Ikebukuro with young customers and roughly ¥9 billion of operating profit a year.

Under J. Front the earnings model was rebuilt around Zero Gate, a smaller format opened from 2013 in Shinsaibashi, Dotonbori, Hiroshima, Nagoya, Sapporo and Kyoto, in which Parco does no advertising or sales promotion as a rule, fixes the rent, and does nothing but let property — the opposite principle to the 1975 model that spent 3% of tenant sales to move customers. Consolidated ordinary profit rose from ¥10.3 billion in the year to February 2013 to ¥12.7 billion by February 2016. Accounting confirmed the shift: from the year to February 2018 Parco applied IFRS and stopped grossing up tenant sales as revenue, reporting rent as operating revenue instead — ¥93.8 billion, ¥91.6 billion and ¥90.0 billion for the three years to February 2019, against gross tenant turnover of ¥264.8 billion, ¥249.5 billion and ¥246.6 billion, which was slowly declining. A rebuilt Parco Shibuya reopened as a mixed-use complex in November 2019. Four months later, in March 2020, J. Front took Parco wholly private and the shares were delisted — thirty-three years after the 1987 listing, fifty-seven after the 1963 registration. Parco Shibuya's tenant turnover reached a record ¥43.9 billion in fiscal 2024, up 22%, with inbound visitors accounting for 41% of it, drawn largely by the official Pokémon, Nintendo and Capcom stores on the sixth floor.