Furniture billionaire weighs buying way into Japan apparel

[TOKYO] Nitori Holdings Co is considering buying an apparel chain in Japan, a move that would pit the furniture seller against rivals including Fast Retailing Co, Asia's largest clothier.

The home furnishing retailer would look for a company with 100 to 200 stores as cash from operations has been increasing by as much as 30 billion yen (S$374.2 million) a year, Nitori CEO Akio Nitori, 72, said in an interview Wednesday. Nothing specific has been decided, he said.

"If we're going to get into apparel, M&A's probably the best way to do it," said Mr Nitori, wearing a pink necktie and gray jacket. "There isn't enough choice now for shoppers. If you go to a shopping centre, it's all clothes for young people and not a lot for the middle-aged at a reasonable price."

Mr Nitori is contemplating a bet on clothing for older shoppers in a country where people over 60-years-old make up about a third of the population while accounting for almost half of consumer spending. Even as Japan's population has declined and aged, the home furnishings chain has increased profit for 29 years straight. Analysts estimate net income will jump 21 per cent in the fiscal year ending next month, the fastest growth since 2011.

Nitori shares fell as much as 1.5 per cent Friday in Tokyo. That's the biggest intraday decrease in about two weeks and compared with a 0.9 per cent gain in the benchmark Topix index. The company's stock has gained 27 per cent in the past year.

Steady profit increases have also helped Nitori stockpile cash. Net cash more than doubled to 36 billion yen in the year ended Feb. 20, 2016, while analysts estimate the figure will jump to 56.5 billion yen for the 12 months ending February, according to data compiled by Bloomberg.

The company's performance has also helped its CEO amass a fortune worth an estimated US$3 billion, according to the Bloomberg Billionaires Index. That compares with Fast Retailing chairman Tadashi Yanai's US$16.6 billion net worth, according to the index.

Still, a push into the competitive retail clothing market may be risky in an economy where stagnant wages have left consumers less eager to spend.

"It's hard to imagine Nitori entering the apparel business with fashion or street wear," said Masafumi Shoda, a Tokyo-based analyst at Nomura Securities Co. Casual home wear and accessories like aprons "may match with the home fashion business that Nitori is trying to grow," he added.

Nitori has weighed diversification moves before that didn't pan out. The chairman said he had previously considered acquisitions in the hotel business, then decided against it.

Nitori opened its first furniture store in 1967 in the northern Japanese island of Hokkaido, and initially focused on selling in suburban areas. In recent years, it's been establishing stores in the middle of the nation's biggest cities including one in Tokyo's Ginza shopping district and another in Nagoya city.

While clothing may provide a new avenue of growth for Nitori, the chairman's optimism can also be seen in his bullish on the outlook for its chain of about 430 stores as of last year. The goal is to operate 3,000 locations in 15 years' time, with 1,000 of those in China and another 1,000 elsewhere overseas, according to Nitori. The company targets sales of 3 trillion yen in 2032, well on the way to much bigger rival Ikea Group's global revenue in the year to August 2016, the equivalent of 4.3 trillion yen.

"Ikea's like a giant, from our point of view," said Mr Nitori. "But as long as we're in this business, we'd like to go abroad and make Ikea's numbers our goal."

BLOOMBERG