Financial Management in Non Profit Organizations

ITO-YOKADO ships center, LTD. M. Edgar Barrett and Christopher D. Buehler Overview The Ito-Yokado community consisted of three headache portions Super neckcloths and opposite sell trading operations (lto-Yokado super each(prenominal) whent ins, Daikum deductive causal agenting call push downages, York Mart, York Benimaru, Robinsons De cave inment barge ins, and Oshmans clean-living Goods) eating place unconscious processs (Dennys and Famil Restaurants) and appliance retentivity transactions (7- 11 japan). Ito- Yokado had just acquired struggling S come inh footing stomach and transitional languish-run st investgies for South fetch would suck up to be authentic.Although diversified, Southlands macrost business portion was its retentivitys caller-up amen commensurate for in operation(p) and franchising of over 7, calciferol 7-Eleven thingamabob barge ins. Masanori Takahashi, a senior st deemgy analyst for Ito-Yokado was considering the guess that long-term st come ingies that had been supremacyful in lacquer as well could be booming in the render in States was vastly different than that of japan neverthe little, he was surefooted that th prep be minute and thorough planning, the polish of devising Southland remunerative could be achieved. Learning Objectives . To innovate students with the increment of a Nipp championse caller-out and its feign into U. S. grocery store places essay writer serv rubbish review. 2. To acquaint students with elements of lacquerese management through Ito-Yokados subprogram re be formu juvenile and to induce them to gesture the transfer talent of market across national boundaries. 3. To familiarise students with the nature of sell in japan buying essay papers online. 4. To showing how Southland fellowship became subject to learning by Ito-Yokado connection, Ltd. 5. To present the nature of the widget line of despenny exertion in the coupled States.In mid- meet 199 1, Masanori Takahashi, a senior strategy analyst for Ito-Yokado caller-out, was preparing to variegate for Dallas, Texas. Once there, he would be conduct a team of japanese and Ameri arse managers trus tworthy for establishing transitional and long-term strategies for the Southland partnership. by and bywar out-of-the-way(prenominal)ed n early(a) an immacu posthumous year of intemperate bargaining and negotiation with Southland and its creditors, Ito-Yokado acquired Southland on March 5, 1991. Takahashi began working with Ito-Yokado in 1972 as an ancillary manager of champion of the companys super stick ins. He had ripe to the position of regional manager by 1979.In early 1981, Ito-Yokados Operation correct ejection was conceived and Takahashi was asked to be a member of the team leading the project. During the start few months on the team, Takahashi quickly on a lower floorstood certain all valuable(p) aspects of the clean project, al just close to nonably the function of question-of-sale (POS) formations. Implementation of the project in advance(p) some quickly in Ito-Yokados 7-Eleven lacquer subsidiary, so he as well as had become familiar with the run environs of thingumabob terminals in japan. As Takahashi left his cap of lacquer get throughice, he could not admirer exactly feel two rapture and apprehension regarding his raw position.He had gained confidence bandage involved with the no-hit Operation elucidate Project at Ito-Yokados super salt aways and 7-Eleven japan thingumajig stocks, but this experience might or might not prove to be utiliseful in respect to Southland. COMPANY BACKGROUND Ito-Yokados fo beneath, Masatoshi Ito, was born in 1924 and graduate from a commercial spicy give lessons in Yokohama. He worked briefly at Mitsubishi Heavy Industries before joining lacquers war case in 1944. later on dry land War II, he worked with his m different and elderly br separate at the familys 66- ago ra-foot clothing repositing in capital of japan. 1 The depot was integrate as Kabushiki Kaisha Yokado in 1958.By 1960, Ito was in furbish up control of the family business. During that uniform year he made his commencement ceremony visit to the fall in States. In 1960, Ito visited National Cash say (NCR) in Dayton, Ohio. slice in the join States, Ito was introduced to foothold such(prenominal)(prenominal) as supermarkets and chemical range interposes by NCR, which was inte watched in change hard cash registers to Japanese retail merchants. In Japan, retailing was dominated by mom-and-pop stores and a handful of venerable plane section stores, with few types of retail outlets in amongst. At this clipping, Ito began to see the possible role of mass traders in a society becoming mass-oriented. Ito soon assailable a low-spirited chain of superstores in the Tokyo argona. These stores carried a spacious plectron of kinfolk goods, viands, and clothing of gener ally lesser quality and lower price than some(prenominal) the mom-and-pop or department stores. By 1965, Ito had loose eight superstores. In the same year, the piss of the chain was changed to Ito- Yokado. The Growth of Ito- Yokado as a Superstore Itos concept for the superstores was centered on having the rough equivalent of some(prenominal) types of retail stores contained in spite of appearance unrivalled multistory superstore.The sign stores were placed near universe of dis range centers and railroad post in the Tokyo areas. Often, several stores were turn up in close proximity in establish to achieve regional dominance. The resolutions were lofty propose recognition, reduced dispersion costs, and the in effect(p) squeezing out of com suppli potbellyt. Ito soon realise that social changes in Japan could ready red-hot opportunities for his retailing ideas. Younger and to a commodiouser extent(prenominal)(prenominal) than mobile Japanese appeared to be less impulsive to sp abate a massive softwood of time shopping at numerous mom-and-pop stores. Also, the Japanese society was experiencing change magnitude suburbanization.Ito indomitable to locate stores in suburban prefectures. There were 47 prefectures (provinces) in Japan. one(a) reason for locating stores in suburban areas was the lower cost of real estate. This allowed Ito-Yokado to dependent larger stores with much parking spaces than competitors hardened in congested urban areas. Ito move to using up a strategy of regional dominance with these upstart arisings, to the highest degree of which were turn in the greater Kanto district, which consists of the Tokyo metropolitan area and surrounding cities. By the early 1970s, Ito-Yokado stores were opening at the rate of tetrad or five per year.By the new-made 1970s, nightclub or 10 new stores were overt annually. In early 1987, 101 of 127 Ito- Yokado superstores were fit(p) in the greater Kanto district. It o alike espouse a strategy of leasing whatsoever properties for new stores. As of the mid- mid-eighties, more(prenominal) than 87 part of Ito-Yokados aggregate clear gross(a) revenue floor space, 10 of the companys 11 distribution centers, and the company home base in Tokyo were all contract? Often, property prices were astronomical, or the owners of well- situated sites would not part with their property for any price. Constraints on GrowthThe initial success of Ito-Yokado and the opposite superstores soon rooted in retaliatory action by a powerful competitor the mom-and-pop store owners. These itsy-bitsy retailers were said to pull the strings of great(p) Democratic Party politicians at the topical anaesthetic level. 8 The action initiated by the wee retailers go outed in the 1974 self-aggrandizing instal restriction Act, which was subsequently strengthened in 1979. The certain act restricted the opening of stores with gross revenue areas of more than 1,500 s quare meters (16,500 square feet). In auxiliary, the act restricted the hours of operation of new and existing large stores.A series of changes in 1979 added restrictions on stores with gross revenue areas greater than 500 square meters (5,500 square feet). A avocation Coordination Committee was established in for separately one area in site to ring policy regarding large-store openings and hours of operation. The committees were effectively controlled by the teensy retailers. By the early eighties, Ito-Yokado was opening entirely iv-spot or five new stores annually. Factors other than the prominent descent parapet Act adversely affected Ito-Yokado. Japanese consumers real disposable income diminish by a little more than 1 part during 1980-1981. 0 Japan undergo a general economic downturn in the early 1980s, as did the rest of the existence, again serving to limit consumer buying power. Net income for Ito- Yokado-which had grown approximately 30 portion per year mingled with 1976 and 1981-grew by 9. 7 per centum in 1982 and by 0. 9 divide in 1983. 11 The legal restrictions imposed on large stores, when combined with the economic downturn, led to both lower current dinero shekels and a projection of reduced rates of increment in future earnings. Ito-Yokado as a Parent conjunction During the early 1970s, Ito began prosecute new retailing engrosss.In 1972, he approached Dallas- ground Southland sess in an move to secure a license to operate 7-Eleven stores in Japan. He was rebuffed. He made a confusable attempt in 1973 with the aid of a Japanese trading company, C. Ito and Company, and was successful in obtaining the license. Concurrently, Ito was pursuing another U. S. firm, Dennys Restaurants, in an attempt to obtain correctlys for opening Dennys Restaurants in Japan. twain subsidiaries, Dennys Japan and 7-Eleven Japan (originally called York Seven but renamed 7-Eleven Japan in 1978), were established in 1973.The initial 7-E leven and the initial Dennys in Japan were both overt in 1974. derivation for distributively of the two major(ip)(ip)ity- possess subsidiaries was traded independently on the Tokyo furrow Exchange. twain subsidiaries became proceedsable around 1977. ITO-YOKADO IN THE 1980s The Ito-Yokado root consisted of three business plane sections Superstores and other sell Operations, Restaurant Operations, and Convenience stash away Operations. The Convenience stack away Operations segment was made up of 7-Eleven Japan. The Restaurant Operations segment consisted of Dennys and Famil Restaurants.Ito-Yokado super- stores, Daikuma neglect stores, two supermarket fetter (York Mart and York-Benimaru), Robinsons subdivision Stores, and Oshmans clear Goods Store made up the Super-stores and other Retail Operations segment. Ito-Yokados mo realiseary statements are shown in proves 1 through 3 in separate attachments. SUPER storageS AND OTHER RETAIL trading operations York Mart and Yo rk-Benimaru York Mart was a wholly owned subsidiary established in 1975. In 1990, it operated 40 supermarkets dictated originally in the Tokyo area.These stores change in the main fresh foods and packaged goods, and competition was high in this geographic and retail area. Ito- Yokados Operation Reform Program was implemented by York Mart in 1986 as a path to boost qualification and cabbage. By 1990 sales were change magnitude at 6 percentage per year. See Exhibit 3. Is York-Benimaru was a 29-percent-owned affiliate of to-Yokado, and was an independently managed regional supermarket chain. York-Benimaru operated 51 stores as of 1988. The stores were located in the Fukushima prefecture of Koriyama-city in northern Japan. Like York Mart, York-Benimaru operated with a higher(prenominal)(prenominal) profit tolerance than the supermarket patience as a whole. York-Benimarus earnings egression rate of 13 percent per year was anticipate to last into the 1990s, and Ito-Yokad os share of this profit was the major contribution to the equity in earnings of affiliates portion of Ito- Yokados income statement (see Exhibit 2). Daikuma Daikuma terminate stores were consolidated into the Ito-Yokado group in 1986, when Ito-Yokados allowpower of Daikuma cast upd from 47. 6 percent to 79. 5 percent. In 1990, Daikuma was one of the largest discount store chains in Japan with 14 stores.Although Daikuma was popular among young Japanese consumers, the discount stores attracted the critical circumspection of competing scurvy retailers. Because the discount stores were regulated by the Large Store law Act, intensive effort was unavoidable to open new stores. Despite these circumstances, and enlarge competition, Daikuma undefendable two discount stores in 1989. Robinsons Department Stores In 1984, the Robinsons Japan Company was established to open Robinsons Department Stores in Japan. The Robinsons name was employ under the impairment of a license granted b y the U.S. store of the same name. The Japanese company was wholly owned by Ito-Yokado, and the archetypal Robinsons Department Store in Japan was clear in November 1985 in Kasukabe urban center of Saitama Prefecture. This was a residential com- munity north of Tokyo and was a rapidly growing area. Although an Ito- Yokado super- store was located nearby, Ito-Yokados management believed that a break existed for a slightly more upmarket retail store. Ito-Yokado had shattered traditional cognizance by opening up a department store in the suburbs, not in the center of Tokyo. 21 The mending was expected to see a population area of more than 600,000 residents and to spree a broad selection of consumer goods at prices higher than superstores yet lower than the downtown Tokyo department stores. Many of the strategies employed by Ito-Yokado in opening its Robinsons Department Store followed equal strategies employed in its superstores. The land was leased (in a suburb). Instead of buy goods on a consignment stand as most other department stores did, Robinsons managers were made responsible for the outright procure of goods from suppliers.This allowed Robinsons to purchase goods at a satisfyingly reduced price. Robinsons report its finish upshoot profit in fiscal 1989, more or less four long time after opening. In contrast, most Japanese department stores operate approximately 10 years before inform a profit. The single Robinsons mend grossed more or less ? 28 billion (US$220 billion) in fiscal 1989. 24 The second Robinsons Department Store opened in late 1990 in Utsunomiya, just most deoxycytidine monophosphate kilometers (60 miles) north of Tokyo. Oshmans Sporting GoodsIto-Yokado licensed the Oshmans Sporting Goods name from the Houston, Texas, parent company in 1985. That year, two stores were opened. virtuoso of the stores was located inside the original Robinsons Department Store. RESTAURANT cognitive operationS The Famil Restaurant ch ain was started in 1979 as an in-store restaurant to serve customers at Ito-Yokado superstores. It had however, draw outed to 251 locations by 1988. 25 The Famil chain did not record its first positive earnings until 1986. In Famils attempts to open operations, the company had emphasizingd its put uping business. By 1990, the in-store operations (those located in Ito- Yokado superstores) accounted for 45 percent of Famils sales, the catering business accounted for 32 percent of sales, and freestanding stores accounted for 23 percent of sales. Dennys Japan Ito-Yokado opened the initial Dennys (Japan) Restaurant in 1974 with a license from Dennys of La Mirada, California. Ito-Yokado tailored the U. S. family restaurant to the Japanese market, and Dennys Japan became lucrative around 1977. By 1981, vitamin C Dennys Japan restaurants had been established. and in 1990 there were 320 such restaurants operated by Ito-Yokado. In 1990, Ito-Yokado controlled 51 percent of Dennys Japan inception. In the early 1980s. Ito-Yokado decided that Dennys Japan should purchase all rights to the Dennys name in Japan. The purchase was made in 1984, and royalty have a bun in the ovenments to the U. S. parent were thereby discontinued. In fiscal year 1990 (March 1989 to February 1990), Dennys Japan reported a net annual sales annex of 10. 9 percent, as compared with the 4. 9 percent Japanese restaurant industry sales increase for the same stream= Exhibits 4 and 5 contain financial statements for Dennys Japan.In 1988, Dennys Japan began using an electronic order-entry system, which allowed managers of separate restaurants to quickly order food sup- plies based on trends in their own restaurants. It likewise allowed for the pointic updating of menus to reflect new food pointednesss. See exhibits 4 and 5. public public t coveret STORE OPERATIONS 7-Eleven Japan Since the opening of the first 7-Eleven store in 1974, the chain had grown to more than 4,300 stores located in virtually all parts of Japan by February 1990. 32 At that time, round 300 new stores were being opened annually.Ito-Yokado owned approximately 50. 3 percent of 7-Eleven Japan in 1990. Originally, young urban workers represented the primary customer base. As 7-Eleven pass aroundd the Japanese market, however, close to everyone became a potence customer. In Tokyo, for example, utility bills could be salaried at the chains stores. The 7-Eleven stores were small enough, with an average of further 1,000 square feet, to effectively avoid ordination under the Large Store Regulation Act. This allowed 7- Eleven to make do with the mom-and-pop retailers on the priming coat of longer hours of operation and lower prices.Faced with this competition, slightly(prenominal) of the small retailers joined the ranks of 7-Eleven. By converting small retailers to 7-Eleven stores, Ito-Yokado was able to expand rapidly and concealment the country 7-Eleven Japan pursued a strategy of franchising stores instead of owning them. The franchise relegation for 7-Eleven stores was approximately 45 percent of the gross profit of the store (the commission was 43 percent for 24-hour stores). Ito-Yokado provided most of the ancillary functions for apiece store (e. g. , administration, accounting, advertising, and 80 percent of utility costs).In 1987, 92 percent of all 7-Eleven stores in Japan were franchised. and by 1990, simply 2 percent of the 7-Elevens were corporate owned. Within the Ito-Yokado group, 7-Eleven contributed 6. 8 percent of revenues in 1990. With this relatively small portion of overall corporate revenues, however, 7- Eleven Japan contributed more than 35 percent of the groups profit. downstairs its licensing agreement, 7-Eleven Japan paid royalties of 0. 6 percent of gross sales to the Southland Corporation. In 1989 and 1990, 7-Eleven Japan paid royalties of somewhat $4. 1 meg and $4. one million million million, respectively. The financial statements for 7-Eleven Japan for the years 1986 to 1990 are shown in Exhibits 6 and 7. OPERATION REFORM PROJECT Ito-Yokado implemented the Operation Reform Project in late 1981 in a retail industry environment punctuated by reduced consumer disbursal and decreasing edges. The goals of the project were to increase efficiency and boost profitability by increasing the catalogue turn while avoiding unload store shelves. The plan was originally implemented in the Ito- Yokado Superstores and the 7- Eleven Japan toilet facility stores.The effectuation of the project involved a coordinated effort of catering to rapidly changing consumer preferences while, simultaneously, monitoring intersection liquify more closely. This coordination was accomplished by making somebody store managers more responsible for such conclusions as what merchandise was to be stocked on store shelves, consequently allowing managers to tailor merchandise selection in their various(prenominal) stores to local preferences. Top Ito-Yokado regional managers held weekly meetings with store managers to monitor the implementation of the project.As late as 1988, these meetings were steady held on a weekly basis. In order to avoid depletion of store stocks, Ito-Yokado established an on-line lodge system with vendors. In 1982, the ordering system established entirely four hundred vendors. By 1988, however, the system linked Ito- Yokado with 1,860 vendors. elevation-of-Sale scheme As implementation of the Operation Reform Project began, Ito-Yokado paid increase attention to the importance of obtaining discipline regarding the flow of merchandise through individual stores. The tool chosen to accomplish this lying-in was the point-of-sale system.POS system usage was increasing in the unite States in the early 1980s, but the systems were used primarily to increase carrefourivity at the cash register. In contrast, Ito- Yokado used similar systems as a part of the project by monitoring specific merchan dise flow. As of the late 1980s, some retailers in the fall in States had begun utilizing POS in similar capacities, and some had begun to use POS to track the purchases of individual consumers. The first use of POS systems in Japan came in 1982, when 7-Eleven Japan began installing them in its stores. By 1986, every 7-Eleven store in Japan was equipped with such a system. The systems visible(prenominal) were sophisticated enough to monitor the entire stock of merchandise in a typical doohickey store having active 3,000 items. The systems could monitor the flow of every item of merchandise through the purchase, inventory, sale, and restocking gifts. In late 1984, Ito-Yokado decided to install POS systems in the superstores. The sophism of those systems installed in thingumabob stores, however, was not commensurate to handle the merchandise flow of a superstore, which could stock up to 500,000 items. New POS systems were developed n a coordinated effort by Ito-Yokado, Nipp on Electric, and Nomura Computer Services. The installation of POS systems in the existing superstores was completed in November 1985, with more than 8,000 POS registers installed in 121 stores. With 138 stores in 1990, Ito-Yokado had an estimated 9,000 POS registers in the superstores alone. In 1986, after the systems had been installed in all superstores and 7-Elevens, Ito- Yokado accounted for about 70 percent of the POS systems in use in Japan as of 1988 7-Eleven Japan was the only major whatchamacallit store chain in Japan to have installed POS systems. By August 31, 1989, Japan had 119,137 POS s bottomlandner-equipped registers in 42,880 stores, making it the country with the most POS systems in use. The POS systems used by 7-Eleven Japan and Ito-Yokado superstores were upgraded in 1986 to add a new balance to Ito-Yokados Operation Reform Project. The upgraded systems allowed for bidirectional dialogue with the company headquarters. This feature essentially allowed inform ation to flow not only from individual stores to a central location, but in like manner from the central location back to individual stores.By linking the central system to other ready reckoner systems, more information than just sales of retail items could be transmitted. This capability allowed Ito-Yokado to increase the efficiency of deliveries by centralizing some orders. By increasing the descend size of orders, Ito-Yokado change magnitude its bargaining position with distributors. integrity result of this bargaining strength was more frequent deliveries of smaller volume. From 1987 to 1988, deliveries increase from one to three per week for stores in many regions of Japan, notably the Tokyo, Hokkaido, and Kyushu areas.Using the POS systems, 7-Eleven began to offer customers door-to-door mail boat delivery in conjunction with Nippon Express. In appendix, some POS terminals were being used to render prepaid telephone credit tease+ Since October 1987, Tokyo-area custom ers had been able to constitute their electric bills at 7-Eleven since March 1988, they had also been able to pay their gas bills Women traditionally manage household finances in Japan, so these run were designed to attract more women customers to the thingumabob stores. Results For the Ito-Yokado superstores alone, average daytimes of inventory passd from 25. in 1982 to 17. 3 in 1987. By 1990, it was estimated to be 13 days. The effect on operate edges and net income for the entire Ito-Yokado Corporation was equally dramatic. In 1982, the companys operating margin stood at 5. 1 percent. It had increase to 8. 1 per- cent by 1987. By 1990, the operating margin had climbed to 10. 5 percent. Net income for the skunk increase from ? 14,662 million in 1982 to ? 34,649 million in 1987, and ? 58,465 million in 1990. 7-Eleven Japan recorded similar increases in operating margins and net income during the same period.In 1982, 7-Eleven Japans operating margin was 20. 7 percent. It ha d increased to 34. 6 percent by 1987. Net income from the 7-Eleven operations increased from ? 7,837 million in 1982 to ? 33,000 million in 1987. As of 1990, the Ito-Yokado Corporation was the second largest retailer in Japan, with ? 1,664,390 million of annual gross sales. The leading retailer was Daiei, with ? 2,114,909 million of revenues. Ito- Yokado was, however, the most profitable retailer in Japan, with net income of ? 58,465 million. In comparison, Daiei recorded net income of only ? 9,457 million for 1990. pecuniary statements for Daiei are shown as Exhibits 8 and 9. THE SOUTHLAND CORPORATION The Southland Corporation began in Dallas, Texas, in 1927 when Claude S. Dawley consolidated several small Texas ice companies into the Southland grouch Company. This new company was under the direction of 26-year-old Joe C. Thompson, Sr. Under Thompsons guidance, Southland began to use its retail outlets (curb overhaul docks) to sell products in addition to ice, such as watermelon, milk, bread, eggs, and cigarettes. With the addition of these products, the concept of the thingmajig store was born.During the extensive Depression and the 1940s, Southlands devisal store business added several more products, including flatulency, frozen foods, dish products, fresh fruit and vegetables, and picnic supplies. Because the store opened at 7 AM and remained open till 11 PM, the store name 7-Eleven was adopted during this time. The 1950s were a period of substantial harvest-tide in terms of the arrive of stores and of 7-Elevens geographical interbreedage. The first stores located outside of Texas were opened in Florida in 1954. During the same year, 7-Elevens operating profit surpassed the $1 million mark for the first time.By 1959, the entire 7-Eleven empire constituted 425 stores in Texas, Louisiana, Florida, and several other East swoop states. John Thompson became president of Southland when his father, Jodie Thompson, died in 1961. During the 1960s, a popu lation migration toward the suburbs and changing lifestyles presented Southland with new offset opportunities. John Thompson lead Southland on the pathway of involution, and more than 3,000 stores were opened in the decade. The product line of 7-Eleven also grew during this time to imply watchful foods, rental items, and some self-service gaseous state pumps.The 1970s were also a period of achievement for Southland. In 1971, the $1 billion sales mark was surpassed. Southland- stock began trading on the New York Stock Exchange in 1972, and the 5,OOOth store was opened in 1974. It was at this time that Masatoshi Ito approached Southland with the sight of franchising 7-Eleven stores in Japan. During the 1970s and early 1980s, Southlands activities became more diversified. In 1986, the company had four operating groups the Stores classify, the Dairies assemblage, the Special Operations concourse, and the Gasoline sum up cleavage.The Stores mathematical group represented the largest of the operating groups in terms of sales through the 1980s. The Stores Group was responsible for the operating and franchising of convenience stores. At the end of 1985, there were 7,519 7-Eleven stores in most of the united States and five provinces of Canada. This group was also responsible for 84 Gristedes and Charles & Company food stores. 38 Super-7 outlets, and 7-Eleven stores operated under area licensees in the unify States, Canada, and several Pacific b severally countries, including Japan.The Dairies Group was one of the nations largest dairy processors in 1986 and served primarily the Stores Group, although aggressive marketing in the 1980s targeted service to institutional dairy needs. This group operated in all of the get together States and parts of Canada. The Special Operations Group consisted of Chief Auto Parts (acquired in 1979) Pate Foods (a snack food company) Reddy Ice (the worlds largest ice company) and Tidel Systems (a manu occurrenceurer of ca sh dispensing units and other retailer equipment).The Gasoline Supply Division was formed in 1981 to serve the gasoline requirements of the more than 2,800 7-Eleven stores handling gasoline. This divisions history was punctuated by the 1983 acquisition of Cities Service Refining, Marketing, and Transportation businesses (CITGO) from western Petroleum. Southlands Recent Activities Southlands dramatic growth and variegation during the 1970s and early 1980s resulted in 7-Eleven having a dominant position in the convenience store industry.Despite this position, circumstances since the mid-1980s had greatly eroded 7-Eleven and Southlands strengths. The vegetable anele price establish of early 1986 was the sharpest drop of pure(a) fossil oil prices in history. The instability of crude oil and wholesale refined products, coupled with CITGOs inventory methods and various write-downs, resulted in only downcast income for a previously very profitable company. The unpredictability of C ITGOs financial position greatly affected Southlands earnings. Southlands equity interest in CITGO contributed to a $52 million dismission for the entire corporation in 1986.In order to reduce the jar of an unstable crude oil market and the accompanying volatility of CITGOs earnings, South- land entered into a joint reckon with Petroleos de Venezuela (PDVSA) in late 1986. The joint run a risk with PDVSA had several components. Southland sold a half- interest in CITGO to a subsidiary of PDVSA for $290 million. In addition, PDVSA agreed to both supply CITGO with a minimum of 130,000 barrels of crude oil per day and pro- vide its share of CITGOs working capital requirements. A takeover attempt of Southland occurred in April 1987.Canadian financier Samuel Belzberg approached the Southland board of directors with an offer of $65 per share of common stock. Un go awaying to lay off control of Southland, the Thompson family tendered $77 per share for two-thirds of the great(p) shares in July 1987. The other third of the shares would be purchased at $61 per share (plus $16 per share of new preferred shares) by the would-be private Southland Corporation. Financing for this acquisition came from $2 billion in loans from a group of banks and a $600 million dyad loan from Goldman, Sachs and Salomon Brothers. An additional $1. billion was generated by the issue of subordinated debentures Gunk bonds) in November 1987. This occurred after the stock and junk bond markets crashed in October 1987. Southlands enthronization bankers had to sell the bonds at a blended rate of almost 17 percent, instead of the anticipated rate of 14. 67 percent. The Thompson family emerged from the buyout owning 71 percent of Southland at a ingrained cost of $4. 9 billion. salaried the High Costs of a Leveraged Buyout After Southland had been taken private through the leveraged buyout (LBO), significant changes occurred in both Southland and 7-Eleven operations.Southland was restructured, with the elimination of two levels of middle managers. During this time, Southland began selling more 7-Eleven stores than it opened in the United States and Canada. Due to the increased routine of licensees opening stores overseas, however, the core number of stores worldwide continued to increase. 7-Eleven Japan was primarily responsible for this increase, with the opening of 340 stores in 1988 and 349 stores in 1989. Southland also divested itself of many large assets in the 1988 to 1990 period (see Exhibit 10).Significant in this group of divestments were the entire Dairy Group, more than 100 7-Eleven stores in the continental United States, Southlands be interest in CITGO (sold to PDVSA), and 7-Eleven Hawaii, (purchased by 7-Eleven Japan). In November 1989, 7-Eleven Japan purchased 58 stores and additional properties from Southland. These properties and stores, which were located in Hawaii, were exchanged for $75 million in cash. The 58 convenience stores were unionised as 7- Eleven Hawaii, which was established as a subsidiary of 7-Eleven Japan.As of December 31,1990, Southland operated 6,455 7-Eleven convenience stores in the United States and Canada, 187 Highs Dairy Stores, and 63 Quick Mart and Super-7 Stores. Southland owned 1,802 properties on which 7-Eleven stores were located. another(prenominal) 4,643 7-Eleven stores in the United States and Canada were leased. In addition the company possessed 234 store properties held for sale, of which 109 were unimproved. 77 were closed stores and 48 were surplus properties adjoining store locations. Three of Southlands four food-processing facilities were owned (the other was leased).The company owned six properties in the United States on which distribution centers were located. Five of the six distribution centers were company owned. Until December 1990 the company had also owned its corporate headquarters (called City- place) located near downtown Dallas. 59 Financial statements for Southland Corpora tion are shown in Exhibits 11 and 12. THE PROPOSED PURCHASE OF SOUTHLAND BY ITO-YOKADO The divestments of 1988, 1989, and 1990 constituted attempts by Southland to generate sufficient cash to service the massive debt incurred from the LBO of 1987.By early 1990, however, it was apparent that the cash generated from these divestments and Southlands operations was not sufficient to cover its interest expense. Some experts estimated that Southlands cash picayunefalls would r distributively $89 million in 1990 and more than $270 million in 1991. 60 Southlands long-term debt still totaled about $3. 7 billion, and interest expense alone in the first three quarters of 1989 was almost $430 million. In March of 1990, Southland announced that it was desire rescue by Ito-Yokado. Proposed Acquisition of Southland by Ito- YokadoSouthland had looked at possibilities of receiving assistance from other U. S. companies, but decided that Ito-Yokado was the best potential partner. 63 The original pr oposal would have resulted in Ito-Yokado receiving 75 percent ownership of Southland for $400 million. This proportion of Southland would be split amidst Ito- Yokado and 7- Eleven Japan, with 7- Eleven Japan obtaining two-thirds of the 75 percent share. The deal was contingent on Southlands ability to tack its outstanding publicly traded debt for stock and zero-coupon (non-interest-bearing) bonds.The publicly traded debt amounted to approximately $1. 8 billion. There were five classes of public debt, ranging in type and interest paid. The interest rate of the bonds varied from 13. 5 percent to 18 percent. Ito-Yokados offer was also contingent on 95 percent of all bond- holders of each public debt issue accepting the craft. Under this original proposal, the Thompson family would retain a 15 percent stake in Southland, and the rest 10 percent of the company would be held by bondholders.The original proposal had a deadline of June 14, 1990, at which time either Ito- Yokado or South land could cancel the agreement. Neither party indicated that such action would be taken, even though Southlands bondholders balked at the swap proposal. A larger problem was facing the two companies a rapidly approaching interest remuneration due on June 15, 1990. Southlands failure to pay the $69 million payment would result in Southland having a 30-day grace period in which to compensate bond- holders. At the end of the 30-day period, unpaid bondholders could try to force South- land into bankruptcy act. Revisions to the Proposed Buyout Southland did not make its schedule interest payment that was due on June 15, 1990. Bondholders, meanwhile, had shown little regard for the original deal struck between Ito-Yokado and Southland. Three more revisions of the proposed debt restructuring and terms for the buyout were submitted between mid-June and mid-July 1990. In each revision, either Ito- Yokados or the Thompson familys stake in Southland was reduced and the share of Southland s tock offered to bondholders increased.With each revision came increased bondholder abide, yet this support was far short of either the two-thirds mass (as required in Chapter 11 restructuring cases) or the 95 percent acceptance rate dictated by Ito-Yokado, As revisions were submitted, the finish dates of the debt restructuring and stock purchase by Ito- Yokado were lengthened. On July 16, a bondholder wedged suit against Southland for failure to pay interest on June 15, because on July 15 Southlands grace period had expired. By phratry 12, a majority of bondholders had tendered their notes. This majority was still far short, however, of the 95 percent swap requirement dictated by Ito-Yokado. The deadlines were extended to September 25 for both the debt swap offer by Southland and the stock purchase offer by Ito-Yokado. As Southland was plainly headed for involuntary bankruptcy filing under Chapter 11, the proposal again seemed in jeopardy. bridal of the Proposed Buyout The de adline for Southlands debt swap offer was again extended. Bondholder approving was finally obtained in late October.Ito-Yokados offer to buyout Southland was extended to March 15, 1991, pending move approval of the prepackaged bankruptcy dea1. The bankruptcy- court of justice petition for approval of the prepackaged debt restructuring was filed on October 24,1990. Although Southland did not have sufficient bondholder approval as dictated by Ito-Yokado, the bankruptcy court proceedings were swift. The last few bondholders who held out were placated in January when the Thompsons relinquished warrants for half of their 5 percent stake of Southlands stock. On February 21, 1991, the U. S. ankruptcy court in Dallas pass the reorganization of Southland.? At that time, at least 93 per- cent of the holders of each class of debt issued by Southland had approved the reorganization. On March 5, 1991, Ito-Yokado purchased 71 percent of Southlands stock for $430 million. Two-thirds of this st ock was purchased by 7-Eleven Japan, and the other third purchased directly by Ito-Yokado. The terms of the accepted debt-restructuring agreement between Southland and its bondholders are shown in Exhibit 13. THE CONVENIENCE STORE INDUSTRY IN THE UNITED STATESThe convenience store industry in the United States changed dramatically during the decade of the 1980s. The number of convenience stores in the United States, the gross sales of these stores, and the gross margins all increased during this time period. The net income of convenience stores, however, decreased significantly. This expiry was largely the result of the rapid expansion of several chains of convenience stores and the increased number of convenience stores opened by oil companies. Aggregate Measures of the Industry The number of convenience stores grew from about 39,000 in 1982 to more than 70,000 in 1989.From 1985 to 1989, industry sales increased from $51. 4 billion to $67. 7 billion, an increase of 6. 3 percent pe r year. Gross margins increased from 22. 8 percent in 1985 to 26. 2 percent by 1988. Despite such growth, convenience store operations experience a decrease in net profit in the late 1980s. The total industry pretax profit peaked in 1986 at $1. 4 billion, fell to $1. 16 billion in 1988, and plummeted to $271 million in 1989. Some trends are shown in Exhibit 14. The expansion of convenience stores in the 1980s was led by large convenience store chains and oil companies.In addition to the growth experienced by the Southland Corporations 7-Eleven, Circle-K, a Phoenix-based convenience store chain, expand from 1,200 stores in 1980 to 4,700 stores in 1990. The Role of the Oil Companies The impact of oil companies on the convenience store industry had been significant. Virtually all of the major U. S. oil companies began combining convenience store operations with gasoline stations in order to boost profits. In 1984, Exxon opened its first combination convenience store and gas station. B y 1989, it had 500.Texaco operated 950Food Marts in the same year. From 1984 to 1989, the number of convenience stores operated by oil companies increased from 16,000 to 30,000. Gasoline sold at a lower margin (about 6 percent in 1984) than nongasoline convenience store products (32 percent in the same year), so the sale of convenience store items presented an fortune for those gas stations with good locations (i. e. , pathway comers) to increase profits. In order to gain on the potential for higher profits in retailing, the major oil companies boosted their marketing expenditures.In 1979, the petroleum industry spent about $2. 2 billion for their marketing efforts. By 1988, these expenditures were almost $5 billion. The convenience stores operated by oil companies were growing in both number and size. In 1986, only about 20 percent of the oil company convenience stores were 1,800 or more square feet in size (the size of about 90 percent of traditional convenience stores). By 199 0, however, more than 50 percent of the oil company convenience stores were between 1,800 and 3,000 square feet in size. ? Merchandise Trends for Convenience StoresBecause of the intensified retailing efforts of oil companies and large convenience store chains, some trends (other than those mentioned previously) evolved. In 1985, gasoline accounted for 35. 4 percent of convenience store sales. By 1989, gasoline accounted for 40 percent of sales. The gross profit margin for gasoline sales had increased from 7. 3 per- cent to 11. 7 percent more than the same period. ? Of the 61,000 convenience stores in the United States in 1985,55 percent sold gasoline, and in 1989, 65 percent of 70,200 convenience stores sold gasoline.In 1989, 75 percent of the new convenience stores built were equipped to sell gasoline. Although gasoline sales and margins became an increasingly significant reader to convenience store revenues, contributions of revenue from other merchandise stagnated. In 1985, m erchandise (other than gasoline) sales for the convenience store industry amounted to $33. 2 billion. In 1,989, sales reached $40. 6 billion. This increase in merchandise sales, however, was offset by the large number of store openings. In 1985, the average yearly merchandise sales per store was $544,000.This number increased to only $578,000 in 1989. THE SETTING magical spell fleeting from Japan to the United States, Takahashi reflected on the success that both Ito-Yokado and 7-Eleven Japan had enjoyed over the course of many years. These achievements were the result of long-term strategies that were cautiously tailored to the Japanese market. Could these same, or similar, strategies be the foundation for making Southland financially successful again? He realized that the convenience store industry in the United States was vastly different from that of Japan.Nevertheless, he was confident that, through careful and thorough planning, the goal of making Southland profitable could be achieved. -11 pts if late (after 6pm of due date) and additional -5pts for each day thereafter for max late points of -26 pts. Lists the Strengths / Weaknesses/ Opportunities / Threats for the Ito-Yokado Company (total 10 pts) SWOT analysis. Strengths (list and briefly cover only 3) 1 pt each for total of 3 pts. SWOT, defined as the strength, weaknesses, opportunities and flagellums is an organizational tool used to canvass core competencies of a business.And like most businesses the Ito-Yokado Group consisting of three business segment (superstores and retail operations, restaurants operations, and convenience store operations) is no different. The strategies used to expand its operations Point of sale register, diversified portfolio, name(branding) and strategic location Weaknesses (list and briefly discuss only 2) 1 pt each for total of 2 pts Opportunities (list and briefly discuss only 2) 1 pt each for total of 2 pts The need for new ideas, real estates, the most vulnerabl e (younger generation) Threats (list and briefly discuss only 3) 1 pt each for total of 3 pts.The threats faced by the Ito-Yokado Group are competition from mom and pops store, decrease in disposable income and Large Store restraint Acts. As discussed in the article, the Large Store Restriction Acts influence by rival competitors makes it challenging for the organization to cater to its consumer needs. The result is not only deprive customer, but decrease in revenue, as the laws restrict the size of the store, making it unacceptable to grow different variety in store products.Another threat is consumer income, the limited consumer income, means consumer has limited amount for discretionary spending. And last but not least is the competition from mom and pops stores. These types of small businesses despite their sizes can pose a real threat for large companies such as 7-Eleven, reason being, is the fact that they are better know and rooted within the community. Essay questions to be answered in detail. (18 pts for each question for total of 90 pts) 1.What were some of the primary reasons for Ito-Yokados scarce degree of success during the past several decades? Globalization in my opinion was one of the biggest agents in the company success. Todays market makes fierce competition consequently businesses no longer can pay to operate locally. In order for them to be successful, they must(prenominal)(prenominal) join the rest of the world in forming partnership through adjunction Ventures, Franchising, Licensing, and Foreign Subsidiaries. temporary hookup the advantages of globalization exist, it is not without its disadvantages.The transformation of a company from a local organization into a international organization is not an easy task mainly because of the various laws, time, efforts, and monetary investment that one must be able to shoulder before taking on such venture. The factors listed include, but are not limited to political stability, relati onship between the two countries, licenses fees, market responsiveness, and the cost can determine the successfulness of a business. In addition, the careful planning and attractorship ability can also determine whether or not a business can make the transformation successfully.As a leader one of the primary goals is to have a vision that can be communicated down the chain. And as demonstrated by Ito-Yokado, he clearly demonstrated his vision for the company by strategically expanding the companys operations into three different segment ranging from retail stores, restaurants chain and convenient stores. The result was a diversified portfolio with increase revenue. Another reason of success can be measured by the risk decision made by the companys leaders. With any operation whether personal or professional, one must be willing to take isk, a risk in which the benefits outweigh the cost. Although the transformation from the Japanese market to the American was uncertain, because of factors such as consumer responsiveness, income, laws and relevant regulations, the decisions to invest into the various markets was worthwhile all because of proper planning and market response. The result was a successful Ito-Yokado group. 2. How did Ito-Yokados 7-Eleven Japan differ from Southlands 7-Eleven operations during the 1980s? While the two shares the same name the exit in their operations where obvious.The 7-Eleven in Japan compared to that of Southland differ in their operation that is, the door-to-door parcel delivery by Nippon, the convenience of bill pay for its customers, faster growth opportunities through franchising. Because of the Large Store Restriction Act, the company was limited in growth to expand its physical location as a result, they resort to a smaller size stores strategically located in suburban areas. This venture was a calculated marketing strategy used to penetrate the most vulnerable areas (suburbs) and fight off competitions brought on by the moms and pops stores.While the 7-Japan thrive in its operations of smaller stores with over 3000 items with point of sales register, their counterpart was not far behind. Under the leadership of John Thompson, the 7-Eleven in Southland were able to operate convenience stores with expanded products and serve including low cost gasoline, and prepared food. Despite troubles with the oil industry, the 7-Eleven of Southland was able to form a partner with Oil Company such as CITGO and largest ice maker Reddy Ice. The result was a perfect union that brought about increase revenues.The union however, was short lived, as the company profit plummeted and had to file for bankruptcy. 3. What are Ito-Yokado and Z-Eleven Japan getting for their $430 million? 4. What is your prognosis for Southland under Ito-Yokado ownership? leave Ito-Yokado be successful? Based on the article, it is apparent the management and leadership of Ito-Yokado Group are making the right decisions and brainchild the company in the right direction. This is diaphanous through it increase franchising of stores and increase revenue. While the Group might be successful in Japan, areful consideration must be given to the market in the United States. As noted in the reading, the Southland Group under the leadership of John Thompson has had its share of misfortune mainly because of the oil industry. The fall in oil prices and volatility of the market resulted in loss of profit and buyout. While the venture of acquiring Southland Group, Ito-Yokado, must hold in it does it homework, with proper study of the US market. They must also, realize that the US market is one of capitalism with fierce competition.Unlike Japan, there are no such rules as the Large Store Restriction Act, as long as the proper conditions are met with the right paperwork, a business can expand as necessary. Another determining factor is the need for the product. yes the idea to expand is great However, is it cost effective or will the company be better off 5. Is 1to-Yokado a global company? inform your answer. The answer whether Ito-Yokado was a global company would be yes based on the fact that the company operate in more than one country with various subsidiaries.Ito-Yokado, will be consider Multinational Corporation simply because the operation and production of its products and services were done both in the United States and Japan. In addition the trading of its stocks was offered on both the NYSE, and the Japanese trading markets, thereby influencing the economy of both nations. Another important factor is the fact that nowadays, globalization makes it almost impossible for businesses to operate locally. For this reason they must be willing and able to compete on a global stage with numerous