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Business Deals

Furniture chain Otsuka Kagu in tie-up talks with Taiwan investors

Troubled Japanese retailer seeks financial help and overseas marketing

In addition to marketing to Asian tourists who flock to its stores in Tokyo and Osaka, Otsuka Kagu seeks to broaden sales through retailers and hotels abroad. (Photo by Taizo Wada)

TOKYO -- Japanese furniture retailer Otsuka Kagu is negotiating for financial assistance and an operational partnership with a group of Taiwanese companies in the face of stiff competition from more affordable rivals.

But with the two sides yet to delve into specifics, it is unlikely that any agreement would be reached before the beleaguered company releases results for the first half on Tuesday.

Abico Group, a Taiwan-based company with close ties to Japanese business, is helping Otsuka Kagu negotiate with the consortium, which includes a retailer and a financial institution.

The ailing company seeks help in marketing to tourists from Taiwan and other parts of Asia, who have been flocking to its stores in cities like Tokyo and Osaka. It also looks to broaden its sales channels to furniture retailers and hotels abroad, aiming to sell couches, mattresses and other products developed in-house. Joint procurement and distribution have been proposed, while lending, investing and other financial support are also under consideration. But reaching an agreement is expected to take some time.

Otsuka Kagu is headed by Kumiko Otsuka, who won out in a battle for leadership over her father and the company founder in 2015. The Tokyo-based company is also talking to conference room renter TKP, its third-largest shareholder with a 6.65% stake, for additional investment. TKP has used Otsuka Kagu's showrooms in Tokyo's Shinjuku area and the northeastern city of Sendai for renting out its meeting and event venues. The strategy has brought shoppers to Otsuka stores as meeting attendees browsed the furniture on display.

Otsuka Kagu is feeling the pinch amid escalating competition from rivals offering inexpensive products, such as Nitori Holdings, in a market already shrinking owing to Japan's graying society. Year-on-year sales at all locations fell for a 12th straight month in July. The company is bracing for a 3.4 billion yen ($30.7 million) parent-only net loss for 2018 -- its third year in a row of net losses, albeit an improvement from the 7.2 billion yen loss for 2017.

Cash on hand had dwindled to just 1 billion yen as of March 31, from 10.9 billion yen at the end of 2015. A partnership that includes measures for fortifying its finances is considered critical for a successful turnaround.

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