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Business deals

Don Quijote eyes 190 more discount stores with Uny purchase

Deal will create Japan's fourth largest retailer

Discount store operator Don Quijote is known for its flashy stores. (Photo courtesy of Don Quijote)

TOKYO -- Japanese discount seller Don Quijote Holdings is closing in on an agreement to take over all of Uny, the operator of a chain of general merchandise stores, in a deal that would create the country's fourth-largest retailer.

Since August 2017, Don Quijote has owned 40% of Uny through a capital and business tie-up with parent FamilyMart Uny Holdings. FamilyMart Uny will sell the remaining 60% stake to Don Quijote, and focus on running its convenience stores in the FamilyMart unit. Don Quijote and FamilyMart Uny will continue their partnership after the acquisition, whose price has not been disclosed.

As of June, Don Quijote was running 379 locations in Japan, including its brand-name discount stores, known for their quirky and flashy layouts. The addition of the roughly 190 stores operated by Uny would expand the footprint by half. The Uny stores probably will be converted into discount outlets.

Don Quijote reaped sales of 941.5 billion yen ($8.35 billion) during the year ended June. Uny generated sales of 712.8 billion yen for the full year through February. Simple math results in the combined sales topping 1.65 trillion yen, trailing only domestic retail leader Aeon, Seven & i Holdings and Fast Retailing. Among general merchandisers, Don Quijote would surpass Ito-Yokado, a Seven & i unit that turned in 1.2 trillion yen in sales.

In February, FamilyMart Uny began running six Apita and Piago chain stores jointly with Don Quijote under the Mega Don Quijote Uny brand. Sales space that had been dedicated to clothes was converted to general merchandise, everyday goods and cosmetics. The application of Don Quijote's discount business acumen doubled quarterly sales through May.

In addition, the partners opened jointly managed pilot convenience stores in June that featured Don Quijote's proprietary product lineup and display layouts.

In 2007, Don Quijote took over the struggling general merchandise store operator Nagasakiya, and converted the chain into giant discount stores with extensive product offerings. The overhaul boosted customer traffic and improved earnings. Although results at other general and big-box retailers have slumped, Don Quijote boasts 29 consecutive years of higher sales and operating profits through the last fiscal year ended June.

Don Quijote also seeks access to the strong connections Uny has established with fresh food suppliers. Don Quijote started to sell fresh foods after buying out Nagasakiya, but "a lengthy relationship with the market goes far in forming relationships with farmers that have superior produce," said an executive. Placing Uny under the umbrella would help Don Quijote secure additional distribution volume, and bolster the fresh food lineup.

Meanwhile, FamilyMart Uny will let go of its general merchandise stores just two years after completing the September 2016 merger between FamilyMart and Uny Group Holdings. In August, FamilyMart Uny became a subsidiary of Itochu when the trading house purchased a controlling stake.

Uny's Circle K Sunkus convenience stores and the FamilyMarts add up to a network of Japanese minimarts second in size only to Seven-Eleven Japan. FamilyMart Uny is rebranding Circle K Sunkus stores into FamilyMarts, and the project is set to be completed in November.

While FamilyMart Uny has concentrated on integrating its convenience store businesses, the group will give up on rebuilding its general merchandise store business on its own since because that line of retail shares little synergy with minimarts. Resources will be focused on convenience stores, which will benefit from marketing and product development based on customer data.

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