Jusco battles spiralling costs

JAPANESE general merchandise chain Jusco Stores (Hong Kong) has taken steps to reduce the impact of spiralling rents and wages increases.

Managing director Tatshichi Yamaguchi said that salary and rent accounted for 15 per cent of the company's operational costs, but with effective control over these two areas, Jusco could again post strong earnings growth in 1994.

The company has adopted three strategies to cut operational costs. One is the introduction of an inventory control system which aims to cut expenses by $5 million in the second half of this year.

The second is recruiting more part-timers during peak hours and targeting an 8.8 per cent payroll against turnover rate this year, about 1.1 per cent lower than in 1993.

The third is by adopting direct bulk purchase from its parent company in Japan.

Mr Yamaguchi disclosed that the percentage of part-time workers against the total staff was now at an average of 15 per cent.

He said Jusco was aiming to bring this up to 30 per cent by the end of the financial year by implementing man-hour management.

High rentals have narrowed many Japanese department stores' profit margins, threatening to force them out of the major shopping centres.

Another Japanese department store, Yaohan, earlier warned that it might have to move if it could not reach a settlement with its landlord on rent increases.

In 1993, its rental against turnover ratio was 6.7 per cent, and Jusco expects to achieve 6.6 per cent this year.

Mr Yamaguchi explained that Jusco's three stores had long-term leases, which were subject to renewal after nine years with another three-year option.

Therefore, current rent increases were unlikely to have a strong impact on the company.

The Kornhill store's lease will expire in 1996, but Jusco says it can discuss the new rent with the landlord.

''Rental will only be raised if Jusco accepts that level,'' Mr Yamaguchi said.

He said Jusco's specialty store in Tsim Sha Tsui would close due to the landlord's early termination of its lease contract, not because of the rental increase.

He stressed the store's closure would not have any negative impact on the company since it was just a test outlet.

The total floor area of Jusco's stores is about 387,503 square feet, excluding the Tsim Sha Tsui shop.

Jusco has adopted a direct sales policy in which about 70 per cent of its sales are under the company's direct control, with no counter outlets.

The company plans to set up four or five more shops by 1999, one of which is expected to open in one of the new towns in early 1996.

Mr Yamaguchi saw a difficult year for Hong Kong retailers because rent increases had dented their profits.