DCM KUROGANEYA CO.,LTD
1-13-18 , Nakakogawara , Kofu City
Yamanashi 400-0855
URL:http://www.kuroganeya.co.jp/

CORPORATE PROFILE

Converting a labor-intensive business to a system-oriented business
President and Representative Director Kuroganeya's origins go back to 1863, when it started business as a hardware goods store. Since then, over 130 years, the store has deployed its business centering around Kofu City in Yamanashi Prefecture, under the motto "We shall offer the quality". In 1966 the store changed to "Kuroganeya Co., Ltd.", then the company opened its first suburban type non-food chain store in Kofu City in 1974. Over the years the company has steadily increased in number as "suburban road-sided type home centers", and the total number of stores counted nineteen, including 13 in Yamanashi Prefecture, 6 in Kanagawa Prefecture, as of December, 2004. In addition, it is being more extensively recognized as a company listed in second section in Tokyo Stock Exchange Market.
 At the heart of Kuroganeya's operations is placed the "LLD Strategy" which refers to Large store (To have the Largest sales space per area in the industry), Low cost operation (To reduce cost by rigorously eliminating unnecessary costs), and Deep discount (To deal with highly competitive price products). Under the basic strategy the company has successfully formed Dominant Areas, in which the customers dominantly give loyalties to and support Kuroganeya. The revision of the Large-Scale Retail Store Law has prompted many competitors to adopt a strategy of opening a lot of new stores. In such business scene Kuroganeya has continued to focus on a strategy of strengthening its dominancy in Yamanashi as well as improving the productivity of its existing stores. This enabled the company to make top record in the pretax-profit-to-sales ratio of 5.9% (Term in May, 1998) in the industry. It has realized a highly efficient operation and profitable constitution by making the most of chain store operation and converting the laborintensive retail operation into the system-oriented business.
 Also, Kuroganeya has introduced Stock Options 1) in order to encourage the directors and employees. For not only directors but also employees, taking interests in their company's achievements provides a power source for driving each assignment, which in turn would generate greater corporate power.
 Today, the home center market encounters a new turning point leaving from that temporary abrupt growing age due to the much highly competitive conditions and varying market environments. Through such practices, we are enhancing our strategy of the dominancy in Yamanashi as retail-sellers, as well as are deploying large-commerce-zone type stores for accommodate professionals, while making steps into Kanagawa and its neighboring areas. We are supported by any customer's voice "I wish to live in the city in which Kuroganeya is there". Kuroganeya is an excellent company that creates a novel business model able to flexibly respond the demand diversity and varying market scenes, where retail sales business "should be placed as a varying-proof business".

President and Representative Director
Akashi Horigome

Note 1) Stock Option Plan/Director or employee is given a right to buy or sell the company's stock, at a specified price (strike price) within a specified time. They would be able to use the right to get or sell stocks, therefore share the company success when the stock rises.
KUROGANEYA

Realizing a Higher Profit even in a small commerce zone
 Kuroganeya's prime policy is to provide non-food goods which are necessary for every day life. The difference between Kuroganeya and other usual home centers is that it deals with more of the household products, less of the specialized goods such as DIY components, electrical appliances, or car-related items. Price settings are low and competitive enough with general supermarkets or discount shops. Another feature is the wide variety of products it stocks in each category, giving extensiveness corresponding to varying demands. Being a "convenience home center" in nature, Kuroganeya has completed dominancy areas in the small commerce zones of 3-km radius with population of 30,000 - 40,000, and obtained its firm position in Yamanashi Prefecture. This success in achieving a high profitability in smaller commerce zones was attributed to "Low cost operation" which includes "thoroughly reviewing the store management" and "drastically decreasing the cost via energy savings in every aspect". That resulted in the 30% decrease of break-even point than competitors. Reduction of store practices, of course, should not make customers irritation. To give enough spaciousness and brightness, every store is basically designed as follows: the ceiling is over 4 m in height, the illumination is more than 1,300 lux, and the customer lanes are more than 1.8 m in width. When being very crowded with a lot of visitors during Golden Week or year-end days, additional counters are added for customers not to wait for a prolonged time. If the number of waiting customers reaches four, the standby register shall be activated.
 As the transition in production and consumption from "mass" to "flexible and limited", Kuroganeya established its original merchandizing system by taking advantages of own achievements and know-hows accumulated for many years. Now our headquarter (Department of Products) is leading and intensively controlling the promotion of "Making stores able to catch customers' needs"; Customer trend analysis based on marketing research and sales data, Information acquisition and exchange with manufacturers and wholesalers, Goods planning, Price setting, and Improvement of site, etc. Kuroganeya will continue to deploy and enhance the exact and up-date sale and service with gazing the future based on each area.
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New demands are produced by coexistence
 On October 2004, Kuroganeya opened "Kuroganeya Super Depot" with floor space of 9,900m2 in Minami Alps City. It is a large commerce zone type home center which corresponds with population of 120,000 - 160,000 within 6 km radius.
 Kuroganeya Super Depot deals with a wide variety of business-use articles such as building material and farm tools. They are of professional and highly attractive. Traditionally, carpenters and builders have got the materials or tools from specialty stores, but they became using much more Home Center where they are able to procure "only necessities in necessary amount and when needed". Because prefabrication has become prevailed, they now do not have to work at building site as much as before. A Home Center is also convenient for farmers, who are allowed to make a small order without reservation and visit on holidays.
 Availability of professional-oriented goods is also attractive to general customers. In the section of gardening there are plenty articles from simple plantered flower to maniac garden-tree. For pets, visitors make use of veterinary hospital, trimming facility or pet hotel. In the section of house reformation and exteriors, you can find highly-professional items and plenty of new-life style products.
 An advantage for general visitors to share with professionals is to be able to access professional goods. Professional articles allow you to perform a reformation or gardening such that might not be possible for an amateur. In Japan, Home Center was introduced for the first time in 1975. Its DIY goods has not become popular due to the cultural difference between Japan and Western countries. As Japanese life style, however, is approaching Western life style, a trend of DIY will be driven by the increasing availability of professional items.
 Kuroganeya Super Depot provides a lot of goods which require professional advises, so much more professionality for store staffs will be necessary. This professionals-oriented line came from not Kuroganeya's Low Cost Operation policy but originated in its achievement through experiences. Super Depot will steadily grow through practice, experience, and systematization in order to meet customer needs, then will realize a high efficiency and profit. We position Super Depot as a great challenge for extending Kuroganeya's possibilities.
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Efficient management supported through standardization
 Kuroganeya committed a productivity improvement via extremely low cost operation, and the rate of sales and general administrative expenses has achieved 21.5% (Term in May, 2004), which is top-ranked in the industry. Any possible operation, from merchandise procurement to goods layout, is intensively controlled by Merchandizing Division. The "standardization" allows to reduce store operations ultimately. Thus, practices on goods - eliminating, exchanging or introducing the goods, changing the store layouts and prices, maintaining the "Gondola Productivity" - are timely and seamlessly performed to deploy the newest and best sales space at all stores.
 Kuroganeya introduced IT quickly among retail industry, addressing the streamlining of distribution and information system, and the increasing of efficiency. The system was based on the original on-site procedures, not but produced simply on the desk. Therefore, a site-oriented system was realized, enabling to flexibly respond to varying needs beyond just being efficient system.
 In order to attain the increase in efficiency of distribution, the distribution center of 13,200 m2 was built in western Kofu City in March 1999. Not only a intensive distributing functions, but also goods inspection procedure is performed at the center, resulting in the successful reduction of store operations. Goods arrangement both in the distribution center and in the stores are almost the same, so that the pick-up procedure for the center and the arrangement procedure for stores can be performed efficiently.
 In the automatic goods ordering system provides a mechanism in which ordering will be automatically placed when the specified amount of inventory is reached, thus always a suitable inventory being maintained. An EDI (Electronic Data Interchange) system connects the headquarters to the suppliers via telecommunication line in order to acquire the status information on the supply and manage the inventories in real time. Development of these systems raises the work accuracy, and reduces greatly the loss for sales chances not but reduces the time and effort of ordering/delivery procedures.
 Furthermore, in Kuroganeya, product development, distribution development, distribution technology development and information sharing were addressed via a joint purchase organization "CMA Group" 2). That established a stable system for goods procurement. Aiming at improvement of overseas procurement and development, goods development and import are promoted using DCM Japan 3). By including the joint purchase organization of CMA or DCM in a low-cost operation system, a new business model with more high profitability can be built.
 From labor-intensive industry to system-based industry -- Kuroganeya continues evolving in order to make its highly efficient and profitable management constitution more exact and rigid.

Note 2)CMA joint purchase group/A group that Kuroganeya, Center AGURO Co., Ltd., Kanseki Co., Ltd., Sanwado Co., and Makiya Co., Ltd. tied-up and established in order to "procure excellent goods with lower cost and much stability". Its aims are as follows: (1) "Joint development/purchase" of goods, (2) Intensive "joint selection" of manufacturers, (3) Sharing of various "information and technologies".

Note 3)DCM Japan/A development/import company which was established on joint investment by Homeric Co., Ltd., Kahma, Co., Ltd., Daiki, Co., Ltd., and Mitsui Bussan, Co., Ltd. It performs goods import vicarious execution, PB merchandise management, joint purchase product development, and import planning. Kuroganeya can use DCM Japan by the capital tie-up with Kahma, Co., Ltd.
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Standard store and large-sized store coexistence management
Store value increased by the synergistic effect

 Commerce zone strategy in which a standard store and a large-sized store overlap. Small commerce zone type store, which Kuroganeya calls Standard store, is visited at the frequency of 2 - 3 per week as "Convenience Home Center". The "Kuroganeya Super Depot" is a large-sized store. It is the store in which visitors could make selection among the abundant goods with high-specialty and variety according to their uses or life-styles. One large-sized store overlaps three or four standard stores. It is the primary concept for coexistence that customers may appropriately use two type store according to their purposes, so Kuroganeya can meet needs. A synergistic effect is born by coexistence in terms of management strategy, then each store value will increase more. Another advantage of coexistence management is to allow us to maintain a stable performance even when we are hard to see the future. When market environment changes abruptly, only either small store or large store may not cope with the change. There is no business which has no risks even if complete precautions were made. The coexistence management of Kuroganeya can avoid such risk by distributing it. Although any plan will be formed based on the prediction and analysis on the future, something may not be understood until it will have occurred. However, if a company is too afraid of taking any risk to do nothing, it cannot grow. Coexistence management could be a risk management which would be a new challenge.
 Since its foundation, Kuroganeya has thought that the growth of company will contribute to customers, and it has tried hard to raise profit higher. It is said that, when the market has matured its expansion cannot be expected any longer, while Kuroganeya raises its business development power, and wishes to grow up together with regional customers with a big dream.
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