Yohan dug its own grave

By Terrie Lloyd

On July 31, Japan’s largest independent distributor of foreign books and magazines, Yohan Inc, went bankrupt. Rather than a simple protection from shareholders or reorganization, the company has shut down completely, firing all of its staff, closing the office, and taking down its website the same day. Jiji reports that Yohan, established in 1953, has left behind 6.5 billion yen in debt.

Related companies Aoyama Book Center and Ryusui Shobo, under the control of Yohan Book Service Inc, are apparently planning to stay in business and have applied for corporation reorganization under the Japanese Civil Rehabilitation laws. Apparently they have combined debts of 5.4 billion yen. Rumor has it that there is a corporate sponsor in the works to take over these two companies, who will be announced in the near future.

Yohan has been teetering on the verge of financial disaster for some years and my take is that the firm, which at one time controlled the distribution of many of the leading
English-language publications in Japan, has been mismanaged or at very best managed by misguided investors, by at least three separate entities over the last 10 years.

Firstly, the original owners could not keep up with the times and failed to properly computerize their organization as margins fell and the 1990s recession bit. Because their computerization was so primitive, data entry, shipping, inventory management, costing, returns, and pretty much everything else got done manually—requiring more than 120 people for an operation that should have required just two thirds of of that number. These high labor costs coupled with falling book and magazine margins and rising transport costs were a sure recipe for eventual business failure.

I would posit that pride by senior management was another factor—causing any rescue attempt to be late.

Secondly, the MBO that led to InterCultural Group Inc (ICG) buying the business out in 2003, was based on the premise that Yohan simply needed to become a platform for a bigger
and more efficient set of businesses. This had the senior management embark on a disastrous expansion program, belatedly fixing internal systems and going out and buying up other lines of business that the company didn’t really have experience in, and which were all themselves in trouble. Once of these was Aoyama Book Center in 2004.

Thirdly, by the time Mizuho’s Polaris Principal Finance fund bought 60% of the company out in Q2, 2007, the costs of ICG’s various acquisitions were starting to mount, and one wonders why Polaris decided to jump in at all. According to the Nikkei, they injected 1 billion yen into Yohan, which then went on to report a loss of 1.065 billion yen in November last year. Talk about a zero-sum game. This has been a hard and possibly lasting lesson for Polaris that
there is very little money to be made in distributing paper books and magazines these days. It’s a tough business.

So why should you care if one old fashioned and terminally sick distributor goes bust? The bankruptcy has not been picked up by any of the English-language press. Is it a case of the failure being too close to home… or that smaller bankruptcies have become boring?

To be honest, there may be nothing to care about. Although the Yohan bust will hurt a lot of smaller independent publishers who are owed money (our sister company included), the company apparently controlled about 60% of the foreign publications distributed into Japan, the fact is that the Japan Association of International Publications (JAIP) has 69 surviving members, and a number of these companies could pick up the baton. Maruzen and Tohan
would be two likely candidates.

However, in the interim between the bankruptcy and the negotiation of distribution rights between the successor and Yohan’s overseas and local publishers, I imagine that quite a few
foreign magazines will be in short supply in Tokyo over the next 3-6 months. Stock up on your summer holiday trip!

As a closing comment, it is fair to say that the economy is certainly taking a downturn in Japan and bankruptcies such as Yohan are gathering steam. According to Teikoku
Databank, June bankruptcies rose 8.1% to 1,065 cases, the fifth monthly year-on-year rise this year. Now, while the government has a lot to answer for in its sudden crackdown on the construction sector, but in fact, only around 30% of the bankruptcies are due to construction firm failures—meaning that the current downturn is much broader and
deeper in impact.

The volume of debt due to bankruptcies is also rising substantially, being up 40.3% from last year, to hit 471.9 billion yen. That is a lot of money owed to others being sucked out of the economy and spells potential trouble for banks funding both the bankrupted companies and
their (barely) surviving vendors. Indeed, editorial from the Nikkei over the last week speculates that Japanese banks may be hit by another wave of bad debt reminiscent of
the late 1990s.

Terrie Lloyd writes a weekly newsletter for entrepreneurs and business people about business and political opportunities in Japan. You can find the newsletter at www.japaninc.com. For further contact with Terrie, email him at terrie.lloyd@japaninc.com.

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11 Comments

GW at 09:09 AM JST - 7th August

there are lots of companies like this, rather than reform & try to survive they just keep going down the wrong road & everybody is surprised when they implode with monstrous debt
Beelzebub at 09:55 AM JST - 7th August

Yohan also published Tokyo Journal and quite a few books. Almost all the bookstore concessions in major hotel arcades, and the shops at Narita airport, were operated by them. I'm sure a lot of the magazines they distributed will never get reimbursed.
romulus3 at 02:23 PM JST - 7th August

Japanese are good at priding them self to death and taking others down with them
dennis0bauer at 03:13 PM JST - 7th August

damn i need my foreign books!
romulus3 at 03:22 PM JST - 7th August

dennis0bauer,

amazon.com
Wakarimasen at 05:04 PM JST - 7th August

Foreign magazines - no Amazon. How can a company with such a licence to print money (main local distributor for countless foreign mags at huge markup) lose money? Bad management, overstaffing, probabably some kind of dabbling in finacial markets.... eason why corporate Japan will never rise again and why Nikkei goes nowhere.
white_rabbit at 05:29 PM JST - 7th August

Yohan also published Tokyo Journal Tokyo Journal was bought from Yohan by Steve Hauser a while back.

How can a company with such a licence to print money (main local distributor for countless foreign mags at huge markup) lose money? Terrie explains above. Use of redundancy in manual labor instead of more efficient workflow automation solutions. And expanded too quick, burying themselves under the interest on their debt.

Also they wanted to break away from Yamato Logistics who was doing their fulfillment and create their own distribution center. But their IT guys couldn't get the software working in time, so they burned a lot of money with that initative.

I'm actually the first person to let Terrie know that Yohan finally went belly up. My small publishing company, White Rabbit Press, lost over $22,000 in unpaid invoices. Ouch!
kimigano at 03:52 AM JST - 8th August

Check the brother in law and the Ministry of Education connection.
white_rabbit at 03:56 PM JST - 8th August

To Our Creditors:

July 31, 2008

Statement of Commencement of Bankruptcy Proceedings

This is to inform you that Yohan, Inc. filed for bankruptcy with the Tokyo District Court today, and the court announced the commencement of the bankruptcy proceedings the same day. Hidemi Kuwashima (practitioner of law, member Tokyo Bar Association) (Tel: 81-3-6721-3101) was appointed as trustee in the bankruptcy.

To provide a brief background of the circumstances leading to our filing, from around 2006, bookstore sales of books and magazines began to decline because of diminishing individual consumption resulting in increased rates of return. This created a situation whereby we needed to procure funds from financial institutions to cover our purchasing costs. In addition, we made aggressive investments in the acquisition and/or support of a local publisher, overseas subsidiaries in book publishing and book retailing, Aoyama Book Center store openings, overhauling of our logistics center, etc., which led to our carrying a large amount of interest-bearing debt for a company our size. As a result, our interest costs increased, further exacerbating our cash situation. We took steps to reconstruct our business by implementing such restructuring measures as the renewal of our management following the resignation of the former management, selling off stocks of our overseas subsidiaries, and the relocation of our logistics center and scaling down of our head office to reduce costs, but this did not lead to improvements in our cash situation as anticipated, due in part to sales falling below our initial projections. Regrettably, these circumstances ultimately led to our decision to file for bankruptcy as we no longer were able to make payments to our creditors according to our agreements.
GW at 09:40 AM JST - 9th August

WR

hope you can get all/some of yr $$ back as a self employed kinda guy I know these hurt you directly in the wallet!

Sounds like yohan totally screwed up, expanded for the wrong reasons, some even looks like out right charity, when they should have been downsizing & revamping their own operations from the start, BAD MGMT!
helloklitty at 10:02 AM JST - 10th August

dennis obauer: damn i need my foreign books!

Try amazon.com.