Otsuka Kagu: The Virtues of Being Modern

Abstract

Otsuka Kagu, a Japanese furniture company, experienced a succession and strategy crisis when the founder’s daughter, who became Chief Executive Officer in 2009, deviated from her father’s business model to modernize the company. A rare public spat ensued when the father tried firing her, but she was backed by the Board and non-family shareholders. Having re-taken the reigns, Kumiko Otsuka proceeded with her new strategy. However, the company’s financial results soon deteriorated instead. Was her father right after all or was it a matter of time before the company would return to growth and profitability under the new strategy? What should Kumiko do?

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Resources
Appendix 1: Company Milestones

1969

Katsuhisa establishes Otsuka Kagu with 24 employees

1980

Listing on JASDAQ Securities Exchange

1980s

Started imports to Europe and America

1993

Katsuhisa introduces membership system as company image is that of exclusivity and selling high-end products

2001

Experienced declining sales and profits

2009

Katsuhisa steps down

Eldest daughter, Kumiko takes over as Chief Executive Officer (CEO)

Makes transformations to company’s business model such as removing membership system

2014

Katsuhisa demotes Kumiko due to unhappiness over changes in the company and takes over as CEO again

January 2015

The Board reinstates Kumiko and Katsuhisa files for proxy vote for his reappointment

March 2015

Kumiko wins proxy vote with 61% of the votes

July 2015

Kumiko announces changes to business model such as an image change to suit casual shoppers and reduce exclusiveness

2016

Otsuka Kagu records new-low in profits of −4,567 million JPY

Appendix 2: Ownership Structure

2014 (During feud)

2015 (After the feud)

Financial institutions

24.54%

Financial institutions

25.77%

Securities companies

1.72%

Securities companies

2.45%

Other companies and corporations

15.34%

Other companies and corporations

14.58%

Non-Japanese investors

11.67%

Non-Japanese investors

4.15%

Individuals and others

46.74%

Individuals and others

53.05%

    Katsuhisa Otsuka

18.88%

    Katsuhisa Otsuka

9.61%

    Kikyo Kikaku (related to Kumiko Otsuka)

10.21%

    Kikyo Kikaku

9.75%

    Haruo Otsuka

2.82%

    Chiyoko Otsuka

1.91%

    Employee shareholding body

2.98%

    Haruo Otsuka

2.62%

Note: Kumiko Otsuka has a seat on the Board of Kikyo Kikaku.

Source: Otsuka Kagu Annual Reports 2015 and 2016.

Appendix 3: Financials

Figures in million JPY

2016

2015

2014

2013

2012

2011

2010

2009

Income statement

Net sales

46,307

58,004

55,501

56,230

54,520

54,366

56,912

57,925

Gross profit

24,720

30,830

30,598

31,069

30,848

30,551

31,064

30,605

Selling, general and administrative expenses

29,318

30,392

31,000

30,266

29,664

29,401

31,197

32,057

Profit after taxation

(4,567)

359

473

856

640

203

(255)

(1490)

Balance sheet

Current assets

22,094

29,325

30,312

26,595

25,334

25,393

23,867

25,354

Noncurrent assets

15,591

16,386

16,398

21,062

16,390

16,358

18,846

18,353

Current liabilities

7,633

8,828

9,518

8,433

7,849

8,069

7,982

8,286

Noncurrent liabilities

4,027

2,419

2,527

2,973

1,076

1,015

711

765

Net assets

26,024

34,464

34,665

36,250

32,799

32,666

34,019

34,655

Per share data (in JPY)

Profit per share

(257.10)

19.38

25.54

46.19

34.21

10.51

(13.18)

Financial ratios

Return on equity (%)

(15.10)

1.00

1.30

2.50

2.00

0.60

(0.70)

Return on total assets (%)

(12.10)

0.80

1.00

1.80

1.50

0.50

(0.60)

Note: Net assets include shareholders’ equity with valuation and translation adjustments.

Source: Otsuka Kagu Annual Report 2017.

Appendix 4: Family Tree

Figure

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