Sogo files for bankruptcy

News of the Sogo bail-out met with public outrage

Japanese department store chain Sogo has filed for bankruptcy, in the biggest non-finnancial corporate collapse in Japanese history

The 170-year old retailer has abandoned a proposed government bail-out, amidst public outcry that Sogo should not be given handouts from the public purse.

The government's plan was to take over 100 billion yen ($1.06bn) in loans owed by Sogo to banks. The government argued that the bail-out was essential to prevent another meltdown in the banking sector.

But Sogo president Kyoichi Yamada told a news conference: "Widespread criticism grew that it would be tax-funded restructuring."

"Our business conditions have rapidly changed with growing public criticism leading to a much-damaged corporate image," Mr Yamada said.

The company has now filed for protection from debts of 1.87 trillion yen ( $17.5bn).

When times were good in Japan, Sogo had expanded extravagantly. The cost of this expansion hit the company hard when the recession began to bite.

Sogo employs about 10,000 people and has 27 stores across Japan selling everything from clothing to household goods.

Voluntary retreat

Some officials within the coalition's dominant Liberal Democratic Party had urged the 170-year old retailer to voluntarily pull out of the bail-out.

Sogo's principal creditor was the Shinsei Bank, once the failed and nationalised Long Term Credit Bank.

The fear was that the bail-out would prompt similar bail-outs of companies that owned money to Shinsei - something the government

Analysts have welcomed Sogo's filing for bankruptcy.

"The government's bail-out plan as it stood was vague and unrealistic," Nozumu Kunishige, analyst at Lehman Brothers said.

"I think this is the best solution because Sogo was so heavily indebted that it was destined to collapse anyway," Minoru Nakano, researcher at Teikoku Databank said.

The collapse is an indication of the continuing problems of the Japanese economy, despite some recent signs of corporate optimism.

After two quarters of recession, the economy began growing again at the beginning of this year, but many consumers are too worried by the prospect of unemployment to spend much money.