Namco Official Says Company's U.S. Arcade Business Struggling
By Hiroshi Suzuki and Yoshifumi Takemoto
Tokyo, Nov. 1 (Bloomberg) -- Namco Ltd., the Japanese maker of ``Pac-Man,'' is struggling at its arcade business in the U.S. because shopping mall traffic is falling, a Namco executive said.
Sales at arcades nationwide in September fell by about 10 percent from the same month a year ago, Namco Managing Director Keiji Tanaka told Bloomberg News in an interview. August sales fell 2 percent to 3 percent from a year ago, he said.
Namco's arcade business accounted for half its total sales in the year ended March 31. The drop in visits to the company's shopping mall arcades comes as the U.S. consumer confident index fell to a nine-year low this month, threatening to restrain consumer spending at the start of the holiday shopping season.
``U.S. shoppers are spending less time in shopping malls where most arcades are located,'' Tanaka said. U.S. consumers ``are going to discount stores more frequently now.''
Shopping malls in the U.S. are expected to attract fewer customers this year-end holiday season, according to an estimate by Bank of Tokyo-Mitsubishi Ltd. economist Mike Niemira, who predicts holiday sales may be the worst in a decade.
The slump is taking place at the same time Namco is aiming to boost earnings at its arcade business by shuttering money-losing arcades around the world. Namco is also closing arcades with low profitability.
In the year ended March, Namco's group operating profit from its arcade operations posted a profit of 2.1 billion yen ($17 million) on sales of 77.4 billion yen, compared with a loss of 820 million yen on sales of 75.8 billon yen a year earlier.
Scrap and Build
To improve profitability, Namco plans to scrap 130 of its arcades -- about half its arcade store network -- in the U.S. over the next three years.
In the year ending March, the company plans to shutter 50 stores. It will close another 50 in the year ending March 2004 and 30 more the following year, Namco's Tanaka said.
The company expects the liquidation to boost profit before taxes by about $10 million over the period. Costs related to closing the stores will be ``negligible'' because Namco will transfer its game machines to existing arcades, he said.
In Japan, Namco plans to shut 36 arcades by the end of March. The company will open 9 to 10 stores in new locations.
The company is already benefiting from the decision to close some arcades in Japan. For the full year ending March 31, Namco expects operating profit at its arcade business to beat its 3.3 billion yen forecast thanks to cost cuts and store closings.
Namco's Tanaka said the company will meet its 13 percent gross profit margin at its arcade business in Japan in the current fiscal year. It plans to improve that to 15 percent in the year ending March 2004. |
