USJ turnaround artist has all the moves

If asked to name the foreign business executive who has most dramatically turned around a financially troubled Japanese corporation, Glenn Gumpel might top the list.

Glenn Gumpel

Within two years of taking charge of USJ Co., the operator of the Universal Studios Japan theme park in Osaka, the 61-year-old American succeeded in making it a profitable company.

The New York-born Gumpel recalled that after taking over in June 2004, "We did a lot of things in a limited period of time. Now, USJ is reborn as a financially much stronger company."

In those first years he restructured the company and carried out a sweeping house-cleaning.

To recapitalize, USJ issued ¥25 billion in preferred shares in August 2005, with ¥20 billion bought by Goldman Sachs, and ¥5 billion by the government-run Development Bank of Japan. All of the money raised through the new share issue was used to reduce interest-bearing debt.

According to Gumpel, this was the first time in Japan that park facility construction was mostly internationally financed. Therefore, his top priority in turning around the heavily indebted USJ was to reduce the debt or refinance it on better terms.

Following the issuance of new shares, Gumpel listed USJ on the Mothers section of the Tokyo Stock Exchange in March 2007, raising some ¥10 billion from the initial public offering. A quarter of the sum was used to construct new attractions, while the rest went toward reducing outstanding debt.

"Our current standing owes much to investors who took their risks in infusing their money into our business. We must be micro-sensitive to shareholders, both majority ones like Goldman Sachs and minority ones."

On the restructuring and cost-cutting side, he said he did "every little thing" to trim spending.

For instance, instead of outsourcing park security to five different firms, Gumpel proposed that the company create its own security section. At present, only cash-delivery services are handled by an outside firm.

Fun and profit: Visitors watch a performance of the outdoor musical show "Fantastic World," a new and original Japanese attraction, at the Universal Studios Japan theme park in Osaka. COURTESY OF USJ

More importantly, Gumpel launched sweeping measures to change USJ's management style and corporate culture to break away from its negative legacies of a third-sector, or semipublic, corporation, that is, a hodgepodge of local government and local business interests.

When Gumpel assumed the top position, the board members and key managers were on loan from initial investors, including the Osaka Municipal Government, and who, according to Gumpel, were inexperienced in the theme park business. He politely asked many of them to return to their parent companies or pursue a new career path.

He did not resort to American-style layoffs. Instead, he offered them outplacement services and financial assistance such as early retirement incentives. Meanwhile, Gumpel introduced performance-based, results-oriented rewards and promotion systems, including stock options for employees.

It's another story what the managers and employees thought of these sweeping reforms. Some might have quit USJ with a feeling of ill will toward the new American president. The number of full-time employees plunged from 756 in March 2004 to 527 in March this year.

Nonetheless, the fact is that USJ has emerged as a profitable corporation. After five years in the red since the park's opening in 2001, the company registered its first net profit — ¥3.7 billion — in fiscal 2006. In fiscal 2007 ended last March, USJ posted a pretax profit of ¥7 billion, up 33.3 percent year-on-year and a net profit of ¥6.7 billion, up 78.4 percent, on revenue worth ¥73 billion, while paying ¥1,500 per share in dividends.

The firm expects positive figures for both revenue and profit in fiscal 2008 ending in March next year with a promise to pay ¥2,800 per share in dividends.

USJ is the second-largest theme park in Japan after Tokyo Disney Resort's theme parks in Chiba Prefecture — Tokyo Disneyland and DisneySea. USJ has 24 attractions, 33 shops and 52 restaurants, drawing about 8.64 million visitors in fiscal 2007.

As Universal Studios' first amusement park outside the U.S., it was attracting young moviegoers with its attractions featuring Hollywood movies, heroes and characters, such as Spider-Man, E.T., the Terminator, "Jaws" and "Jurassic Park."

But Gumpel was not happy with the approach.

He changed the marketing strategy, tailored it to Japan's ongoing demographic changes by introducing "new, cute and soft" characters like the Pink Panther, Snoopy, Peter Pan and even Hello Kitty to attract more women and families. He added an original outdoor musical show, "Fantastic World," this spring and a thrilling roller coaster, Hollywood Dream The Ride, last year to the list of the park's main attractions.

"It takes much time for consumers to accept a change in brand image. But our efforts to attract more women and women with children are producing tangible results," he said.

A refocused promotional drive is also under way. "We are concentrating ourselves to attract more guests out of the Kansai or the greater Kansai area, for instance, from Chubu and other areas in Japan," he said. "Our repeat visitation is currently 78 percent, compared to 95 percent to 96 percent at Tokyo Disneyland. TDL has attracted 21 percent of Japan's total population since its opening 25 years ago, whereas ours is only 7 percent. Given our shorter history, USJ would most likely boost the figure much further," Gumpel emphasized.

Meanwhile, USJ is redoubling efforts to attract more foreign visitors. It now has offices in Bangkok, Seoul, Taipei and Hong Kong and is working closely with local travel agencies to become a main destination for Asian visitors to Japan.

The share of foreign visitors in USJ's yearly turnout is currently 7 percent to 8 percent, compared with 4.2 percent for Tokyo Disney Resort. The majority of foreign visitors are Chinese and Koreans and most of the Chinese-speaking visitors are from Hong Kong and Taiwan.

"But within a reasonable period of time, people from mainland China will come to visit Japan on a massive scale," Gumpel forecast.

He said his current top priority is to expand.

"Sometime in the future, we may want to grow the company outside of this environment by launching other theme parks or fresh entertainment or leisure activities in Japan or in (other parts of) Asia," he said.

But he did not forget to add that the purpose is to increase shareholder value.