Bankruptcy of Geos blamed on shrinking market for English conversation schools

The bankruptcy of major English school operator Geos Corp. is largely attributable to the shrinking market for English conversation schools in Japan, as a result of the declining birth rate and the economic downturn.

“The entire industry has been in a slump, and we lost a large number of students because of the recession,” Kazumi Suhara, a board member of Geos told a news conference on Wednesday as she explained the cause of the bankruptcy.

The market began to expand rapidly about 30 years ago, and a large number of English conversation schools were opened in urban areas.

Geos rapidly expanded its network of English conversation schools by aggressively airing TV commercials.

However, the competition between English schools has been intense in recent years as the number of students declined due to the recession following the bursting of the speculation-driven, asset-inflating bubble economy and a decline in the population of students and schoolchildren.

NOVA, another major English school operator, went under in October 2007.

In the same month, the maximum amount of government subsidies for those who take lessons at English schools, which contributed to the English-learning boom, was lowered from 200,000 yen a year to 100,000 yen.

As a result, the number of students at English conversation schools nationwide decreased from approximately 750,000 in February 2007 to about 360,000 a year later.

The collapse of U.S. financial giant Lehman Brothers in the autumn of 2008 dealt a further blow to the industry.

“Households have lost the leeway to pay for language classes and other lessons,” says an executive with a major bank.

The number of students at Geos, which stood at some 40,000 as of the end of September 2008, had fallen to about 36,800 by the time it collapsed, according to Teikoku Data Bank.

The company fell into a vicious circle of deep cuts in advertising expenses causing the number of those who sign up for lessons at Geos to decline, according to Suhara.

Its study abroad program also contributed to its bankruptcy. A subsidiary in Australia had its visa revoked in December last year because of a shortage of funds, and was forced to close all its eight schools in the country.

“It worsened the already severe financial situation,” says lawyer Nobuaki Kobayashi, who serves as bankruptcy receiver for Geos.

G.Communication Group, which is set to take control of Geos’ schools, has been successful in reviving NOVA, which it also took over, by streamlining its operations. Specifically, it relocated its NOVA schools to the premises of cram schools it operates and took other cost-cutting measures.

Nevertheless, few are optimistic about the future of English schools as they face growing competition from online schools, such as one that allows students to take online lessons from Filipino teachers — whose wages are comparatively low — and costs only 8,000 yen a month.

It remains to be seen if G.Communication will be able to put Geos and NOVA on a path to stable growth.