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Our top five trends shaping the Asian retail market and influencing retailer strategy over the next year and beyond.
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American manufacturer and distributor Avery Dennison has announced that it will work with the Japanese government to drive RFID technology roll-out in convenience stores across Japan.
A.S. Watson has provided details of how it has successfully used predictive modelling to help brands successful launch products in its stores. It has shared two examples, Maybelline and Jeffree Star Cosmetics.
A.S. Watson (ASW) has strengthened its long-term partnership with Maybelline in Watsons Thailand, while it has launched Jeffree Star Cosmetics exclusively at ICI PARIS XL in Europe.
Watsons Thailand partnered with Maybelline in 2018 on a CRM programme. This was supported by ASW's DataLab, which helped to communicate offers to relevant customers through email. It targeted members to seek new category shoppers, drive stronger basket value sizes and engage customers with new product offers. This resulted in over 3.5m emails delivered to members, double-digit sales and over 170,000 customers buying into the brand.
In November 2018, Jeffree Star’s cosmetic range was exclusively launched to customers in ICI PARIS XL stores in the Netherlands and Belgium. A digital campaign was created to support the launch, targeting new customers as well as those whose data and profile matched the brand. Predictive modelling was used to identify members who often shop for new makeup brands. This resulted in over 300,000 customers receiving customised emails and 70% of members under 35 buying into the range during the launch period.
Malina Ngai, Chief Operating Officer of A.S. Watson Group, said, “Due to our extensive global knowledge of the beauty industry and CRM data, we are able to help niche brands like Jeffree Star and major brands including Maybelline launch products onto the market. Using our integrated online and offline model, this allows us to create these types of brand partnerships to specifically target and engage the right customers.”
Subscribers can read more on A.S. Watson's Strategic Outlook here.
We round up the latest trading updates and news for Japan's four largest retailers.
Seven & i Holdings has released a strong set of Q3 results, posting a 13.2% increase in operating revenue to JPY5,072.3bn, with operating income up 2.9% to JPY304.2bn. Revenue from its domestic CVS operations grew modestly at 2.9%, with existing stores rising for the eigth consecutive year at 1.5%. Growth categories were in sandwiches and noodles sales, delicatessen items and health-oriented products.
The retailer's main supermarket banner, Ito Yokado, was flat at -0.3% YoY. It ended the reported period with 164 stores across Japan, two fewer than the corresponding period last year. Further closures are expected, with the retailer forecasting to end the fiscal year with 158 stores. While total convenience store sales in the U.S increased 28.3% to JPY3,002.6bn for the nine months ending 30th September 2018. Gasoline sales was up 50.8%, with existing store sales up 1.4%.
Seven & i is on track to deliver another excellent year of growth and income. It continues to bring new initiatives to its stores, including store entry and payment through facial recognition. To drive in-store efficiencies and support labour shortages in Japan, it is installing an AI ordering system to suggest volume orders, as well as equipment to collect information to support operational management.
In the nine-month period ended 30th November 2018, FamilyMart UNY posted a 1.7% YoY decline in gross operating revenue to JPY470.8bn (excludes the performance of discounted businesses). Core operating income increased 31.4% to JPY48.2bn.
FamilyMart UNY completed brand conversion of all Circle K and Sunkus brand stores to FamilyMart across Japan on November 30, 2018. This has resulted in a total of 5,003 stores being converted since the merger in September 2016. Converted stores have seen YoY increases in both daily sales and customer numbers. More profitable operations is a focus rather than opening new stores. The retailer is committed to enhancing product competitiveness, improving store operating procedures and reinforcing store foundations.
In the general merchandise store business, the six MEGA Don Quijote UNY stores (collaboration with Don Quijote) have sustained positive sales trends. UNY hypermarket operations in Japan will be classified as discontinued businesses (for FamilyMart UNY), after Don Quijote completed the acquisition of UNY on 4th January.
Lawson has announced its financial results for the third quarter, posting a 6.5% increase in net sales of convenience stores to JPY1,833.9bn, and 6.8% rise in operating revenue to JPY527.6bn. This was mainly driven by new store openings across network, with a net increase of 532 stores. It reached 14,524 convenience stores in Japan for the reported period. Store numbers overseas increased by a net 452 to 2,048 stores, with expansion mainly coming from China.
FY2018 marks the third and final year of Lawson's 1000-Day Action Plan project, which aims to develop next-generation convenience stores, stronger support for everyday living and reform of in-store operations. This has been reflected in the retailer's operating profit in the nine months, which declined 11.9% YoY to JPY47.8bn, with investment in systems and expenses for launching Lawson Bank.
The retailer continues to expand its Lawson Fresh Pick (Loppick) service to approximately 1,600 Lawson stores in Tokyo and Kanagawa prefecture. To appeal to a more diverse set of shoppers, the service allows users to order fresh produce and meal kits via smart phone in the morning and pick up their order from a Lawson store in the evening. It remains committed to upgrading its evening range and food options so that they are as attractive as those in the mornings and at lunchtimes.
AEON has continued to cut prices across its formats to attract shoppers and this has led to stronger customer traffic during Q3. For the nine months ending in November, AEON posted a 2.1% increase in operating revenue of JPY6339.3bn, with operating income rising 6% to JPY109bn. The performance of the retailer's GMS Business was flat, with operating revenue growing 0.3% to JPY2,272.9bn. Operating revenue from its Supermarket Business, which includes Maxvalu and Ministop convenience chain, grew 0.5% to JPY2,429.8bn YoY. The retailer's International Business, which includes operations in Malaysia and Hong Kong, recorded revenue growth of 7.6% to JPY330.1bn.
AEON's Health & Wellness Business, which operates under Welcia Holdings Co., Ltd continued to perform strongly, highlighting growing demand in this segment. YoY of all store sales for the nine months increased 12.5%, while same-store sales increased 5.2%. The retailer ended Q3 with 1,800 stores, and continues to be the leader in a highly fragmented Japanese drugstore market.
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FamilyMart UNY has failed to secure enough shares to make Don Quijote an affiliate. The discount operator, however, will proceed with its plan to make UNY a fully owned subsidiary.
In the deal announced in October, FamilyMart UNY was to purchase a 20.17% stake in Don Quijote. FamilyMart UNY has released a statement to confirm that the deal is being "postponed at this point in time." Nonetheless, Don Quijote will purchase the remaining 60% stake of UNY tomorrow, making it a wholly owned affiliate. The two companies will continue to collaborate on product development, procurement and sales promotion. Another takeover bid from FamilyMart UNY in the future cannot be ruled out.
FamilyMart UNY is launching a smartphone-based payment system to its stores across Japan in July. To pay for in-store purchases, shoppers just need to show a barcode displayed on their smartphones’ screen for the staff members to scan. The service can be precharged with cash or shoppers can pay the bills with credit cards.
The new cashless payment service is another example of a retailer in Japan responding to the country's labour shortages. It also aims to improve customer convenience and will provide the retailer valuable data on shopper purchases for the development of new products. To drive greater engagement, the retailer will offer shoppers points from loyalty programs of other companies, including the T-Point system.
We’ve identified the top five trends shaping the Asian retail market and influencing retailer strategy in 2019 and beyond. Nick Miles, our head of Asia-Pacific, discusses each one and reveals what it means for suppliers in the region.
Changing lifestyles mean shoppers across Asia are becoming increasingly demanding. Shopping little and often is a growing trend and consumers expect to be able to source products anywhere, anytime and anyhow they like.
Retailers are adapting their operations in response. Convenience store chains continue to rapidly expand their networks and stores are using space in new ways. Retailers are developing smaller, more unique stores, and online delivery times are being cut.
Nick said: “Convenience is not purely about speed. Retailers that are able to meet different shopper demands through their stores, ranges, services and the experience they offer will win. These experiences will need to be fast, relevant and seamless. So, suppliers will need to ensure they also have the necessary flexibility in their businesses.”
Over the past few years, major partnerships have helped share expertise and accelerate online growth across Asia. These partnerships come in many forms as retailers, suppliers and technology businesses increasingly look to blur the boundary between offline and online. In 2019, we expect to see more partnerships emerge, existing ones develop further and the influence of Asia’s largest online players to spread across the region.
Nick said: “Asia’s online landscape is incredibly fluid and competitive. Collaboration between partners will help online expand both within individual markets and across borders, faster than previously thought. Suppliers should ensure they stay on top of the latest online partnerships.”
Asian shoppers are increasingly aware of the importance of healthy living, fresh food, nutrition and product sourcing. That’s thanks to factors like growing levels of affluence, improved education, targeted government campaigns and historical food safety scares. Retailers are responding by highlighting healthy ranges and freshness using innovative concepts, layouts and technologies.
Nick said: “Fresh food, foodservice options and health and wellness ranges will feature more prominently in-store in the future as retailers respond to changing shopping habits. Suppliers should be aware that competition for space in-store will intensify.”
Social commerce is rapidly growing in importance across Asia. Brand communication via social media platforms is commonplace, influencing shopper behaviour and giving smartphone users easy ways to shop online. Innovations will continue to emerge in 2019, as retailers and suppliers deliver targeted marketing and new ways to make online shopping more social.
Nick said: “Shopping via social media platforms is a key route to market in the region. Retailers and suppliers must therefore truly understand the landscape and have a clear social media strategy to engage shoppers and stay relevant.”
Asian consumers are exceptionally open to new technology. In 2019 we will be keeping a close eye on digital and technological innovations in Asia. We’ll look particularly at those helping retailers to differentiate their offer and raise service levels. Those that help them develop stores set up for an online future and deliver more efficient operations in the face of rising costs.
Nick said: “Technology is revolutionising the food and grocery industry in Asia. This could have big implications for how shoppers interact with brands in store in the future. However, it’s not only about a focus on customers – it’s also about reducing costs and improving efficiency. Suppliers need to understand which technologies are set to have the biggest impact on their category.”
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