Japan's Big Four H1 update and results

Date : 15 October 2018

Japan's four largest retailers, Seven & i Holdings, FamilyMart UNY, AEON and Lawson, have posted their results for the first half.

Seven & i Holdings: 8.2% total Group sales growth

Seven & i has recorded a 8.2% increase in total Group sales to JPY5,950bn, with operating profit rising 2.6% to JPY199,610bn year-on-year for the six months ending 31 August. 

Domestic convenience store operations recorded a 2.9% increase in revenue to JPY486,243m year-on-year (yoy). 7-Eleven Japan's key growth measure, existing store sales, increased 1.4% in the first half. In response to increasing shopper demand for take-home meals, it continued to focus its attention on expanding sales space for frozen foods and launched, for example, Seven Premium snack series dedicated to easy meals. The retailer added 336 stores to its convenience network in Japan to reach 20,596 outlets.

Consolidated revenue for Seven & i's superstore operations was flat. The retailer ended the first half with 164 Ito-Yokado stores in Japan, the same number as the first quarter. However, it forecasts to operate six fewer stores by the end of FY2019, continuing to reform this part of the business.

Revenue from operations at 7-Eleven Inc (U.S and Canada) increased 41.8% to JPY1,357bn. This was largely driven by the effect of the Sunoco acquisition, but nonetheless existing store sales increased 1%. 7-Eleven continues to position itself for the future, partnering with Foodora in Canada for example, to launch a food delivery app that allows customers to order a range of snacks and everyday essentials from 48 7-Eleven locations in Toronto, Vancouver, Calgary and Edmonton.

The retailer's footprint across Asia continues to grow quickly. Through area licenses, for example, 7-Eleven is expanding into new cities in China. Last year, it entered Zhejiang, and during the first half the first 7-Eleven store opened in Jiangsu Province.

FamilyMart UNY: closer alliance with Don Quijote expected

FamilyMart UNY posted a 1.3% rise in operating revenue to JPY641.8bn, with operating profit up 18.9% to JPY49.9bn yoy. This was mainly driven by improved daily sales at converted c-stores and cost reductions following closure of unprofitable stores. The retailer ended the first half with a total network of 23,896 stores, down 106 from the reported number in the first quarter, as it continues to consolidate its operations in Japan.

FamilyMart UNY has continued to focus on brand conversion and integration. As of 31 August, FamilyMart had rebranded 4,746 stores, with both daily sales and customers numbers increasing in converted stores. It aims to complete the brand conversion by November 2018. In collaboration with Don Quijote, it also remodelled three convenience stores in June. Daily sales have increased by 30% in these stores, while customer numbers have increased 10%.

To sustain growth, the retailer has outlined three focus area; enhancing product competitiveness, improving store operating procedures and reinforcing store foundations.

FamilyMart's largest overseas market, Taiwan, continued to perform strongly with operating revenue up 8.5% to JPY32,550m in the first half. In the general merchandise store business, the retailer continued to adopt its 'New Uny' slogan. Sales at the six converted UNY stores (Mega Don Quijote UNY) have doubled since remodelling, and the retailer is set to deepen its partnership with Don Quijote.

AEON: robust profit and revenue

AEON has posted a 2.3% increase in operating revenue to JPY4,266bn, with operating profit rising 5.7% to JPY89.8bn for the first half yoy. Operating revenue at both its General Merchandise Store and Supermarket operations were largely flat at 0.7% and 0.4% respectively.

Operating revenue from operations in Japan increased 1.7% to JPY3,884bn. Growth was much stronger overseas, however, with revenue rising 11.7% to JPY182,252m and 11.9% to JPY139,718m for ASEAN business and China respectively.

AEON's Health & Wellness Business, which operates under Welcia Holdings Co., Ltd continued to perform strongly. Operating revenue increased 13.7% to JPY387,386m, supported by the addition of 80 new stores during the first half (total network 1,773). As the drugstore market leader in Japan, Welcia's strong half-yearly results highlights the growing demand and strength of this segment.

Lawson: revenue up 6.9%

Lawson recorded a 6.9% increase in operating revenue to JPY351.9bn, but a 11.5% yoy decline in operating profit to JPY34.4bn for the six months ending August 2018. The retailer is moving towards the end of its third and final year '1000-Day Action Plan' - investment to ensure sustainable growth in the future.

In the first half, existing-store-sales fell 0.8% yoy, partially driven by unprecedented rainfall in Western Japan in July. Store network expansion was mainly in Japan (348 stores net yoy including Save On and Three F brand changes) and China (493 net stores yoy), reaching a total network of 14,340 and 1,709 stores respectively.

To appeal to a more diverse set of shoppers in Japan, the retailer expanded its Lawson Fresh Pick service to approximately 700 metropolitan Lawson stores in August. The service allows customers 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. Lawson plans to extend coverage to approximately 2,000 urban stores by the end of the fiscal year. It also remains committed to upgrading its offer during the evening, ensuring range and food options are attractive as in the mornings and at lunchtimes.

Lawson was granted a licence from Japan's financial services in August to operate banking services. Lawson Bank launched today - Masashi Yamashita, President of Lawson Bank, said, "We want to be a bank closest to customers [...]” 

Our view

Bringing customers into store remains a challenge in Japan for the Big Four, with the average number of customers visiting falling. We expect all four retailers to search for new and more innovative ways to encourage higher value basket sizes to sustain future growth.

 

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