by Editor on March 9, 2010
Yamada Denki is the third largest retailer in Japan, and the second most profitable. One of the few retailers that has taken marketing seriously over a long period, it now leads a sector that is increasingly saturated at home. Yamada continues to draw in customers and, in addition to forecasting great results for last year, is now set to expand overseas.
After months of speculation, Yamada Denki has confirmed it will open its first store in China. Japan’s leading electronics retailer and the number three retail company has been shifting strategy for about 18 months, diversifying its product mix and opening a wider range of store formats as a means to both enhance its position and offset increasing saturation in the electronics retail sector. International expansion will be an additional new strategy in maintaining its so far impressive long term growth.
Yamada will open in Tianjin in August in a huge 30,000 sqm store – larger than Yamada’s biggest at home which is only about 23,000 sqm. The store will carry the LABI fascia, Yamada’s label for its inner city stores in Japan. It will also feature its standard, organised merchandising plan, with products arranged by category in a neat, easy to shop layout. It will also offer the loyalty points system that it pioneered at home and which has since been copied by other retailers here. Yamada says it will also open in Shenyang and plans a further rollout across China and in the rest of Asia.
The move overseas has been expected for some time as it seeks to diversify out of its core domestic market. However, while the new store is claimed to be a new concept in terms of electronics retailing in China, analysts have questioned whether the company shouldn’t be looking at other countries as a first priority given the high level of competition from mixed merchandise retailing in China already.
Meanwhile, at home, Yamada said in February that results for FY2009 are likely to be better than expected. Group net profit increased 22% to ¥35.2 billion for the nine months to December. At least one analyst downplayed the result as being thanks largely to the government’s eco-points scheme which encouraged early appliance buying, but this only really helped sales, and while rivals also enjoyed sales boosts, none achieved similar levels of profit growth or volume. Sales at Yamada were up 6% to ¥1.48 trillion, with pretax profit up 15% to ¥64.3 billion – a new record for the April to December period even at Yamada.
Yamada opened 32 stores in the first three quarters and closed 18. Having recently opened in the old Mitsukoshi store in Ikebukuro, it is now set to jointly buy the location along with Simplex REIT Investment for about ¥75 billion. Originally, the plan was for Simplex to buy the site and rent it to Yamada (which currently rents from Mitsukoshi) but the REIT couldn’t raise enough funds. There are rumours now that Yamada is taking a close look at recently vacated department stores. It may take on the Yurakucho Seibu location too, with Yamada chairman Noboru Yamada saying that poor parking and immediate duplication of stores and other such issues, take second place to market domination.
The Matsuzakaya Nagoya Station store is also on its radar, and with little alternative competition in the area, if Yamada were to open on the site, it could shake-up electronics retailing throughout the third largest conurbation. Yamada already has suburban stores in the city, but Aichi is dominated by Edion.
by Editor on February 13, 2010
Itochu has announced it will boost its stake in Izumiya, the medium sized GMS chain based in Kansai, to 5.3%. Izumiya has a business tie-up with Uny, another major chain that Itochu recently invested in. In both cases, expansion in the Chinese market is said to be a key motivation for Itochu’s interest, although possible takeover interest from both domestic and overseas retailers may also have helped convince the retailers to throw in their lot with a major trading house.
The two recent investments in Uny and Izumiya establish Itochu as a growing and ambitious player in the Japanese food retail and distribution market. It is already a major food wholesaler, with its core interest in Itochu Shokuhin, and it also owns controlling interests in both the Familymart and, through this chain, am/pm convenience store chains in Japan.
Recent acquisitions in China in the wholesale sector have also indicated the extent of Itochu’s food and household goods distribution ambitions. It now owns the second largest household goods wholesale business in China and has said it will use this investment to drive Japanese retailers and household brands into the market there.
by Editor on February 13, 2010
Fast Retailing continues its search for major acquisitions — all part of the goal that Tadashi Yanai, the company’s president and majority shareholder, has to be not only the largest apparel retailer in Japan, but equally the largest in the world. This kind of ambition is exactly what the Japanese press like to report on, especially given the stark contrast with the depressed nature of some other parts of the industry.
In a recent Nikkei interview, Yanai is quoted as saying he is willing to spend as much as ¥1 trillion (about US$11.12 billion) on overseas acquisitions. He also reiterated that Fast Retailing aimed to be the biggest in the world by 2020.
Europe and North America are both areas where Fast Retailing is looking for suitable targets. Yanai not only wants to buy volume, but also wants to add to the chain’s stable of brands.
This is at least the third time in as many months that Yanai has appeared in the press touting his desire for acquisitions around the world. There has been some speculation that this is a key reason that the company is keen on bolstering its share price with genuinely impressive performance at home. Indeed, the spectacular same store sales increases in October and November, both months up around 30% on the previous year, were met with amazement. Things have since settled down. Same store sales dropped 7% in January.
In the latest interview, Yanai was at pains to insist any company it acquired must fit the Fast Retailing philosophy — in the past a difficult requirement to meet as shown by problems in its acquisitions to date, both overseas and at home. Despite adding numerous companies over the past 10 years, few of the brands brought into the group are yet to turn a profit and it is the core Uniqlo chain of casual apparel stores that holds the whole company together.
There is currently only a single Uniqlo outlet in the USA, but this flagship store in New York has proven a model that the company has since replicated both in Europe and back home in Japan. It was arguably the first time Uniqlo proved it could offer fashion in addition to cheap and basic clothing – although even now few would argue that Uniqlo’s fashion credentials are up to the standards of most of its international rivals. It is, according to Yanai, looking at opening in California, and has begun to explore possibilities in emerging markets. This includes Brazil, which Japan feels some affinity to due to the relatively large Japanese diaspora there.
China remains big on the Fast Retailing radar. Uniqlo already has 40 stores there. It will open in Russia this Spring and plans to continue expansion in Singapore and the rest of SE Asia. India too is of interest, but as with all international retailers, Yanai notes that regulatory difficulties make it a problematic market. “To sell your products in India, you would have to manufacture them in India as well, because the tariffs are so high,” he said. “It will take two to three years before opening stores in India,” he said.
Uniqlo products will be made available worldwide through online channels over the next couple of years.
The other big issue for Fast Retailing is Yanai’s succession. Traditionally in Japan, such retail powerhouses are handed down in the family, and Yanai continues to insist he’ll move to the chairman’s position when he hits 65 in four years time. But right now, it looks like his successor will be groomed from within the ranks. The company recently launched a high profile training programme for 200 middle to senior managers, involving IMD in Switzerland, Hitotsubashi University in Tokyo, and Harvard University in the USA. Such a major investment in education is unprecedented for a Japanese retailer (and rare for retailers in general) and, perhaps more than anything else, helps to put weight behind all the hype about Fast Retailing becoming world No. 1.
by Editor on November 18, 2009
Burberry Group has announced its license with Mitsui, which includes Sanyo Shokai as the main apparel licensee, will now end in 2015, five years ahead of the end of the original license contract in 2020. Burberry first signed a master license with Mitsui in 1970. After renegotiation, the remaining five years of the contract now includes tougher terms, requiring undisclosed higher royalty payments that will boost Burberry’s operating profit by ¥600 million this year. Mitsui and Sanyo Shokai will also have to deliver higher sales in the remaining years of the contract, above the reported ¥65 billion that Sanyo currently generates for the brand. Burberry also agreed the sale of two licensed lines, Burberry Black Label and Burberry Blue Label for sale in the rest of Asia. While nothing has been said about the future of the brand here following the end of the license contract, it is likely to be very different from now. Burberry has gradually taken over areas of Japanese distribution in the last few years, including the creation of a new Burberry controlled company last year to develop accessory-based retail stores, and is likely to want to to expand this control after 2015.
by Editor on October 9, 2009
For the second year in succession, Aeon has announced it will make a significant first half loss. The six months to 31 August saw the largest retail group make a group net loss of ¥14.6 billion. The main reason, again, was the ongoing slump in sales at the core GMS chain, with more and more consumers finding they have access to better value elsewhere. Given Aeon’s stated strategy and aims for its GMS chain, supported by its president’s comments, this will be yet another major disappointment for investors.
Sales for Aeon Group fell 3% to ¥2.52 trillion and operating profit plummeted 39% to just ¥35.4 billion. While stronger than retail in the past, service sector subsidiaries such as Aeon Credit were also hit. Aeon Credit operating profit dropped 24% to ¥19.5 billion, and the credit card firm made a net loss for the first time due to an increase in reserves for refunding interest overpayments. The ongoing problems at US subsidiary Talbots also contributed to pulling the overall results down with yet another operating loss.
In Nikkei, Aeon president Motoya Okada is quoted as somewhat disingenuously as saying, “We have engaged in reform of general merchandise operations over the past 10 years, but those outlets could not compete with new breeds of specialty shops.” With investors already unhappy at the lack of return on the huge level of investment since 1998, this simply adds to the concern that Japan’s largest retail conglomerate is a long way away from coming good.
Okada also added, “Consumers will become more thrifty because of deteriorating income and employment conditions.” Again, as Aeon claims so publicly to have modelled its operations and store formats on Wal-Mart, people have to wonder just why it doesn’t provide the kind of value that its US rival does. If any retailer should, after 10 years of effort, be positioned to attract consumers at a time of falling incomes and unemployment, it should be Aeon.
Equally ironically, the news of Aeon’s latest problems come in a month when Seiyu, Wal-Mart’s own Japan operation, has allowed hints in the press of a significantly improved year thanks to the cleaner, lower cost, and highly competitive offer it now makes to consumers. Even the ever domestically-biased Nikkei went as far as suggesting overseas retailers were now getting it right in Japan – close to blasphemy just a year or so ago.
Aeon says its forecasts of profit for the year as a whole remain unchanged, but with such a large loss for the second year running, and an overall loss for FY2008 as a whole of ¥2.7 billion, few will be surprised if this doesn’t turn into yet another depressing year for the largest group in the country.
On the other hand, someone has to lead Japanese retailing into the modern era. Specialty chains are making some progress, but even there it is a tiny handful that have maintained good results in the current economy. In many ways, Japan needs a general merchandiser like Aeon to do well.
by Editor on October 7, 2009
Italian designer brand Versace has announced it will pull out of Japan by the end of the year. Gianni Versace Japan had imported and sold the brand here directly, but the Italian parent will now liquidate the company entirely. The last three stores closed in July.
The brand will now look to re-start wholesale operations, leaving sales to local agents, with a press statement saying these are likely to begin early 2010.
Versace has worked in Japan since 1981 and, as with most similar brands, has had a reasonably strong following here. The market is now seen by some as overcrowded and too difficult for all but the most popular brands with significant networks of directly run stores already in place. Even then, the global economic crisis has meant many brands have had to withdraw funding from Japanese operations, at least in the short-term, while they weather tough conditions elsewhere. In cases such as Versace where the downturn hit sales in Japan equally hard, such tough decisions should not be a surprise. The move also echoes a return to favour of local distributors as a valid option. While this means a relinquishing of control – one of the reasons so many brands invested directly here in the last decade – it also means the brand is developed in Japan at the expense of the local partner. With glittering retail stores so crucial here for any major luxury label to maintain or grow market share, offloading funding to others is proving a relief to many international brands.
Gianni Versace SpA, the Italian parent company, has been undergoing restructuring, including a management reshuffling this summer.
by Editor on August 24, 2009
Following the formal establishment of a new joint venture between Seven Eleven and Ain Pharmaciez, the number two convenience store chain, Lawson, looks to have gone one better announcing it will tie with the largest drugstore operator in the country, Matsumotokiyoshi (Matsukiyo). As in the Seven Eleven/Ain case, which now operates under the Seven Healthcare subsidiary, Lawson and Matsukiyo plan to open combination drugstores and convenience stores. The first of these is due Spring 2010.
Matsukiyo has been adding more food to its existing stores for a year or two now, diversifying into convenience style retailing as a response to the loss of the drugstore monopoly on OTC drug sales that came into effect in June. Lawson, like most other chains, has begun to sell OTC drugs in some stores now that it is allowed to, but the tie with a dedicated drugstore chain makes a lot of sense both in easing into this new category and also in terms of opening far more lucrative prescription drugstores.
The two companies are also expected to announce a joint venture spin off company to operate the new format.
Stores will be double the average size currently operated by the two chains at around 300 sqm. The first store will be a directly operated outlet, but the franchise model is likely to be the main format in the future. The two firms will also integrate supply of some items. Lawson stores selling OTC drugs will reach around 20 this year but gradually expand in number and Matsukiyo is expected to help with procurement and supply. Similarly, Lawson will supply Matsukiyo with some food items and will help the drugstore set up an in-store ATM network. In the future, as with Seven Healthcare, the two firms will develop own brand drugs and health products, aiming to sell at 20-30% less than manufacturer alternatives.
As the deal involves leading players in the two sectors, it should provide plenty of competition for Seven Healthcare and could potentially develop a new powerhouse format. It comes as no surprise, however, and could be just the second in a stream of similar tie-ups between drugstores and convenience stores and/or supermarkets. Aeon, the other major retail player, has also already taken steps to integrate its own convenience store, Ministop, with members of its drugstore alliance.
by Editor on August 12, 2009
Aeon has announced it is to acquire a TV shopping unit from Mitsubishi Shoji, it’s long time business partner and now part owner. It plans to take a stake in Digital Direct, a company which runs mail order and e-commerce operations as well as TV shopping. Details of the agreement have not been made public, but Aeon says it plans to take the company from a current ¥5.2 billion a year in sales to more than ¥10 billion by 2012. The move is part of Aeon’s ongoing plans to move further into the non-store retail channel and reduce reliance on stores.
by Editor on July 24, 2009
Nikkei reports that Fast Retailing plans to open a string of new stores within Japan’s beleaguered department stores. Starting this Autumn with a store inside Seibu’s Yokohama store, Fast Retailing will work with leading department stores to open 1,000 sqm plus large format stores. For Fast Retailing it will solve the problem of finding good city centre locations to effect its strategy to shift store locations more towards cities from suburbs. The department stores are hoping that Uniqlo’s current popularity will translate into higher footfall.
Seven & I, which owns Seibu, is reported to be planning to invite Fast Retailing to open Uniqlo in other Seibu stores as well as in the Sogo chain. This confirms previous rumours that Seven & I is planning to convert the bulk of its department store portfolio into hybrid department store/specialty shopping buildings. If executed well, Seven 7 I’s plan could save its department store business, and provide a format that would work long-term. The trick will be to manage the positioning so that mass market chains like Uniqlo don’t detract from the upscale image of department stores. Meanwhile Takashimaya is also reported to be planning a 2,000 sqm Uniqlo store at its Shinjuku branch, and other department stores including J Front are said to be in negotiations.
If the Uniqlo stores work, the move will likely open the floodgates, allowing many more successful specialty operators like Point to open more stores in department stores – since department store chiefs will no longer lose face once the precedent has been set. The big question however is just how sustainable this strategy would be. Uniqlo is the hot chain of the moment but we have seen its popularity wane before. If that happens again, department stores will again be left with more low footfall sales space. On the other hand, with the precedent in place, adding more popular specialty stores will be easy enough.
by Editor on July 11, 2009
Rakuten is expanding sales overseas. Japan’s largest e-commerce site is already seeing sales to people outside Japan rising by 19.7% a month and company president Hiroshi Mikitani says it hopes for ¥100 million a day in the near future. While the site remains predominantly Japanese, it does offer one of the easiest ways for people outside the country to access a wide range of Japanese products. The current economic downturn is also encouraging member stores to ship outside Japan to expand their business.
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