Aeon expands specialty formats

Aeon continues to abide by the ‘keep it in-house’ rule, designing a myriad of small formats meant as tenants for its own stores and mall properties. Now several of these smaller chains will be spun off as new subsidiaries, with expansion to locations outside the direct control of Aeon Group.

Aeon will expand its non-food specialty formats from this Spring, notably R.O.U., Aeon Bike and Aeon Liquor stores. These small formats have so far opened only as tenants in Aeon run malls, but Aeon now plans to rollout stores in independent locations.

The R.O.U. chain, which is designed as an in-house alternative to Tokyu Hands and Loft, will be spun off as a separate subsidiary, with Aeon taking a 70% stake and Aeon Retail, the current owners of the brand, the remaining 30%. R.O.U. (which, as those less familiar with Japan may not have guessed, stands for ‘Rock Our Utopia’) carries 30,000-40,000 SKUs in some 700 sqm, targeting mostly female consumers under 40, with variety goods, stationery and basic cosmetics.

There are currently just 14 R.O.U. stores in operation, but Aeon says in has plans for more than 100. Similarly ambitious targets are typical of Aeon’s PR although few have yet to meet their goals as demonstrated by previous announcements for Ministop, Recods, A Colle and others. Indeed, the initial pace will be slow, with just five stores planned for FY2015 outside Aeon Group properties. These will be located in station buildings around Tokyo, with a smaller format of just 100-150 sqm. From FY2016 onwards, Aeon says it hopes to open 20 stores a year, with a breakeven target of February 2018 and the goal of 100 stores by 2020, generating sales of ¥25 billion.

The reason for the creation of a separate arm is because, as Aeon Group CEO Motoya Okada says, most GMS outlets and the specialty shops within them are failing to meet the needs of the current market, rapidly losing ground to major specialty chains like Uniqlo in apparel, Nitori and IKEA in home furnishings, and Yamada Denki in consumer electronics.

Following R.O.U., Aeon Liquor and Aeon Bike, also introduced in 2012 as in-house specialty formats, are earmarked for wider store expansion too. Neither has the unique merchandising of R.O.U., but the liquor chain would have few major competitors and is backed by Aeon’s significant buying power, while there are no bicycle sales and repair chains of any size other than those run as keiretsu member stores and some budding SME chains like Cycle Spot. Both Aeon chains are likely to be spun off as new subsidiaries in the next year or so.