80% of retailers expecting increased profits in FY2015

May 15

While FY2014 was a complicated year for many retailers, the majority of publicly traded firms are optimistic about the next 12 months. Most leading retailers are expecting to report improved profits. Such confident forecasts reflect the fact that sales at the best retailers remain strong despite issues with the consumer economy as a whole, and further demonstrates just how capable some retail businesses have become.

By early April, some 40 publicly listed retail companies had reported their end of year financial results, and overall, while profits were down, there is significant optimism. Total pretax profit across all 40 companies fell 1% due to consumer spending falls largely due to the tax hike last April and increases on prices of imports caused by the weaker Yen. The picture for the current year, however, looks very different with 80% of the same firms forecasting increases in profits.

FY2015 is expected to bring a recovery following the downturn last year. This is certainly the case in FMCG, where supermarkets reported an overall 8% fall in pretax profits last year but expect a similar 7% growth in FY2015. Convenience stores too are predicting a 7% increase. While the tax increase caused a general consumer reluctance to spend, food sales remained reasonably stable (see Focus, Page 13).

Even Aeon, fuelled by optimism about recent strategic changes (see Page 3), is predicting a bounce back to an 8% increase in the next 12 months following a 23% drop last year. However, it missed last year’s targets by half, and even hitting this new forecast in FY2015 will still leave the group less profitable than it originally hoped for in FY2014. On the plus side, it has already started the integration of Daiei, with joint discount sales across both Aeon and Daiei stores, and is taking steps that it hopes will make the Aeon Retail GMS chain more attractive to consumers.

Among convenience stores, the top three chains are likely to see profit growth, while the rest of the sector rapidly begins to wither. Seven Eleven remains perennially strong, with profits up 1% even last year, and is predicting a further 8% rise next year. Its recent string of new hit private brand products and the addition of inter-group ties across brands are all adding to this momentum. It already has 3 million SKUs from across the Seven & I group available for sale online and for delivery through Seven Eleven. It will also open Seven Eleven stores for the first time in three more prefectures in 2015.

Familymart saw profits fall for the first time in five years, but it now plans to add 1,000 new stores in the next 12 months in addition to the deal to merge with number four chain, Circle K Sunkus. Familymart expects pretax profit to jump 15% this year.

In department stores, Takashimaya is more cautious. It saw profits up 8% last year on strong spending by wealthier consumers and tourists. It expects profits to grow by just 4% in the coming year as the gains flatten out due to an expected tail off in spending by more affluent customers.

Wages remain the outstanding area of uncertainty. That aside, however, strong profit forecasts in retail reflect a general increase in confidence across companies in a wide range of sectors as well as the work done to increase efficiency in retail operations and supply chains. If higher profits across corporate Japan are converted into wage increases, this could sustain a longer economic recovery.