G-Foot overtakes Chiyoda, targets ABC Mart

Jul 14

Aeon owns G-Foot, the third largest footwear retailer, and wants it to be number two. It is likely to achieve that ambition this year. It is opening stores faster than Chiyoda, helped along by its plethora of locations in group-owned shopping malls and GMS chain. ABC Mart is not standing still, however, and continues to pull away from its peers, including adding more upmarket chains, but all this competition is providing more options for footwear brands.

G-Foot exceeded sales of ¥100 billion in FY2014. It opened 100 stores during the year, bringing the total to 810, most under its three main brands, Asbee, Greenbox and Feminine Cafe.

After a few years of consolidation and restructuring, G-Foot is in expansionary mode again, helped along by the plentiful locations available through other parts of Aeon’s retail empire. Last year, for example, it took advantage of Aeon’s acquisition of Daiei by opening 55 Greenbox stores in the GMS retailer.

It is also overhauling merchandising. Thanks to expansion of private brands such as Keds, Pro Keds and Patrick Cox, these accounted for 34% of sales last year, up from 29% the year before, helping gross margins rise one point to 46%. As a result of these efforts, sales rose to ¥103.4 billion and operating profit 23.3% to ¥5.5 billion.

While second ranked Chiyoda posted sales of ¥143 billion on a consolidated basis, ¥36 billion of this comes from Mac House and other apparel retail operations – footwear alone accounted for just ¥107 billion, down from ¥114 billion five years ago. G-Foot needs to grow just 4% to overtake Chiyoda.

Aeon’s plans for G-Foot this year should allow it to overtake Chiyoda. It will open 70 stores, including 41 throughout the Aeon Kyushu store network. After several years of overhauling merchandise ranges and bolstering marketing and store design, as a sign of its growing confidence Aeon will also begin to expand the number of stores outside Aeon locations, particularly in city centres. It is keen to establish itself in locations where ABC Mart has had no competition until now. It will also continue to upgrade existing stores to better fit the new modern image of its chains – the most recent example is Asbee Shibuya which reopened in April.

Further work on new ranges of children’s shoes and sports shoes, should see private brands account for 40% of sales this year, a significant jump. As a result gross margins are expected to rise to 47%, despite higher cost of imports. Sales are forecast to reach ¥107 billion, up 3.6%, and operating profit up 10.8% to ¥6.1 billion. With Chiyoda forecasting a further fall in sales this year, G-Foot should officially become the second biggest chain.

It will still be far behind ABC Mart. The number one chain posted growth of 13.6% for FY2014 to ¥213 billion, producing operating profits of just under ¥40 billion, up 16.2%. With the main ABC Mart chain now ubiquitous, ABC continues to diversify. As well as its new chains for women’s fashion shoes such as Charlotte, it opened a boots only store called Stump Town in Shibuya recently. Overall it opened 42 new stores last year and closed seven, leaving a net 784 at year end.

Going forward it will use its more diversified range of formats to better meet the needs of each location with distinct stores. This will include more stores in department stores through its Premier Stage concept, as well as fashion buildings, markets which are pretty much virgin territory for the group, and a significant potential source of growth.

For fashion and station buildings, ACE Shoes is the big hope. Opened in Lumine Shinjuku in March, it is proving a hit. Despite being billed as a unisex sneaker store, 90% of customers are female, attracted to the more upscale, fashionable store. Average prices are higher than a typical ABC Mart, most ranging from ¥8,000-15,000, with an average price per purchase of ¥9,500. At only 80 sqm including storage, ACE Shoes is a lot smaller than a typical ABC Mart, and is ideal for station and fashion building locations. A second store was opened recently in Lumine Yokohama and a third will open in Fukuoka in September.

Overall ABC Mart will open 60 stores in Japan this year and 20 overseas, as well as launch an as yet unannounced new chain. Sales are forecast to hit ¥229 billion, up 7.5%, although profit is expected to rise just 2.8% to ¥41.1 billion.

All of which makes Chiyoda’s performance a little sad. Once Japan’s biggest chain – back in 2001 it was 10 times the size of ABC Mart – its relegation to third place emphasises its problems: over reliance on wholesale suppliers, tired stores in roadside locations away from where the traffic is today, and out of date ranges.

Chiyoda is working hard to improve, and much of the decline in sales in recent years is the result of brave efforts to slash poor performing stores and cut waste. For FY2014, sales fell 3% to ¥143 billion, but have been falling for most of the last two decades. Operating profits also fell 26% to ¥7.7 billion on the back of a higher cost of sales. Chiyoda tripled its operating profits four years ago, but the weak Yen, higher production costs in China and lower sales have led to a retreat. Chiyoda has the potential to ramp up profits by increasing the ratio of private brands, cutting overhead, and adding stores with higher potential sales densities.

As mentioned above, footwear only accounts for ¥107 billion of Chiyoda’s consolidated turnover. Within this its main focus has been two chains, Tokyo Kutsu Ryutsu Centre (an uninspiring name even in Japanese) and Shoe’s Plaza. The former is being repositioned as a neighbourhood chain in regional towns, while Shoe’s Plaza competes with ABC Mart and Asbee, selling famous names of casual and business shoes. More optimistically, Chiyoda is now planning to work on expanding a more select shop style format called Shoes Paletta, selling a mix of wholesale and private brands. It is trying to modernise its store portfolio, and last year alone refurbished 242 stores.

This year it hopes to sell some ¥25.6 billion in private brands, just under 25% of sales, and is forecasting a 19% rise in operating profit as a result. Overall 6 million pairs of shoes will be sold under the three main private brands of Cedar Crest, Bio-Fitter and Hydro-Tech. Chiyoda is optimistic about sales growth in the next few years, but it will need to be even bolder in scrapping stores, improving merchandise design, supply chains, and brand marketing if it is to grow again, let alone catch up with the leaders.

Get a concise monthly update on Japanese Consumer Markets – and a FREE copy of our monthly report.