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.
by Editor on May 13, 2009
As part of efforts to accelerate the company’s revitalisation, Isetan Mitsukoshi said it will shut down its Kichijoji store – Kichijoji is a fashionable suburb of Tokyo – in March 2010. The 20,758 sqm store had sales of ¥17.4 billion in FY2008, down 6.5%, and employs 415 staff, and was refurbished just four years ago. This is the third closure announced recently. The company already closed the doors of two Mitsukoshi department stores earlier in May – the Ikebukuro store in central Tokyo and its Kagoshima store in Kyushu. Isetan Mitsukoshi is suffering like all major department stores, many which have seen sales fall each month since October by more than 10% – and as much as 20% in some cases as detailed in our JapanConsuming monthly report. Last week the company announced it only managed a tiny net profit for FY2008, of ¥4.68 billion from sales of ¥1.427 trillion. Sales at Isetan stores fell 13% on year in April, following similar falls in February and March, and marking the ninth straight month of decline. Mitsukoshi sales fell 14% in April, the 12th consecutive month of decline. Thanks to store closures and cost cutting, the company forecasts its net profit will grow more than fourfold to ¥20 billion in FY2009, despite a forecast 10% fall in sales to ¥1.280 trillion.
Fast Retailing’s Uniqlo chain continues to post strong gains despite the general collapse in apparel consumption. Uniqlo’s same-store sales rose 19.2% in April, a huge gain the company attributed to the hot weather, more active instore promotions and investment in tv marketing. Footfall rose 17.6% and, as encouraging, average spend per customer rose 1.3%. Overall the 755 directly operated stores managed a gain of 26% in Arpil with traffic up 24.4%. During the month, 13 new stores were opened, including the large format store in Shinjuku (west exit), and nine were closed. Uniqlo’s performance is in striking contrast to much of the rest of the apparel industry. As the May 2009 issue of JapanConsuming shows, almost all other apparel retailers, including supermarkets and department stores, have been seeing sales fall as much as 20% year on year. Even the stronger specialty retailers like Point, United Arrows and Shimamura, have seen like for like sales fall and are dependent on store expansion to maintain overall sales growth.
Forever 21 had a strong start in Harajuku at the end of last month. The first Japanese store for the US apparel chain opened on the first day of Golden Week, helping boost queues which looked to be around 1,500 to 2,000 prior to the opening – although the huge number of press almost outnumbered customers. Forever 21 was swamped all day, with more thronging to the store after seeing the plethora of customers walking around Harajuku post shop with the distinctive bright yellow shopping bags. Security were warning those joining the queue to expect a three hour wait. The initial response from customers and bloggers looks positive with most surprised by the low prices – with t-shirts at ¥450 and jeans at ¥1,550, the store is significantly cheaper than Uniqlo. The chain has made sure its policy of refreshing items daily has hit the press, prompting consumers to buy immediately rather than risk something disappearing. Forever 21 is expected to move quickly to expand its store network both in city centres and shopping malls – various pundits are suggesting at least 100 stores are planned for Japan and rumours of a multi-store tie up with Aeon are rife. If the store is as popular as H&M, it should turn a profit quickly; H&M’s two Japanese stores continue to post daily sales in excess of an impressive ¥15 million a day.
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