Retail, Wholesale & Distribution

April 2005

Lawson, FamilyMart Post Robust Growth in Earnings
Lawson Inc. said Wednesday its net profit for the year that ended in February rose 10 percent to a record 20.44 billion yen, buoyed by strong sales and aggressive store-openings. Sales rose 4 percent to 254.39 billion yen during the year, the company said. As a result, the country's top three convenience store chains -- Seven-Eleven Japan Co., Lawson and FamilyMart Co. -- all enjoyed solid earnings growth for fiscal 2004. Second-place Lawson reduced the size of its domestic chain during fiscal 2002 by closing 109 unprofitable stores. There was a small net gain in stores in fiscal 2003. For fiscal 2004, it opened 256 new outlets overall, bringing the total to 8,077. The company noted that its revamped "onigiri" (rice ball) and "bento" (boxed lunch) menus helped drive up sales. The chain said it would continue to expand its Shanghai business and build 100 more stores in the city for a total of 310 in the current fiscal year. "I paid a half-day visit to Shanghai on Monday to look at the situation there," Lawson President Takeshi Niinami told a news conference. He stressed that the ongoing tensions between Japan and China have had "no impact" on business. On Tuesday, No. 3 FamilyMart reported an 8 percent drop in net profit for fiscal 2004 after writing-down assets. But its retail business showed robust growth, with operating profit rising 6 percent to 30.87 billion yen on revenue of 252.9 billion yen, up 10 percent from a year earlier. The chain said the strong figures are the result of efforts to revamp weak outlets by dispatching support teams and conducting mobile seminars. Food items tailored to local tastes also helped attract customers, it said. During the period, the chain opened 225 stores on a net basis in Japan, bringing the total to 6,424. Last week, the country's largest convenience store chain, Seven-Eleven Japan, also reported solid earnings growth.
(The Japan Times: April 14, 2005)

Takashimaya Targeting Kyushu Market in 300Billion Yen Investment Plan
Takashimaya Co. announced plans Tuesday to spend 300 billion yen over the next seven years on such projects as launching new stores, including a branch in a redevelopment facility at Hakata Station in Fukuoka Prefecture. "This is the last remaining large-scale domestic project," President Koji Suzuki said at a news conference that day, referring to the expansion into Kyushu. The investment plan, which runs through the year ending February 2012, calls for allocating 180 billion yen to build department stores as well as expand and renovate existing facilities. Around 50 billion yen is earmarked for systems-related outlays, and 70 billion yen will be invested in the group's shopping mall operations. To finance the project, the department store operator will tap internal reserves and capital gains from the sale of assets. The company plans to reduce group interest-bearing liabilities from 193.5 billion yen as of Feb. 28 to 150 billion yen by the end of fiscal 2011.
(The Nihon Keizai Shimbun, April 13, 2005)

Toys 'R' Us-Japan to Sell Pet Goods
Toys "R" Us-Japan Ltd. has decided to enter the market for pet goods in response to dwindling demand for toys due to the declining birthrate. The company will start to sell some 500 items over the Internet on April 14 and test-market them at some brick-and-mortar outlets possibly this summer. The company will sell dog and cat food as well as clothing and interior goods for pets on the online Web site of Kawasaki-based subsidiary Toysrus.com (Japan) Ltd. It will select some of the briskly selling articles and begin marketing them at several outlets. If the results are good, the company will consider expanding sales to other stores.
(The Nihon Keizai Shimbun, April 12, 2005)

Toys 'R' Us-Japan Sees Profit Margin Returning to 31% Range
Toys "R" Us-Japan Ltd. (7645) projects its gross profit margin will increase by 0.5 percentage point to slightly more than 31% for the current year ending Jan. 31, 2006, thanks to higher sales of lucrative own-brand products. Last fiscal year, the toy retailer's margin dropped to the 30% level due to an accounting change that called for inventory disposal losses booked as part of sales and administrative costs to be recorded at cost value. Sales of such own-brand items like remote-controlled toys, play sets and learning devices for infants as well as those only available for a limited time are growing. These are expected to account for 27% of overall sales this fiscal year, up 3 percentage points. Toys "R" Us-Japan hopes to lift that figure to about 30% in the near future. The profit margin of these products is 40-50% compared with the less than 30% for regular items.
(The Nikkei Financial Daily, April 08, 2005)

Aeon, Ito-Yokado Revamping Apparel Lines to Revive Core Operations
Retail giants, Aeon Co. and Ito-Yokado Co., plan to focus on rebuilding their clothing sales this fiscal year to counter slumps in their core businesses stemming from poor performances at their apparel departments. Ito-Yokado's parent-only operating profit plummeted 64% to 8.8 billion yen for the year ended Feb. 28, and Aeon saw a 27% drop to 17 billion yen. Even if these figures are combined, the total comes to less than half the operating profit of Fast Retailing Co., which operates Uniqlo casual wear outlets. Ito-Yokado's parent-only operating profit has sunk to a level not seen since fiscal 1974, and Aeon's has dropped to its fiscal 1997 level. Because specialty clothing stores such as Uniqlo took away some of their business, Ito-Yokado and Aeon had to post losses from slashing prices on excess clothing inventories. Ito-Yokado's gross profit margin on apparel slipped 1.4 percentage point to 39.6%, while Aeon's fell 0.2 percentage points to 33.3%. To rebuild its faltering clothing business, Ito-Yokado has tapped Yukio Fujimaki -- a former fashion buyer at Isetan Co. and the ex-president of sock manufacturer Fukusuke Corp. -- to lead a new unit charged with planning and developing apparel. It also intends to launch a fashionable clothing line by bringing a famous designer on board. Aeon introduced a system in which it handles everything from materials procurement to sales. For the casual line it launched last month, the company secured cotton materials for half a year's worth of apparel, or 2.5 million units. And it established a flexible sales system by keeping the products white at the plant, then dying them based on the latest data on popular colors. One of the reasons that Aeon is taking a start-to-finish production and sales structure is to teach its employees how to identify hot products, something that cannot be gained by relying on manufacturers. "It will take some time before the results will show," said Aeon President Motoya Okada. But both Aeon and Ito-Yokado can afford to take some time because their consolidated earnings are strong. Ito-Yokado's consolidated pretax profit for the year ended Feb. 28 gained 4% to 208.2 billion yen thanks to the solid performance of convenience store operator Seven-Eleven Japan Co.. And Aeon posted a record consolidated pretax profit of 156 billion yen, a 19% increase.
(The Nihon Keizai Shimbun, April 08, 2005)