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Aeon's aggressive expansion in China starts to bear fruit

Japanese retailer poised for ninefold profit surge in mainland as it gains local fans

Aeon's stores are gaining more recognition in China.   © Reuters

TOKYO -- Japanese retail group Aeon is expected to log an 800% increase in operating profit in China to about 13 billion yen ($118 million) for the fiscal year ending February 2020, as the country becomes an increasingly important market for the company, Nikkei has learned.

Group operating profit is seen rising 8% to 230 billion yen, with China accounting for 60% of overall gains. Chinese revenue is projected to increase by 5% to over 290 billion yen.

An accounting change, which allows Aeon to book some of its rent overseas as a nonoperating expense, will lift operating profit in China alone by about 8 billion yen. But even without this boost, Chinese operations would have more than tripled their profit.

Aeon has made aggressive inroads into China since launching a headquarters for local operations in 2011, and now runs about 50 general merchandise stores and 19 Aeon Malls in the country. Initial costs of setting up these locations kept Chinese operations in the red through February 2018, but they turned a profit for the first time in seven years last fiscal year.

The company's private brand, Topvalu, has gained ground thanks to increased food offerings catering to local tastes. The Aeon Malls are also gaining traffic as it becomes better known locally and the Chinese economy grows.

Aeon also launched another Chinese unit in April specializing in the development of digital technology. The plan is to use facial recognition to send customers notifications on products and services they may want once they enter a store.

Operating profit in Japan is expected to remain flat this fiscal year as the retailer focuses on bolstering troubled operations and stores here. The company instead aims to boost profit in Southeast Asian markets like Malaysia and Vietnam.

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