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Japan's convenience store boom slows to a crawl

Industry looks to tweak business model as 24-hour retail rivals poach shoppers

Convenience store signs
Convenience stores in Japan are looking for new ways to lure customers as other retailers encroach on their business model.

TOKYO -- Japan's three major convenience store operators are putting a brake on expansion, with their combined net increase of stores for fiscal 2018 estimated at about a third of their peak in 2013 over a decadelong span.

The three players -- Seven-Eleven Japan, FamilyMart and Lawson -- are expected to see a net gain of 1,100 stores for the current fiscal year.

The new policy comes as the stores' competitive edge, including vast networks and 24-hour operation, is increasingly being weakened by rival retailers. To counter this, new types of stores with cross-industry tie-ups are being launched in an attempt to lure more customers.

The number of convenience stores in Japan has been on the rise since first appearing in the 1970s. As they expanded, convenience store operators fattened their royalty income from franchise stores, using the proceeds for building cutting-edge data systems.

The extensive networks have helped operators slash procurement costs, but rising competition from other retailers has called into question the sustainable growth of convenience stores.

In the brick-and-mortar sphere, convenience stores are feeling the heat from drugstores that sell low-priced medicine, food and daily commodities. Moreover, some are open round-the-clock and offer fresh foods as well.

Consumers are also increasingly inclined to shop online at sites such as for the same daily use products, a mainstay of convenience stores.

Operators now “carefully review locations for opening new stores in each area,” according to Ryuichi Isaka, president of Seven-Eleven Japan parent Seven & i Holdings. The country's largest retail store chain plans to add 1,500 stores in fiscal 2018 while closing 800 stores.

This net increase of 700 stores is down about 20% from a year ago, although the company did see the number of 7-Eleven outlets in Japan top an industry-leading 20,000 at the end of January.

FamilyMart is projected to record a net decrease for the second straight year, losing a net 380 stores during fiscal 2018 but less than the previous year’s net loss of 900 stores. The operator will integrate all Circle K Sunkus stores into its brand by November, using the opportunity to close unprofitable locations.

Koji Takayanagi, president of parent FamilyMart Uny Holdings, said that the basic strategy is to “improve management efficiency of the existing stores.” In addition to store closures, the company intends to increase profits by investing 65 billion yen ($590 million) in labor-saving technologies.

Meanwhile, Lawson’s net increase of stores in fiscal 2018 would likely stand at 800, down 10% from the previous year.

The three operators’ combined domestic store count by the end of fiscal 2018 is estimated at about 52,600 stores, and all are trying to reach new customers by offering other services.

On June 15, Seven-Eleven will install automated check-in devices for private home-sharing, known as minpaku, at its Tokyo stores. The number of locations providing bike-sharing service is also to rise.

FamilyMart earlier this month opened stores that have incorporated product lineups and pricing of discount store chain Don Quijote to target a younger demographic.

Convenience store Laundry Combining a FamilyMart convenience store and laundromat Famima Laundry in Chiba Prefecture is part of a cross-industry effort to attract more customers.

Lawson looks to attract drugstore customers by increasing fivefold the number of stores handling nonprescription drugs to 900 by the end of fiscal 2021.

Until recently, convenience stores have depended on rice balls, box lunches and other food and beverage items for a large part of their business. Now, the stores are offering a slew of new amenities, such as copiers and ATMs, as well as accepting payments for utility bills.

The growth of these stores hinges on providing new conveniences that dovetail with the shift in consumer shopping habits, thereby reclaiming the profitability of existing stores.

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