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Laox president rolls with changing customer tastes

Duty-free chain looks to ease reliance on Chinese shoppers in Japan

TOKYO -- Japanese retailer Laox is struggling to turn a profit as the shopping boom among Chinese tourists wanes. Laox, once known mainly as a seller of home appliances, transformed itself into a duty-free shopping specialist after the chain was purchased by Chinese retailer in 2009.

For the year through December 2015, Laox posted a record profit, helped by affluent Chinese travelers eager to shop in Japan. But the company's sales in 2016 shrank more than 30% from the year before to 62.7 billion yen ($568 million).

Luo Yiwen, Laox's president, spoke with The Nikkei recently about his plans for getting the business back on track.

Q: Your earnings fell into the red in 2016. What were the major causes?

A: From 2015 though 2016, we went through some significant changes. One external factor was the foreign exchange rate: The yen was rather weak in 2015, but the currency strengthened in 2016, which discouraged buying by overseas shoppers. Customer preferences also changed over the period -- from expensive, durable items to more consumer goods. Naturally, the change has lowered sales per shopper.

Q: You are predicting a 30% increase in sales this year. How will you reach that target?

A: We will enhance our business in the two areas of goods and services. As part of the effort, we launched a new unit in February within our main domestic business department, which will exclusively seek new business opportunities. As a retailer, we have focused on selling products. But we will also seek to provide experience-based services. We hope to build up these services to the same scale as our retail business as soon as possible.

To be more precise, we are looking to expand into areas such as restaurants and leisure business. I can't tell you in detail at this moment, but Chiba Port Square (a commercial complex Laox bought jointly with a Chinese property developer) will be the first location to demonstrate the achievements of the new unit. Through new services, we are seeking to attract not only foreign tourists but also local consumers.

Q: When will you roll out a new midterm business plan?

A: I hope we can unveil the plan by December. The environment surrounding inbound tourism has been volatile, but that area still has a lot of potential. I'm not pessimistic at all and will remain aggressive, investing in the area as we have done before.

Inbound tourism is a rather new market in Japan. It is quite understandable that we often have to face gaps [between forecasts and results]. Nonetheless, we will have to carefully estimate what we can achieve.

We will try to be active in putting new ideas into practice that will help transform us from being just a retailer into something that can provide a wider range of services. We want to do that even before we launch the new midterm plan.

It will be an advantage if we have as many pillars as possible, though we won't make it overnight. The current dependence on a single type of business makes us prone to volatility.

Q: Are you keen to open more outlets?

A: As of the end of last year, we were running some 40 outlets. We plan to open several new shops this year, but I think we have almost built up our sales network as we wanted. We may not have as many shops as other chains, but we have covered the locations that we think are crucial. The next step is to make the most of the network to add value to our services.

Q: You downsized Asobitcity in Tokyo's Akihabara district. Why?

A: In 2015, we had so many customers visiting our flagship store in Akihabara. So we expanded the capacity of Asobitcity at that time. But the tastes of customers have changed since then. And we changed the size of our operations in the district to match the current needs of customers.

We recently closed some locations, including one in Sapporo [in northern Japan]. But that was because we managed to open new shops nearby, in even better locations.

Q: Are you interested in takeovers?

A: I'm positive about it (merger and acquisition opportunities). By purchasing shoemakers, such as Shin-ei, we now cover everything from manufacturing to retailing in women's shoes. We hope one day we can serve as a specialty store retailer of private-label apparel. Even a business that at first glance does not seem to have anything common with our business could have the potential to be a good fit for us.

Interviewed by Nikkei staff writer Ryosuke Hanada

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