TOKYO -- Net profit is on a growth track at 43 of 57 major Japanese retailers this fiscal year as stores lure choosy shoppers by supplementing bargains with products that cost more but offer added value, such as health benefits and increased safety.
Overall net profit declined 3% at the 57 retailers that had reported by Wednesday their results for the year ended February. But their projections for the current year show a solid 26% increase. A third of the major retailers expect record profits.
Retail giant Aeon sees operating revenue gaining 1% to 8.3 trillion yen ($76 billion). Net profit is projected at 15 billion yen, up 33%.
"Customers are now focusing on value, not just price," said Soichi Okazaki, president of general-merchandise unit Aeon Retail.
In response, Aeon aims to convert former Daiei discount supermarkets into Aeon Style and other stores, stocking them with wine and deli offerings to attract customers willing to pay a bit extra for better products. In addition to low-priced generic items, Aeon's private-label offerings also include such popular value-added products as fish certified for safety and organic meat.
The share of income spent on food rose to 25.8% last year for households of two or more people, a level not seen in 29 years, according to a government survey. This reading for the so-called Engel coefficient indicates thriftiness on clothing and other items as well as the higher demand for ready-to-eat and frozen food that accompanied the rise in dual-income households.
Supermarkets and convenience stores are busy capturing this demand. Seven & i Holdings, enjoying brisk sales of frozen and ready-to-eat food at convenience stores, expects to hit a record net profit for the first time in four years this fiscal year.
At competitor Lawson, customers have flocked to low-carb baked goods and green smoothies rich in vegetables. While mounting investment in store equipment is projected to drag down profit, sales will likely climb 7%.
While many of the major retailers are apparently benefiting from the rise of value-focused shoppers, plenty of others are still growing earnings by appealing to the bargain-minded. Clothier Shimamura, which is also heading toward a record profit, is expanding its lineup of functional products while maintaining its commitment to low prices. It boosted customer traffic last fiscal year through discounts on hot-selling items.
"We will continue to offer low-priced products," Shimamura President Masato Nonaka said.
Businesses serving consumers, including restaurants, hold a rather tough outlook. Among 50 retailers and restaurant operators surveyed by The Nikkei, only five respondents lean bullish on personal consumption trends, while 70% see consumption remaining flat.