TOKYO -- Daimaru Matsuzakaya Department Stores will look at return on assets in evaluating store chiefs starting with the current year ending in February.
Retailers rarely use ROA -- annual profit divided by total assets -- but the metric is common among factory-owning manufacturers. The J. Front Retailing unit previously focused on profit to assess department store managers.
The shift toward return on assets comes as J. Front Retailing pushes to diversify from department stores by strengthening its real estate operations. For instance, the company is focusing on rental income for its Ginza Six commercial facility that opened in April.
Promotions and salary hikes for top managers at 14 Daimaru and Matsuzakaya stores across Japan will be based partly on ROA. For the current fiscal year, return on assets is projected to average 4.6%.
Though targets differ by store, the company aims to bring the metric to "an average of at least 5%," said Hayato Wakabayashi, a managing executive officer at J. Front.
Lifting ROA means improving both operating margins and asset turnover ratios. Store managers can lift operating margins by cutting expenses or expanding the ratio of higher-margin goods sold. Turnover ratios can be improved by reducing excess inventory and collecting receivables at a quicker pace.
The Japanese government's growth strategy rolled out in June listed improving corporate ROA as one of its goals. Japanese companies average ROA of 2-3%, below that typically seen at U.S. and European businesses. Unlike return on equity, "a company's capital policy has a limited impact in swaying [ROA]," said Tamami Ota of the Daiwa Institute of Research.