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Japan-Update

Japan's big retailers mark first net profit growth in 3 years

March-November results show department stores leading recovery

High-end offerings are key to the earnings performance of department stores.

TOKYO -- Major Japanese retail companies cumulatively boosted net profit in the nine months through November, but it was an uneven turnaround, with only a little over half reporting profit increases.

The aggregate net profit of 58 major retailers rose 36% for the March-November period, achieving the first increase in three years. But while department store and specialty store operators enjoyed greater profits, thanks to brisk shopping demand from visitors to Japan, supermarket operators suffered major declines in profit.

Winners

In the department store sector, Takashimaya's net profit rose 9% on the year. J. Front Retailing, the parent of Daimaru Matsuzakaya Department Stores, saw 24% profit growth.

A weaker yen and growth in budget-carrier flights to Japan are both benefiting department stores, but their efforts to bring in more foreign visitors, by introducing smartphone payment options for instance, also paid off.

Takashimaya now sends out information to potential shoppers even before they arrive in Japan by leveraging its partnership with China's leading online travel service company, Ctrip.com International.

Daimaru Matsuzakaya has stepped up promotion via social media abroad. A video of a Chinese celebrity visiting the Ueno Frontier Tower commercial complex that opened in November -- a redevelopment project of part of a Matsuzakaya store -- has had more than 5.5 million views.

Drugstore operators also fared well. Welcia Holdings saw its March-November net profit rise 27% to a record. Discounts on food items and a broader selection of prepared meals drew more customers who otherwise might have shopped at supermarkets and convenience stores. And these customers often bought high-margin mainstay offerings like drugs and cosmetics as well.

Sugi Holdings' net profit rose 15%, also to its highest. The company is increasing stores that include dispensing pharmacies, and is developing easy-to-chew food for the elderly under nursing care.

Muji store operator Ryohin Keikaku booked a 16% increase to mark a fifth straight year of record net profit. It lowered prices of some 110 fall-winter apparel items by around 10-30%. Existing-store sales climbed 7%.

Shopping center operator Aeon narrowed its net loss by lowering prices as well. "Customers turn their back on companies defeated in price competition," said Executive Officer Soichi Okazaki.

Strugglers

Meanwhile, supermarket operators sustained notable profit declines. United Super Markets Holdings, which runs Maruetsu brand stores in greater Tokyo, suffered a 42% tumbling of net profit. Arcs, operating mainly in the northern island of Hokkaido and northeastern Honshu, booked a 14% drop.

The supermarket sector suffered from the rising cost of securing workers in a tight labor market. Higher hourly wages for part-time workers, more generous social insurance benefits and increased costs of recruitment due to competition squeezed profit. United Super Markets also took a hit from higher utility bills.

Convenience store operators are also shelling out more money to support franchise stores hit by the labor crunch.

Some apparel stores languished in the face of competition from online retailers. Casual clothing retailer Shimamura logged a 9% drop in net profit. "We did not tout low prices enough at the start of the fiscal year," said President Masato Nonaka.

Adastria, another major casual apparel company, saw its net profit nosedive 41%, as price cuts squeezed gross margins and system installation costs mounted.

Meanwhile, Amazon Japan's sales may have reached the same level as department store leader Isetan Mitsukoshi Holdings in 2017 after topping 1 trillion yen ($8.99 billion) in 2016.

"Competition among different types of businesses will intensify," said Akio Nitori, chairman of furniture purveyor Nitori Holdings.

(Nikkei)

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