TOKYO -- Retail giant Seven & i Holdings will step up efforts to turn a key supermarket unit around, hoping to shore up group earnings as its flagship convenience store business confronts a challenging business environment.
Ito-Yokado, long a drag on group earnings, swung to an operating profit of 52 million yen ($473,000) for the year ended February 2017. Seven & i plans to institute a series of reforms, focusing on the subsidiary's clothing business. The unit is expected to post an operating profit of 4 billion yen this fiscal year.
Ito-Yokado's sales will likely edge up 0.4% to 1.26 trillion yen in the current fiscal year but would actually shrink if the effects of the acquisition of a drugstore were excluded.
Clothing accounts for 15% of Ito-Yokado's sales. But the business, which had been a major earnings source, caused Ito-Yokado's earnings to slump as discounts became the norm amid growing competition with specialty stores.
Ito-Yokado will give priority to profitability over sales in the clothing business. It will shrink sales sections at its stores and devote the newly available space to tenants and selling food.
The company will also reduce offerings of such unprofitable products as fashion-focused clothing, demand for which tends to swing wildly. It will instead broaden its lineup of shoes, functional underwear and other items that see daily use, in the hopes of stabilizing sales without relying on discounts.
The clothing business' gross profit margin is expected to improve 1 percentage point to 33.5% this fiscal year, rising further to 35% next fiscal year, while sales will likely fall to around 150 billion yen over the next few years from 179 billion yen in fiscal 2016.
Seven & i hopes to see Ito-Yokado generate an operating profit of 15 billion yen in fiscal 2019.
Seven & i expects operating profit to rise 6% to 386.5 billion yen this fiscal year. Profit from the domestic convenience store business will likely increase just 0.5% to 245 billion yen.