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Economy

Outlook brightens for Japan's retailers

Seven-Eleven Japan has enjoyed brisk sales of private-label products.

TOKYO -- Many Japanese retailers anticipate earnings upticks this fiscal year on the view that consumer spending will recover gradually.

     The Nikkei compiled data on 40 major retail companies that had announced earnings for the year ended in February by Thursday. Aggregate pretax profit shrank 1% in fiscal 2014, partly because consumers tightened their purse strings after the sales tax was hiked a year ago, but will likely grow 8% this fiscal year.

     This fiscal year, some 80% of the companies are projecting sales and profit growth, with more than 30%, including Seven & i Holdings, predicting record pretax profits. Hopes are growing that wage increases and the wealth effect of high stock prices will spur household spending.

     Supermarket operators' profit fell 8% in fiscal 2014. But in fiscal 2015, the figure is expected to climb 7%. Convenience store operators' profit is also seen rising 7% after edging down last fiscal year.

     "The battle is now about product appeal," Motoya Okada, Aeon's chief executive, said on Thursday. "We have to be sensitive to changes in consumers."

     Aeon announced its earnings results that day. Since the sales tax went up, its mainstay supermarket operations have suffered a slowdown in customer traffic. Attempts to boost the traffic via a discount campaign with group member Daiei were not successful. Sales of apparel, which carry high margins, languished. Group pretax profit shrank 14% in fiscal 2014.

     But the retail titan expects profit to climb 8% in the current fiscal year. As consumer sentiment slowly improves, Aeon will adjust merchandise selection for each locality to make its stores more appealing to shoppers.

     Consumers have grown increasingly picky, even when shopping at convenience stores. Earnings at Seven & i, whose private-label products are popular, grew in fiscal 2104. The operator of Seven-Eleven convenience stores projects an 8% profit increase for this fiscal year.

     Meanwhile, FamilyMart booked a pretax profit decline for the first time in five years. The convenience store chain is planning 1,000 store openings this fiscal year, and will re-examine cooked meals and other offerings to enhance competitiveness. It aims for a 15% profit jump this fiscal year.

     Department stores have been enjoying solid earnings. Spending by affluent consumers continues to be brisk, with help from the wealth effect of high stock prices, said Shigeru Kimoto, president of Takashimaya.

     "Foreigners visiting Japan will increase their spending significantly this fiscal year," says Ryoichi Yamamoto, president of J.Front Retailing.

     The Bank of Japan's March Tankan survey of business sentiment showed that major retailers now have better views of current conditions and of the near future than they did in December. The improvement for retailers was the sharpest among all nonmanufacturing sectors.

     Consumer spending accounts for some 60% of Japan's gross domestic product, so a recovery in consumption would bolster the economy.

(Nikkei)

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