Lawson’s Earnings Swell in Economic Malaise Hammering Japan Inc.: Retail
Lawson Inc. President and CEO Takeshi Niinami
Kiyoshi Ota/Bloomberg
Takeshi Niinami, president and chief executive officer of Lawson Inc.
Takeshi Niinami, president and chief executive officer of Lawson Inc. Photographer: Kiyoshi Ota/Bloomberg
Japan’s biggest convenience stores including Lawson Inc. (2651) and the 7-Eleven chain are benefiting from the deflation, aging population and March 11 earthquake weighing on the nation’s manufacturers and economy.
“Changing demographics and the willingness to spend more for quality at convenience stores are major growth factors,” Takeshi Niinami, president of Lawson, the country’s second- biggest chain, said in an interview. “With the earthquake, the trends are even more obvious.”
Lawson expects record operating profit this year as Niinami’s strategy of focusing on the elderly and housewives adds new customers. The retailer and rivals including Seven & I Holdings Co.’s 7-Eleven chain and Familymart Co. have taken advantage of Japan’s third year of deflation to lower costs while maintaining or raising prices.
“In the past, about half of our lunch boxes sold for more than 400 yen ($5.20), now the figure is 90 percent and unit sales are doing well,” Takashi Shinno, a Familymart spokesman said. “Even lunch boxes costing 580 yen are selling well.”
Familymart, Lawson and 7-Eleven had been offering higher- quality lunches, pastries, fresh produce and women’s toiletries for some years without making much headway in luring women and older shoppers away from supermarkets because they didn’t advertise much, said Toshio Takahashi, a consumer analyst at Mizuho Securities Co. The magnitude-9 quake and ensuing tsunami, Japan’s worst natural disaster on record, changed that as customers flocked to the stores open around the clock, seven days a week, he says.
Panic Buying
“A lot of people panicked and went to convenience stores to buy water and realized that the merchandizing had changed,” said Takahashi, who has a “buy” rating on Lawson and is ranked first among analysts covering the company, according to Bloomberg data.
Convenience store sales have climbed every month but one this year for outlets open a year or more, rebounding after dropping seven out of 12 months in 2010.
“The convenience store sector will continue to outperform in the next six months to a year,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co. in Tokyo. “The industry will change dramatically in the next five years because of an increase in single households and the elderly,” said Akino, who oversees about $600 million. “This year might be the tipping point.”
The Japanese economy this year hasn’t been as kind to manufacturers including Sony Corp. and Toyota Motor Corp., which are increasingly relying on overseas markets as a low birth- rate, aging population and deflation deprive them of customers and pricing power at home.
Population Drain
Auto demand has declined in four of the past five years in Japan, where as of this year, one in four Japanese are at least 65-years-old and the population peaked in 2004 at 127.8 million people.
Japan’s slump in domestic demand has contributed to a two consecutive quarters of decline in gross domestic product.
Convenience stores are likely to keep outperforming whether or not economic growth rebounds, said Jun Kawahara, a retail analyst at SMBC Nikko Securities Inc. in Tokyo. “It is good to hold on to them, even when the economy is bad,” he said by phone. “They will rise steadily.”
Lawson forecast operating profit will rise 11 percent this fiscal year to a record 61.2 billion yen as sales more than double to 473 billion yen. Seven & I, which gets about 40 percent of its revenue from the 7-Eleven chain, estimates operating profit will jump 18 percent to 286 billion yen.
Operating profit for benchmark Nikkei 225 Stock Average companies will grow an average of 9.6 percent in the coming fiscal year, based on estimates by Toyo Keizai Inc.
Share Performance
Lawson has gained 10 percent this year as of yesterday in Tokyo trading compared with the 15 percent drop in the Nikkei 225 (NKY) and a 0.7 percent gain in the Topix Retail Trade sub-index. Familymart Co. is up 1.3 percent, while Seven & I, which also owns the Ito Yokado supermarket chain, is down 1 percent.
“The hated Japanese retail sector, which was once seen as the ugly duckling, is now a great place to invest going forward,” says Mikihiko Yamato, an analyst at JI Asia. “There is very little downside.”
To contact the reporter on this story: Cheng Herng Shinn in Tokyo at hcheng52@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net
To contact the editor responsible for this story: Dave McCombs at dmccombs@bloomberg.net
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