Japan retailers’ profit growth slows to 0.6% in March-May

Japan’s retail sector has seen earnings growth slow notably from a year earlier in the March-May quarter due to lackluster increases in sales combined with greater labor and other costs.

The aggregate pretax profit of 61 retailers that announced their March-May results by Tuesday increased 0.6% on the year, according to a compilation. The figure, which translates to a nearly 3 percentage point drop from a year earlier, was the smallest over the past two years. About 40%, or 26 companies, booked profit increases.

Are winners losing their grip?

Convenience stores, which had been the winners in retail, are perhaps at a turning point. FamilyMart Uny Holdings, which was created through the merger between UNY Group Holdings and FamilyMart last September, said Tuesday its operating profit was 12.5 billion yen ($109 million), down 31% from the combined profits of its two predecessors a year before. Renovation costs were a major factor behind the profit drop, as the company turned some 750 Circle K and Sunkus convenience stores into FamilyMarts in the quarter.

Lawson’s pretax profit declined even with a sales increase, partly due to the costs it shoulders for its store operators for the disposal of unsold packaged meals.

Industry leader Seven-Eleven Japan was the only one among the top three players that booked profit growth. Its operating profit climbed 2% to 59.5 billion yen.

Meanwhile, even within the same Seven & i Holdings group, general merchandise store operator Ito-Yokado struggled, with its existing-store sales shrinking 3.2%.

“We will reform food operations by setting up a dedicated team,” said Yuji Kaneko, an executive officer of Seven & i.

Aeon Retail, a general merchandise unit of Aeon group, sustained an operating loss for the quarter despite slashing advertising and other costs. The company cut prices of as many as 254 food and household items in April. President Soichi Okazaki says “sales would have slid even deeper were it not for the price cuts.” To spur sales, the company plans to lower prices again as early as August.