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Aeon slows China expansion, cuts costs

(China Daily)
Updated: 2008-12-31 07:52

Related readings:  Japan's Isetan, Aeon to open branches in Beijing  Aeon to triple stores in China  Japan's Aeon to operate suburban shopping mall in China  Aeon profit rises 22% in 2004

Aeon Co, Japan's largest supermarket operator, is cutting spending on stores at home and slowing expansion in China as it battles the worst retail market in at least 30 years, according to its Chief Financial Officer Masaaki Toyoshima.

The retailer will delay a target for 100 China stores by two years until February 2012 and reduce its three-year, 800 billion yen ($8.8 billion) capital expenditure plan.

"This is the toughest climate I've seen," Toyoshima said in an interview yesterday at Aeon's headquarters in Chiba prefecture, east of Tokyo. "It is looking tougher by the month."

Aeon's efforts to reverse six quarters of declining operating income by closing unprofitable outlets and cutting labor costs are being hampered as Japan's consumer confidence falls to a record low and job prospects worsen. Meanwhile, slowing sales growth in China is delaying attempts by the operator of Jusco general merchandise stores and the US clothing chain Talbots Inc to reduce reliance on the shrinking Japanese market.

Sales growth at its 23 general merchandise stores and four supermarkets in China has slowed to less than 5 percent since November from about 20 percent growth in the first 10 months of the year, Toyoshima said.

Aeon had planned to have 100 stores in China by February 2010 as it competes with Wal-Mart Stores Inc and Carrefour SA in the fastest-growing major economy.

Realistic target

With the slowing economy in China, 2012 is a more realistic target, Toyoshima, who joined Aeon in 1974, said.

Aeon shares gained 0.8 percent to close at 892 yen on the Tokyo Stock Exchange. The benchmark Topix index rose 0.5 percent.

An alliance formed this month with Mitsubishi Corp, Japan's largest trading company, would help efforts to expand in China, Toyoshima said. Tokyo-based Mitsubishi, which will become the biggest shareholder in Aeon with a 5.05 percent stake, could help with procurement, warehousing and transport in China, he said.

There was also the opportunity for a closer alliance in procurement and financial services between Ministop Co and Lawson Inc, the two Japanese convenience-store affiliates, he said.

Aeon's operating profit fell 8.6 percent to 36 billion yen in the three months ended August, its sixth straight quarterly decline, according to Bloomberg calculations. The company, which is scheduled to post its third-quarter results on Jan. 7, has forecast full-year net income to fall as much as 75 percent to 11 billion yen because of writedowns and restructuring charges.

The retailer may post a net loss of as much as 20 billion yen in the nine months ended Nov 30, mostly from charges related to its US clothing unit, the Nikkei newspaper reported today. The company declined to comment on its nine-month earnings and said it wasn't the source of the report.