Oct 1, 2009
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Seven & I mulls store closures to combat weak sales

Oct 1, 2009

TOKYO, Oct 1 (Reuters) - Japan's largest retailer, Seven & I Holdings (3382.T), said it is considering closing nearly 30 supermarkets over four years as it struggles with falling sales due to a prolonged slump in consumer spending.

Photo: www.7andi.com

The company, which runs more than 12,000 Seven-Eleven convenience stores and operates or licenses out thousands more overseas, is expected to report a tumble in profits for the March to August period later on Thursday 1 October.

Shares of Seven & I rose almost 2 percent, outperforming its peers.

But some analysts called for more drastic restructuring for these all-in-one stores that sell groceries, clothing and houseware goods, as customers continue defecting to cheap specialty chains such as casual-clothing store Uniqlo, a unit of Fast Retailing (9983.T).

"General merchandising stores are nearing their end as major retailers and specialty stores are taking over the status," said Takayuki Suzuki, a retail analyst and head of Primo Research Japan, referring to Seven & I's supermarkets and rival Aeon Co Ltd's (8267.T) Jusco stores.

Department stores and supermarkets are among the hardest hit in a prolonged retail slump, as a growing number of thrifty consumers cut back spending on clothing and other items and seek out bargains when they do decide to shop.

Japan's supermarket same-store sales fell for a ninth straight month in August, down 3.4 percent from a year earlier, data from the Japan Chain Stores Association shows.

The struggle is likely to continue even as Japan's economy crawls out of recession, with record deflation and rising job losses dampening hopes for a speedy recovery.

For Seven & I, the supermarket operation accounts for nearly 40 percent of the group's revenue, but it contributes less than 10 percent of its operating profit.

The company has been trying to revamp these operations, which are largely made up of 180 Ito-Yokado stores, by introducing cheap store brand items and converting unprofitable locations to discount stores.

"It is true that we are considering closing nearly 30 stores by the end of February 2013," said Yasuo Takaha, a Seven & I executive officer.

"But at the same time, we are also planning to open large stores in the Tokyo area," he said.

The Ito-Yokado unit is expected to have suffered an operating loss of 4 billion yen ($44.5 million) for the first half of the financial year ending in February, its first operating loss since 1972, the Nikkei business daily reported on Thursday 1 October.

Primo Research's Suzuki said Seven & I and its rivals needed a more drastic makeover of their supermarkets.

"One idea is to open their store floors to outside tenants and invite other retailers and to earn floor rent," he said. "And the second is to convert them to discount stores."

Seven & I cut its full-year group operating profit forecast by 12 percent last month, as a cool summer exacerbated weak consumer spending.

Shares of Seven & I rose 1.6 percent to 2,185 yen, outperforming a 0.3 percent decline in the Tokyo stock exchange's retail subindex .IRETL.T. ($1=89.88 Yen) (Reporting by Taiga Uranaka, Yumiko Nishitani; Editing by Chris Gallagher)

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