Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

Convenience store (CVS) retailing remains the most dynamic and innovative physical store sector. It is now 50 years since the first Seven Eleven opened and the sector wide drop in sales in 2020 was the first in its history.Whereas department stores also took a battering last year and are likely to struggle to recover, convenience stores should bounce back quickly, including implementing lessons learned in last year’s crisis.That does not mean the format faces no problems, with labour shortages, overly strict operating procedures and an ageing population of store owners (many are now reaching retirement age with no succession in place) all issues that need solutions, but its willingness and ability to adopt new technologies and adapt to the market will continue to keep CVS strong.The following is an annual in-depth review of the entire CVS sector providing context for investors in any of the big CVS retailers (and their competing formats) as well as reviews of each major firm's KPIs.

Convenience store (CVS) retailing remains the most dynamic and innovative physical store sector. It is now 50 years since the first Seven Eleven opened and the sector wide drop in sales in 2020 was the first in its history.Whereas department stores also took a battering last year and are likely to struggle to recover, convenience stores should bounce back quickly, including implementing lessons learned in last year’s crisis.That does not mean the format faces no problems, with labour shortages, overly strict operating procedures and an ageing population of store owners (many are now reaching retirement age with no succession in place) all issues that need solutions, but its willingness and ability to adopt new technologies and adapt to the market will continue to keep CVS strong.The following is an annual in-depth review of the entire CVS sector providing context for investors in any of the big CVS retailers (and their competing formats) as well as reviews of each major firm's KPIs.

Convenience Stores: First Decline in 50 Years

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

As discussed in <a href="https://www.smartkarma.com/insights/the-kansai-super-9919-conundrum" target="_blank" data-smartkarma-citation="insights:57564" rel="noopener">The Kansai Super (9919) Conundrum</a> seven weeks ago, the fact that shareholders got excited about a possible OK Corporation alternate bid to the <a href="https://www.smartkarma.com/entities/kansai-super-market-ltd" target="_blank" data-smartkarma-citation="entities:15519:1" rel="noopener">Kansai Super Market (9919 JP)</a> deal with its top shareholder (10.02% of shares out) <a href="https://www.smartkarma.com/entities/h2o-retailing-corp" target="_blank" data-smartkarma-citation="entities:17562:1" rel="noopener">H2 O Retailing (8242 JP)</a> which would merge its Hankyu Oasis unit in return for control, it didn't mean that Kansai Super shareholders would get a good result.I recommended selling Kansai Super.  I had gone into some detail about the shareholder structure to suggest that defeating the EGM proposal for the merger was tougher than it looked.<ul>
<li>The Kansai Super/Hankyu Oasis deal meant Kansai Super gets bigger, gets more revenue, etc, and Hankyu/H2O gets more shares.</li>
<li>There were no explicit terms and/or opportunity for Kansai Super shareholders to sell into an H2O offer so they could not directly compare it to OK Super's proposed ¥2,250/share/share offer which meant that all shareholders could do is look at the market price. </li>
</ul>The shares traded at that price and just 5% below for the next 4+ weeks, then dipped slightly into the EGM date on 29 October. <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/140/original/Screenshot+2021-11-02+at+11.25.22+AM.png?1635823538" class="editor-image img-responsive" data-smartkarma-image-id="239140"></figure></section>Retailing expert <a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" rel="noopener">Michael Causton</a>wrote about the situation in <a href="https://www.smartkarma.com/insights/h2o-retailing-and-ok-super-which-is-the-better-owner-of-kansai-supermarket" target="_blank" rel="noopener">H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket?</a> on 23 October, just a week before the EGM, noting that OK Super offered a better platform for growth. OK Super had come out with an interview touting its proposal on the 20th. OPK Super sounded much more friendly than it initially had. Kansai Super for its part came out with another FAQ on the situation. It did not colour the interactions the same way. On Friday, Kansai Super <a href="http://www.kansaisuper.co.jp/upimages/irinfo/irnews_651.pdf" target="_blank" rel="noopener">announced</a> (Japanese only) that the EGM had passed the Share Exchange proposal and all related proposals related to later absorption mergers and changes of director. The shares dropped 32% in two days to today's ¥1,258/share. Now what?

As discussed in The Kansai Super (9919) Conundrum seven weeks ago, the fact that shareholders got excited about a possible OK Corporation alternate bid to the Kansai Super Market (9919 JP) deal with its top shareholder (10.02% of shares out) H2 O Retailing (8242 JP) which would merge its Hankyu Oasis unit in return for control, it didn't mean that Kansai Super shareholders would get a good result.I recommended selling Kansai Super.  I had gone into some detail about the shareholder structure to suggest that defeating the EGM proposal for the merger was tougher than it looked.
The Kansai Super/Hankyu Oasis deal meant Kansai Super gets bigger, gets more revenue, etc, and Hankyu/H2O gets more shares.
There were no explicit terms and/or opportunity for Kansai Super shareholders to sell into an H2O offer so they could not directly compare it to OK Super's proposed ¥2,250/share/share offer which meant that all shareholders could do is look at the market price. 
The shares traded at that price and just 5% below for the next 4+ weeks, then dipped slightly into the EGM date on 29 October. Retailing expert Michael Caustonwrote about the situation in H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket? on 23 October, just a week before the EGM, noting that OK Super offered a better platform for growth. OK Super had come out with an interview touting its proposal on the 20th. OPK Super sounded much more friendly than it initially had. Kansai Super for its part came out with another FAQ on the situation. It did not colour the interactions the same way. On Friday, Kansai Super announced (Japanese only) that the EGM had passed the Share Exchange proposal and all related proposals related to later absorption mergers and changes of director. The shares dropped 32% in two days to today's ¥1,258/share. Now what?

Kansai Super (9919) Still Not Super as Shareholders Agree H2O Deal

Contraction in apparel consumption aside, Japanese fashion retailers and brands have made dramatic strides to pull in customers online with e-commerce sales up 24% last year according to one survey, faster than the growth in e-commerce overall. Even some wholesalers are succeeding digitally. 
What the results show is a breakthrough shift to online with likely further growth this year, taking the online channel’s share above 25% and more than 30% for many of those firms with higher online ratios.

Contraction in apparel consumption aside, Japanese fashion retailers and brands have made dramatic strides to pull in customers online with e-commerce sales up 24% last year according to one survey, faster than the growth in e-commerce overall. Even some wholesalers are succeeding digitally. 
What the results show is a breakthrough shift to online with likely further growth this year, taking the online channel’s share above 25% and more than 30% for many of those firms with higher online ratios.

<a href="https://www.smartkarma.com/entities/h2o-retailing-corp" target="_blank" data-smartkarma-citation="entities:17562:1" rel="noopener">H2 O Retailing (8242 JP)</a>, the biggest retail group in Kansai, announced in late August that it would expand its share in <a href="https://www.smartkarma.com/entities/kansai-super-market-ltd" target="_blank" data-smartkarma-citation="entities:15519:1" rel="noopener">Kansai Super Market (9919 JP)</a> to take a majority stake. As is usual, the announcement was made with full understanding and acceptance by Kansai Supermarket’s board and CEO, but things have not gone according to plan. We now face another situation where existing shareholders object to a cosy, pre-agreed takeover. In this case, the company objecting is OK Super, the perennially successful Tokyo-based discount supermarket.OK Super would, in our opinion, offer the best growth longer term given its operational excellence, low price positioning and massive pent-up Japanese consumer demand for lower prices. Last year, OK Super broke ¥508 billion in sales for the first time, making it a top four chain, and achieved operating profits of ¥37.8 billion. In contrast, Kansai Super sales were ¥130.9 billion, with operating profits of ¥2.7 billion.Whereas Kansai Super largely represents past supermarket success, OK is the present and future and the prospect of OK entering the Kansai market would represent a serious threat to existing chains, not least H2O’s own.

H2 O Retailing (8242 JP), the biggest retail group in Kansai, announced in late August that it would expand its share in Kansai Super Market (9919 JP) to take a majority stake. As is usual, the announcement was made with full understanding and acceptance by Kansai Supermarket’s board and CEO, but things have not gone according to plan. We now face another situation where existing shareholders object to a cosy, pre-agreed takeover. In this case, the company objecting is OK Super, the perennially successful Tokyo-based discount supermarket.OK Super would, in our opinion, offer the best growth longer term given its operational excellence, low price positioning and massive pent-up Japanese consumer demand for lower prices. Last year, OK Super broke ¥508 billion in sales for the first time, making it a top four chain, and achieved operating profits of ¥37.8 billion. In contrast, Kansai Super sales were ¥130.9 billion, with operating profits of ¥2.7 billion.Whereas Kansai Super largely represents past supermarket success, OK is the present and future and the prospect of OK entering the Kansai market would represent a serious threat to existing chains, not least H2O’s own.

H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket?

FY2020 was clearly a year when department store executives would have been better to live in an induced coma. Big city stores suffered especially because inbound tourists, their main growth driver of the past few years, disappeared and local shoppers stayed away, although some stores did manage to harness support from Japan’s expanding wealth market to offset the rout a little bit. The good news is that executives pushing for change in the last five years in the face of perennial intransigence are increasingly taking charge and the result should be a leaner, smaller and more clearly defined format that is more overtly upscale.

FY2020 was clearly a year when department store executives would have been better to live in an induced coma. Big city stores suffered especially because inbound tourists, their main growth driver of the past few years, disappeared and local shoppers stayed away, although some stores did manage to harness support from Japan’s expanding wealth market to offset the rout a little bit. The good news is that executives pushing for change in the last five years in the face of perennial intransigence are increasingly taking charge and the result should be a leaner, smaller and more clearly defined format that is more overtly upscale.

Japan's Department Stores: Radical Contraction Still to Come if Sector Is to Survive

Japan

H2O RETAILING CORPORATION founded in Osaka in 1929, operates railway terminal department stores.  The Company's main store is located at Hankyu terminal in Umeda (Osaka) and sells clothing, foods, sundry goods, furniture, and household utensils.  H2O Retailing also operates restaurants and coffee shops.

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H2O Retailing (8242 JP)

Convenience Stores: First Decline in 50 Years

For any investor in Japan's consumer staples sector, the convenience store sector is a key component. The following is an in-depth analysis of the...

Michael Causton

Kansai Super (9919) Still Not Super as Shareholders Agree H2O Deal

Kansai Super (9919) shareholders approve the H2O deal to merge with Hankyu Oasis and Izumiya in return for 58% dilution. Comparatively, a bad deal...

Travis Lundy

Japan Online Fashion Sales Soar

Before, the boom in online was just a theory but the numbers now make it clear that Japanese consumers have shifted their spending habits,...

Michael Causton

H2O Retailing and OK Super: Which Is the Better Owner of Kansai Supermarket?

Kansai Super is the prize in a bidding war between H2O Retailing and OK Super. While the former would use Kansai to consolidate market share, a...

Michael Causton

Japan's Department Stores: Radical Contraction Still to Come if Sector Is to Survive

Japan's department stores are in trouble and were well before the pandemic but their outlook is much worse now. Major changes are required, not...

Michael Causton

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