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. 

Equity Bottom-Up

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, <a href="https://www.smartkarma.com/entities/kkr-co-inc" target="_blank" data-smartkarma-citation="entities:27333:1" rel="noopener">KKR &amp; Co Inc (KKR US)</a> and <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten Inc (4755 JP)</a>, Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten's new reach through its new joint venture with <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post Holdings (6178 JP).</a> Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.

In 2002, Seiyu was saved by the foreign might of Walmart. Today it is about 25% smaller but over the same 20 years, it has gone from a ¥90 billion loss to an estimated ¥40 billion operating profit last year. Now, with the backing of its new majority owners, KKR &amp; Co Inc (KKR US) and Rakuten Inc (4755 JP), Seiyu has announced ambitious plans to become Japan’s largest online supermarket by 2025. This is increasingly likely thanks to Rakuten's new reach through its new joint venture with Japan Post Holdings (6178 JP). Right now, online food retailing is a two horse race between Amazon and Rakuten, with Z Holdings nowhere in sight.

Seiyu: Back in the Mainstream Thanks to Rakuten

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Our 2021 High Conviction call, <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> delivered 1QFY22 results today with revenue surpassing consensus estimate by around 2.0%. The company’s 1QFY22 operating income was 10% below consensus.Although Q1 results seemed a bit weak on profitability, we think the weakness is somewhat exaggerated by inflated consensus OP estimates. The consolidated OP increased 8.6% YoY in the quarter and the weak profitability in Superstores was the only real surprise. Weaknesses in superstore and department store business could provoke activists which might even be a good thing for Seven &amp; I’s share price. Hence, there is not a lot to do here unless the shares fall 5-6% tomorrow, which we think could be a good entry point to ride a rally towards Seven &amp; I’s all-time high of ¥5,906 per share in the short term.

Our 2021 High Conviction call, Seven &amp; I Holdings (3382 JP) delivered 1QFY22 results today with revenue surpassing consensus estimate by around 2.0%. The company’s 1QFY22 operating income was 10% below consensus.Although Q1 results seemed a bit weak on profitability, we think the weakness is somewhat exaggerated by inflated consensus OP estimates. The consolidated OP increased 8.6% YoY in the quarter and the weak profitability in Superstores was the only real surprise. Weaknesses in superstore and department store business could provoke activists which might even be a good thing for Seven &amp; I’s share price. Hence, there is not a lot to do here unless the shares fall 5-6% tomorrow, which we think could be a good entry point to ride a rally towards Seven &amp; I’s all-time high of ¥5,906 per share in the short term.

1QFY22 Results: Underperforms Consensus, A Minor Blip Could Be a Good Entry Point

Thematic (Sector/Industry)

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Japan’s retail and distribution sector has long been seen as fragmented, even to the point of being accused of inefficiency. On the surface, concentration levels do remain low, but scratch that surface and a very different picture emerges.
By format and by category sector, larger companies are taking increasing share and, over the past five years, this trend has accelerated.
Now, given the pressures of Covid, there is ample opportunity for stronger players to gain ground by buying out weaker ones, while some mid-level companies are joining together, hoping to become a fish too big to swallow.
Business tie-ups are also increasing in number, particularly as physical retailers seek to bring in and learn skills necessary to succeed in e-commerce and to build omnichannel models.
The following is a detailed review of how concentration has increased along with a map of who own who in retailing today.
There is a strong possibility that we could see some really big deals, even ones that span format and geographical borders, as many mid-sized retailers recognise that independent survival is getting hard. Acquirers will use the current environment to diversify into new areas, expand volumes and market share, or simply acquire more retail property for long-term development.

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Department store numbers have dropped by a third in the past 13 years to just 199 and another third are likely to disappear this decadeThe hope that many of these properties would find new life as shopping buildings is now looking far less likely and, with Covid worsening the problem, an accelerated hollowing out of central retail areas looks unavoidable in many small cities.We are likely to see department store numbers drop to around 150 over the next five years.The impact on both the department store sector and regional retailing is profound.

Department store numbers have dropped by a third in the past 13 years to just 199 and another third are likely to disappear this decadeThe hope that many of these properties would find new life as shopping buildings is now looking far less likely and, with Covid worsening the problem, an accelerated hollowing out of central retail areas looks unavoidable in many small cities.We are likely to see department store numbers drop to around 150 over the next five years.The impact on both the department store sector and regional retailing is profound.

<ul>
<li>The awaited closure of the Speedway acquisition was announced on 26th June 2021, after clearance was received from the FTC. Before this, there were question marks regarding <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a>’s Speedway acquisition, as the acting chairperson Rebecca Kelly Slaughter and Commissioner Rohit Chopra of the US Federal Trade Commission issued a statement on the FTC website on May 14th, 2021, saying that this transaction is illegal as it could impact competition and cause prices to soar at gas stations and convenience stores across the US.</li>
<li>As promised during the previous quarterly results release, Seven &amp; I published its new medium term plan for 2021-25 on the 1st of July 2021, after the closure of the Speedway acquisition.</li>
<li>We think the new medium term plan provides plenty of surprises to the upside, providing sufficient support to break the previous all-time high of ¥5,906 per share in the immediate future.</li>
<li>Nonetheless, the ¥5,900-6,000 per share range could offer some resistance for a short while, but we remain bullish on Seven &amp; I and maintain our previous target of an additional 50% upside to the current price, as we think that there is still plenty of room for multiple expansion alongside impending earnings upgrades.</li>
</ul>


The awaited closure of the Speedway acquisition was announced on 26th June 2021, after clearance was received from the FTC. Before this, there were question marks regarding Seven &amp; I Holdings (3382 JP)’s Speedway acquisition, as the acting chairperson Rebecca Kelly Slaughter and Commissioner Rohit Chopra of the US Federal Trade Commission issued a statement on the FTC website on May 14th, 2021, saying that this transaction is illegal as it could impact competition and cause prices to soar at gas stations and convenience stores across the US.
As promised during the previous quarterly results release, Seven &amp; I published its new medium term plan for 2021-25 on the 1st of July 2021, after the closure of the Speedway acquisition.
We think the new medium term plan provides plenty of surprises to the upside, providing sufficient support to break the previous all-time high of ¥5,906 per share in the immediate future.
Nonetheless, the ¥5,900-6,000 per share range could offer some resistance for a short while, but we remain bullish on Seven &amp; I and maintain our previous target of an additional 50% upside to the current price, as we think that there is still plenty of room for multiple expansion alongside impending earnings upgrades.


2021 High Conviction Update: Raises Speedway Synergies, But Leaves Enough Room For Future Upside

Japan

Seven & i Holdings Co., Ltd. is a holding company which was established through the merger of Ito-Yokado Co., Seven Eleven Japan Co., and Denny's Japan. The Company plans, manages, and operates mainly convenience stores, supermarkets, and department stores.

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Seven & I Holdings (3382 JP)

Seiyu: Back in the Mainstream Thanks to Rakuten

Online is only 3% of food retail in Japan but this is about to change fast. Amazon leads in this race but Rakuten is about to catch up through...

Michael Causton

1QFY22 Results: Underperforms Consensus, A Minor Blip Could Be a Good Entry Point

Q1 results seem a bit weak on profitability but we are confident that our investment thesis remains intact. So a minor blip in the share price due...

Oshadhi Kumarasiri

Who Owns Who: Concentration Levels Accelerate in Japan Retail, with More M&A to Come

Japanese retail is in the process of extensive concentration and market consolidation through M&A, organic expansion and tie-ups. Numerous...

Michael Causton

The Japanese Department Store Debacle

The Japanese department sector has been in retreat for a long time but the decline accelerated from the start of Covid. Unfortunately, an end to...

Michael Causton

2021 High Conviction Update: Raises Speedway Synergies, But Leaves Enough Room For Future Upside

We remain bullish on Seven & I and maintain our previous target of an additional 50% upside to the current price, as we think that there is still...

Oshadhi Kumarasiri

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