Japan-based retailer AEON warned that its full-year 2013 profit is expected to come in well below expectations. The company was hit by weak domestic consumer sentiment in the 12 months to end-February, with efforts to stimulate supermarket sales failing to offset group-wide pressure on revenues. But Aeon management also took the opportunity to outline its medium-term growth priorities. Katy Askew reports.

Late last week, Japanese retail giant Aeon warned that its profits are likely to fall short of expectations by a considerable margin.

The company said that it now expects to book full-year operating profit of JPY170bn (US$1.66bn), down from previous estimates of JPY210bn. Net profit is expected to come in at JPY40bn, compared to earlier forecasts of JPY70bn.

Aeon’s domestic performance has been hit by sluggish consumer sentiment among a shrinking, and ageing, population.

According to the Japan Chain Stores Association, supermarket sales in the country have witnessed 17-straight years of like-for-like decline. During 2013, supermarket sales adjusted for store openings fell 0.7 % in the market. Overall food sales dropped 0.1%, the industry body revealed.

Japan’s retailers are stepping up their efforts to win consumer’s yen in an environment of declining consumption.

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Aeon has responded to the increasingly competitive landscape of the Japanese retail sector with a plan to drive growth in the rest of Asia – and in China in particular.

Unveiling its mid-term management strategy on Friday (14 March), the Japanese retailer said that it is targeting overseas operating revenue of JPY1trn by 2016.

The group is embarking on an “aggressive” expansion plan in China and accelerated growth in the rest of the ASEAN region.

Between 2014 and 2016, Aeon said it will spend about JPY380bn – 25% of its planned capex total – on driving growth in China and Southeast Asia. This is almost double Aeon’s investment in the region over the previous three years, which totalled JPY200bn.

Aeon said its total capital expenditure between now and 2016 is expected to amount to at least JPY1.5trn, up slightly from the JPY1.1trn invested over the past three years.

While the group is increasingly looking to develop revenue opportunities outside its core domestic market, Aeon also hopes to bolster its Japanese business.

Aeon is reacting to some major demographic shifts in Japan, such as an ageing population, double-income households, and continued urbanisation. The ability to “respond quickly to customer needs” is key to growing sales and profits, Aeon said.

Over the past year, the company said it stimulated sales at its supermarket arm by increasing the amount of floorspace given to the “prepared foods sector” at more than 300 outlets. Aeon said it benefited from a sales uplift at these sites and intends to roll the move out further.

The company is increasing the emphasis it places on urban formats. Aeon said that its small scale urban supermarkets, Maibasiketto, contributed to profitability in fiscal 2013 and this will remain a focus for the group in the medium term.

Aeon also plans to accelerate openings of smaller discount stores under the banner Akore and has consolidated its ownership fellow Japan-based retailer Daiei as part of its drive to strengthen its urban infrastructure, Aeon revealed.

As Aeon works to deepen its relationship with domestic consumers it is focusing on the development of new channels. Aeon said it intends to develop its omnichannel presence, leveraging its e-commerce and physical retailing capabilities to expand its digital and multichannel offering.

By increasing its overseas investment, Aeon hopes it can stimulate dynamic top-line growth. However, the company also remains focused on developing a strong proposition in its largest market – Japan.