Japan's Aeon strives to expand its reach

Aeon Co.'s appetite for Carrefour SA's stores in southeast Asia is an attempt to extend the Japanese retailer's global reach as the company struggles with weak consumer spending and heightened competition at home.

Aeon's move is unusual among its peers. Japan's retailers haven't been particularly active in pursuing acquisitions abroad, with the exception of Fast Retailing Co.'s failed $900 million bid to purchase Barneys New York Inc. in 2007.

But with the yen strengthening to 15-year highs against the dollar, domestic growth stagnating and competition among Japanese rivals intensifying, companies have no choice but to start shopping abroad.

Aeon's overseas retail sales made up just 4% of its 5.054 trillion yen ($59.88 billion) in overall revenue for the fiscal year ended February. Underscoring the tough climate at home, Aeon's domestic revenue for the fiscal year declined 4.4% from a year earlier to 3.885 trillion yen.

Aeon, which took over Carrefour's eight stores in Japan in 2005, is among the contenders for the French retailer's combined 69 stores in Singapore, Thailand and Malaysia. The U.K.'s Tesco PLC and France's Casino Guichard-Perrachon SA also are in the hunt, in a deal expected to be valued at roughly $1 billion, according to a person familiar with the situation.

Aeon declined comment. The company operates supermarkets, specialty stores and other retail stores and is Japan's second biggest retail group by sales, after Seven & i Holdings Co.

Adding Carrefour's Southeast Asia stores would give Aeon the ammunition the company needs to expand its global reach. Aeon operates 72 retail stores outside Japan: 24 in China, 10 in Hong Kong, 27 in Malaysia and 11 in Thailand. It also operates 22 small takeout restaurants and discount shops in Hong Kong.

"Gaining Asian market share is one of its goals as demand in the domestic market will likely be saturated due to the aging society," a Japanese brokerage manager said.

Carrefour Chief Executive Lars Olofsson in May said he was open to offers for the company's operations in markets where it isn't in the top two. Mr. Olofsson wants to revive Carrefour in its key European markets of France, Spain, Italy and Belgium, which have been hit by weak demand. France alone accounts for nearly half of the company's annual revenue. Outside Western Europe, Carrefour's main focus is now in China, Brazil and Turkey.

Midrange, Aeon plans to slow the pace of domestic store openings, while stepping up outlays on new stores in China and Southeast Asia. Aeon is expected to outline a new business plan this autumn.

Until recently, Aeon has been actively attempting to generate economies of scale through tie-ups, mergers and acquisitions and opening big shopping malls. It has acquired failed retailers in Japan, including Mycal Corp. and Daiei Inc.

But the strategy brought Aeon to an impasse amid the continued drop in retail sales in Japan. Nationwide supermarket sales fell below 13 trillion yen last year for the first time in 21 years, according to the Japan Chain Stores Association. Adjusted for changes in the number of stores, supermarket sales fell 4.3% to 12.835 trillion yen last year, the 13th straight year of decline. Nationwide supermarket floor space has almost doubled over the past 20 years, however.

Aeon has been feeling the pinch of the saturated domestic market. Under the midrange business plan it introduced three years ago, Aeon aims to increase spending on retail stores in Asia outside Japan to 140 billion yen to 160 billion yen over the three-year period ending next February, from 39 billion yen through fiscal 2008. Aeon aims to more than triple the number of stores in China, Malaysia and Thailand to 190.