'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/139/255/original/2020-06-11_08-36-54.png?1591832240" class="editor-image img-responsive" data-smartkarma-image-id="139255"></figure><div class="content-caption">Source: Japan Analytics</div>STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's<a href="https://www.smartkarma.com/insights/japan-who-s-swimming-naked-part-2-altman-z-score" target="_blank" data-smartkarma-citation="insights:37316" rel="noopener"> Swimming Naked?</a> Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a> which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener">Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>- have been excluded from this analysis.

Source: Japan AnalyticsSTRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through the current euphoria and assess where business risk is concentrated among larger Japanese companies. According to Tokyo Shoko Research, 171 listed Japanese firms have raised nearly ¥10 trillion in new funds to weather COVID-19.ALTMAN Z-SCORES - The first Insight will update our earlier Who's Swimming Naked? Insight and focus on the Altman Z-Score as updated for the most recent quarterly results for both manufacturing and non-manufacturing companies.  In each category, ee will look at both the companies that are below Altman's 'distress' levels and those companies that have the most significant negative deviation from their seven-year average score. Only six of the bottom-thirty manufacturing and five of the bottom-thirty manufacturing companies have outperformed over one year. Many are already Oversold and offer potential value opportunities -as with Nissan Motor (7201 JP) which is now as distressed as when Carlos Ghosn first arrived.  QUASI-FINANCIAL FIRMS - The Z-Score methodology does not work for financial firms. Accordingly, five non-financial companies which have significant financial subsidiaries -  Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)- have been excluded from this analysis. 

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

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. 

With shoppers staying away in March and April, department stores are suddenly the most vulnerable sector of all.Some department stores have improved in the past 20 years and, in the past five, the big players have poured investment into more modernisation. This has brought some success to the top firms, especially from wealthy consumers, but no one could have seen the virus crisis coming.A major cull of stores was already expected, but those cuts are now likely to go much deeper. A sector that once had 313 stores and is now already down to 205 may only have capacity for 100.A few chains will survive and thrive, however.

With shoppers staying away in March and April, department stores are suddenly the most vulnerable sector of all.Some department stores have improved in the past 20 years and, in the past five, the big players have poured investment into more modernisation. This has brought some success to the top firms, especially from wealthy consumers, but no one could have seen the virus crisis coming.A major cull of stores was already expected, but those cuts are now likely to go much deeper. A sector that once had 313 stores and is now already down to 205 may only have capacity for 100.A few chains will survive and thrive, however.

Japan's Department Stores: The Most to Lose but Also the Hardest Hit

Top department stores generally performed well in the 12 months to December 2019, but compared to five years ago, most stores and most regions are well down as the sector continues to shrink.There are exceptions however with Hankyu's Umeda store up 17% in five years and Kintetsu Abeno up by 10%. Among the top chains,  <a href="https://www.smartkarma.com/entities/takashimaya-co-ltd" target="_blank" data-smartkarma-citation="entities:370:1" rel="noopener">Takashimaya (8233 JP)</a> is currently driving what growth there is, with sales up a remarkable 14% in the last five years, proving that there really is potential in these traditional old buildings.Over the next three years, the sector will decline yet further but a few chains will prosper.

Top department stores generally performed well in the 12 months to December 2019, but compared to five years ago, most stores and most regions are well down as the sector continues to shrink.There are exceptions however with Hankyu's Umeda store up 17% in five years and Kintetsu Abeno up by 10%. Among the top chains,  Takashimaya (8233 JP) is currently driving what growth there is, with sales up a remarkable 14% in the last five years, proving that there really is potential in these traditional old buildings.Over the next three years, the sector will decline yet further but a few chains will prosper.

Growth in the Declining Japanese Department Store Sector: Some Stores and Chains Show the Way

Equity Bottom-Up

Kintetsu Department Store / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kintetsu-dept-store-co-ltd" target="_blank" data-smartkarma-citation="entities:9040:1" rel="noopener">Kintetsu Dept Store (8244 JP)</a> runs the fifth largest chain in the department store sector and the largest with no presence in Tokyo.Last year, its HQ store in Abeno outperformed all stores in the top 30, and primarily because it is now run as a shopping centre in a hybrid model.Kintetsu is now applying the same model throughout its chain and should see further growth in operating margins.Department stores have little support from investors and it is likely that this year will be a poor one given lacklustre spending following the Consumption Tax increase and the fall off in inbound tourism but, over the long-term some of these firms have excellent locations and improving merchandising and just need to improve operations and cut overhead to see a significant spike in OPM.Kintetsu is one of these.

Kintetsu Dept Store (8244 JP) runs the fifth largest chain in the department store sector and the largest with no presence in Tokyo.Last year, its HQ store in Abeno outperformed all stores in the top 30, and primarily because it is now run as a shopping centre in a hybrid model.Kintetsu is now applying the same model throughout its chain and should see further growth in operating margins.Department stores have little support from investors and it is likely that this year will be a poor one given lacklustre spending following the Consumption Tax increase and the fall off in inbound tourism but, over the long-term some of these firms have excellent locations and improving merchandising and just need to improve operations and cut overhead to see a significant spike in OPM.Kintetsu is one of these.

Kintetsu: Hybrid Stores Replace Department Stores as Profits Lift

The department store sector witnessed a small drop in sales in FY2018 but, considering the large number of closures and conversions, this was a solid result and reflective of the continued support for the format from wealthy Japanese and inbound tourists.
However, only cosmetics and accessories floors performed well while the important apparel category continued to decline sharply. Food floors also suffered a set back last year.
However, the overall data belies a much more positive outlook for the leading stores and chains.
After 20 years of dithering, management has come to a consensus that taking control of sales floors – and becoming real retailers again – is good for growth and especially the bottom line. Department stores will never deliver market leading growth but they could offer investors an opportunity if OP rises significantly. The building blocks are at least being put in place that could make this happen.
As well as this review of the sector, we have also posted an update on the top four department store firms and their medium-term strategies (<a href="https://www.smartkarma.com/insights/hell-will-freeze-over-and-some-japanese-department-stores-will-increase-opm" target="_blank" rel="noopener">Hell Will Freeze over and (Some) Japanese Department Stores Will Increase OPM</a>).

The department store sector witnessed a small drop in sales in FY2018 but, considering the large number of closures and conversions, this was a solid result and reflective of the continued support for the format from wealthy Japanese and inbound tourists.
However, only cosmetics and accessories floors performed well while the important apparel category continued to decline sharply. Food floors also suffered a set back last year.
However, the overall data belies a much more positive outlook for the leading stores and chains.
After 20 years of dithering, management has come to a consensus that taking control of sales floors – and becoming real retailers again – is good for growth and especially the bottom line. Department stores will never deliver market leading growth but they could offer investors an opportunity if OP rises significantly. The building blocks are at least being put in place that could make this happen.
As well as this review of the sector, we have also posted an update on the top four department store firms and their medium-term strategies (Hell Will Freeze over and (Some) Japanese Department Stores Will Increase OPM).

Japanese Department Stores 2018-19: Taking New Risks Creates Opportunity

Japan

Kintetsu Department Store Co., Ltd. operates department stores mainly in Osaka, Nara, Kyoto, and other Kansai prefectures. The Company sells clothing, foods, as well as other household items. Kintetsu Department Store also operates restaurants.

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Kintetsu Department Store (8244 JP)

🇯🇵 JAPAN - Stress Tests Part 1 - Altman Z-Scores

STRESS TESTS - This Insight is the first in a series that will use a variety of standard and less-frequently used 'stress-tests' to look through...

Campbell Gunn

Japan's Department Stores: The Most to Lose but Also the Hardest Hit

With shoppers staying away in March and April, department stores are suddenly the most vulnerable sector of all.Some department stores have...

Michael Causton

Growth in the Declining Japanese Department Store Sector: Some Stores and Chains Show the Way

Top department stores generally performed well in the 12 months to December 2019, but compared to five years ago, most stores and most regions are...

Michael Causton

Kintetsu: Hybrid Stores Replace Department Stores as Profits Lift

Kintetsu Dept Store (8244 JP) runs the fifth largest chain in the department store sector and the largest with no presence in Tokyo.Last year, its...

Michael Causton

Japanese Department Stores 2018-19: Taking New Risks Creates Opportunity

The department store sector witnessed a small drop in sales in FY2018 but, considering the large number of closures and conversions, this was a...

Michael Causton

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