7-Eleven Parent Now the Fifth Largest Global Retailer
By George Anderson
The parent of 7-Eleven convenience stores, Seven & I Holdings Co., is set to become the fifth largest retailer in the world after it completes a $1.13 billion deal to acquire
Millennium Retailing, a Japanese operator of department stores including the Sogo and Seibu chains.
Seven & I also becomes the largest retail store operator in Japan with the addition of the department store group to its chain of convenience stores along with its ownership
of Ito-Yokado supermarkets and Denny’s Japan.
According to The Associated Press, Seven & I’s acquisition of Millenniun Retailing may help it “stave off Wal-Mart and others by broadening its range of revenue and
increasing its offerings of luxury goods at a time when consumer spending (in Japan) is on the rise amid an economic recovery.”
Moderator’s Comment: Will retail business consolidation take on a more global aspect in 2006? Will we see increased interest by foreign-owned businesses
in buying into or expanding an existing presence in the U.S./North American market? –
George Anderson – Moderator
The global expansion of 7-Eleven to other sides of retailing shows the Achilles heel of Wal-Mart. Even Wal-Mart admits that their continued growth depends on increased sales outside of the US. The C-store channel is outside of the purview of Wal-Mart and other big box stores, since it caters to another need of the consumer (the “here and now” needs) while taking the impact of price out of the marketing equation and replacing it with location and availability. Seven & I recognizes that Wal-Mart is weak in the ROW (rest of the world) so it is rapidly taking advantage of this by expanding its reach globally through these types of acquisitions which increase their exposure in new geographic markets, while expanding their reach into new channels. This reflects a high value placed upon global growth. We can look to see others continue their growth through this same approach so long as Wal-Mart continues to ignore these opportunities.
It’s inevitable that large retailers, by way of M&A or organically, will grow their businesses past their borders since their domestic markets are near saturation and so much growth is occurring in “emerging” markets.
Certainly within the next five to ten years we will see increased brick-and-mortar and, more noticeably, e-tail expansion of traditional European and American retailers into markets such as new members of the EU, Russia, Latin America, and Asia Pacific.
Japan will continue to be a very desirable market to expand into (and to experience more consolidation), especially for luxury brands, since it accounts for approximately 40% of the world’s luxury consumption, even in its previous dormant consumption stage. I don’t believe that growth will take place within the USA.
Worldwide, the internet’s effect on depressing gross margins is huge. In free markets, for most would-be acquirers, retailing isn’t an increasingly lucrative proposition. There’s a quote in the article claiming that Seven & I can “…stave off Wal-Mart…” through the acquisition. Owning unrelated businesses (Denny’s, 7-Eleven and department stores) does not stave off Wal-Mart. Businesses are acquired by smart people when the purchasers have good reason to believe there’s untapped value and the acquisition cost is a bargain. Businesses sometimes merge out of desperation, to make themselves more viable in a declining market or to compete more effectively. But most large retail chains, worldwide, are reasonably well capitalized and almost none would do so much better with different owners. The few that might do better (as retailers, as opposed to being liquidated for their real estate) are generally priced too high for a would-be acquirer to become interested. Smart buyers are very picky.
With as many U.S. grocers struggling and entertaining offers, it seems inevitable that this will occur. Albertsons, Winn-Dixie, Marsh’s are just a few that come to mind as targets, but who the potential buyers are is less clear. But consolidation in the grocery industry appears to be a given in the short term.