Dec 16, 2008
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Aeon ties with Mitsubishi to expand global push

Dec 16, 2008

TOKYO (Reuters) - Japan's top trading house Mitsubishi Corp will take a 5 percent stake in Aeon Co Ltd in a deal that the nation's No.2 retailer hopes will cut procurement costs and boost its overseas expansion.


The move comes as Aeon and its rivals suffer from a slump in sales, with the economic downturn prompting consumers to rein in spending.

Given prospects of little growth in Japan, Aeon has shifted the focus of its growth strategy to China and other Asian markets, while it has cut prices sharply and introduced cheaper store brands to lure Japanese customers.

Aeon President Motoya Okada said the partnership with Mitsubishi should help it compete with global giants such as Wal-Mart Stores , Carrefour , and Tesco in Asia.

"In the Asian market, we are seeing global-level retail competition, and improving our operations is an important challenge," he told a news conference.

"For that purpose, it is best to work with Mitsubishi, which has a worldwide network and information and experience in a variety of fields."

The companies said they would team up in areas such as supply chain management, procurement and the financial business.

Mitsubishi and rival trading companies run a wide range of operations such as energy, textile, and auto sales, and have global business networks.

As part of the partnership, Mitsubishi said it has acquired a 4.6 percent stake in Aeon from the market for 36.8 billion yen ($406.8 million), and will buy up to 5.1 percent.

Aeon's Okada strongly denied speculation that Aeon sought the partnership with Mitsubishi as a means to shore up its credit status.

The two companies also said they did not have their convenience store businesses in mind when they formed the alliance.

Aeon has the Ministop convenience store unit, and Mitsubishi has a 32.4 percent stake in Japan's second-largest chain Lawson Inc . Rumours of a potential merger of the two had made rounds in the past.

Aeon, which competes with top-ranked Seven & I Holdings , has built a far-reaching retail conglomerate including drugstores and apparel shops through aggressive acquisitions and store expansions.

But the company has been suffering from declining profits recently as weaker sales have hit its general merchandising stores, and it posted a net loss of 16 billion yen for the first half, ended in August.

In a bid to prop up its sales, the company has been revamping its store operations and increasing the number of private labels, which are cheaper but have bigger profit margin.

The firm has also put a brake on store openings in Japan and switched growth focus to other Asian markets. It plans to increase the number of its general merchandising stores and supermarkets by four times to 100 in mainland China and Hong Kong in the next two years.

(Reporting by Taiga Uranaka; Editing by Chris Gallagher and Rupert Winchester)

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