Muji Approaches Record Profit, Powered by Wider Food Range

TOKYO – Muji operator Ryohin Keikaku expects operating profit to approach a record high this fiscal year thanks to a successful deployment of food products that complement its distinctive lifestyle products.

Black ink is expected to rise 6% to 45 billion yen ($ 396 million) in the year ending August 2022, the company said Thursday. This would approach the all-time high of 45.2 billion yen earned in fiscal 2017.

The Japanese retailer has dedicated more sales space to an expanded line of snacks and packaged foods, leading to increased customer traffic at outlets in Japan. Kitchen utensils, towels and other everyday items also sell strongly.

“Support is increasing for the expansion of products that support the basics of life,” said Nobuo Domae, who became Ryohin Keikaku’s new president last month.

Operating income is expected to increase 6% to 480 billion yen this fiscal year, supported by 8% growth in domestic activity to 322 billion yen.

Food sales jumped 60% in fiscal 2021. Muji will expand the range of in-house developed frozen foods as well as fresh vegetables.

“We will be doing product lines and in-store operations that will encourage at least weekly visits,” Domae said.

Operating revenue from the East Asian business, mainly focused on China, is expected to increase slightly to 126 billion yen in the current fiscal year. This would be a significant slowdown from the 17% growth recorded in fiscal 2021.

China had 299 outlets at the end of August, or 30% of the global total. But the market is facing concerns about deteriorating business confidence.

“The restrictions on movement and other impacts of the coronavirus have persisted sporadically, so we take a conservative view,” Domae said.

Latent demand in China is still strong. Muji will continue to roll out kitchenware and other lifestyle products with the goal of attracting new customers.

While clothing accounts for around 37% of overall sales, everyday items, sundries, food and other essentials of daily life make up a larger share of sales. It is believed that the latter is less exposed to low consumption compared to clothing.

Ryohin Keikaku continues to face the challenge of rebuilding operations in Europe and the Americas. The segment recorded an operating loss of 2.1 billion yen in fiscal year 2021, with a loss of 600 million yen expected for that fiscal year.

Considering the small size of many European Muji stores, the revenue generated is not sufficient to absorb import costs. Ryohin Keikaku will be tasked with closing unprofitable outlets, among other reforms.

“We cannot afford to continue to suffer losses,” Domae said.

Net profit for this fiscal year is expected to decline 6% to 32 billion yen due to one-off windfall effects made the previous year. Ryohin Keikaku posted a record net profit of 33.9 billion yen in fiscal 2021 thanks in part to substantial currency gains due to the weaker yen. The company also recorded an extraordinary gain of 3.1 billion yen from the cancellation of lease obligations in the United States.

There are signs that last year’s home stay demand is on the decline. September’s comparable store sales, which include online shopping, fell 5.2% from a year earlier. The rush to buy curry sachets and similar foods, as well as sundries, also appears to be fading.

Ryohin Keikaku’s high-margin private label covers over 90% of products on the shelves. Store operating costs will be reduced in part by limiting discounted sales. Weekly inventory control processes will help the business respond to rapidly changing business environments.

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