Caution rules as Aeon sees red ink

Japanese retailer Aeon Stores, which operates department stores and supermarkets in Hong Kong and southern China, announced an overhaul of its operations after slipping into the red in the first half with HK$26.3 million of attributable loss.

The company blamed rising operating costs and weak performance from its mainland units, where an economic slowdown, a highly competitive environment and rising consumer demand squeezed the retailer.

"Our customer numbers have been decreasing from year to year. Compared to 2007, they have dropped by about 30 per cent. With economic development, the expectations of our customers have risen," managing director Christine Chan said.

Hong Kong's economy was hit by a slow US recovery, the company said. That, combined with rising costs, pushed profit of its retail business down 60.5 per cent to HK$23.8 million from a year earlier despite a 16.4 per cent gain in sales.

Aeon said the Hong Kong result also reflected HK$24 million in impairment losses on plants and equipment, up from HK$9.7 million.

It was a similar story for the mainland market, where weak consumer sentiment and slowing economic growth pushed the company into the red to post a HK$125.2 million loss despite a 15.4 per cent increase in sales. It said the result included HK$69.3 million from impairment losses in fixed-property assets.

"In 2010, the growth of China was much higher. Aeon at that time committed to opening new stores. However, these two years, the economy slowed down … We confirmed those stores so we still needed to open them, but those stores obviously are below our expectations … We did not get a good return for new stores," Chan said.