7-Eleven convenience stores are opening up internal changes.

In mid-October, 7-Eleven's parent company, Seven and I Holdings, announced a structural reform plan that would close or relocate 7-Eleven convenience stores in japan, involving about 1,000, and impose about 3,000 layoffs at the group's department store.

"We are facing a tough business environment," said Hiroshi Ishii, president of Seven-I Holdings.In order to achieve stable profitability, further structural reforms are needed.”

On the same day, Seven-I Holdings reported half-year results for the year ending August 2019.Revenue fell 0.9 percent from a year earlier to Y3313.2 billion (Rmb215.3 billion), but net profit rose 9.2 percent to Y110.6bn .D7.2bn.

Performance has been steady, but challenges are growing, and the "King of Convenience Stores" needs to chart a new path.

1

Saturated Japanese market

The name "7-Eleven" comes from 7-Eleven, formerly known as the Southern Company, which was born in the United States, and stores are open from 7 a.m. to 11 p.m.

In 1974, Japan's first 7-Eleven convenience store opened.In order to meet the needs of customers, in 1975 7-11 changed to 24 hours.

As Japan's economy recovers from recession, 7-Eleven's performance has grown for more than 40 years, making it the country's largest convenience store operator.In 2016, more than 8,000 employees in 7-11 generated a profit of nearly RMB 1.2 million per capita.

7-Eleven operates about 69,000 stores worldwide, according to the latest results from Seven-Eleven, and the number of 7-Eleven stores in its home country in Japan has exceeded 21,000, far more than that of rival families and Rosen.

Despite taking the convenience store industry's first chair, 7-Eleven is already close to worry.

With about 56,000 convenience stores in Japan, the market is oversaturated and fewer opportunities for new stores.In addition to competing with rivals for market share, 7-Eleven also has to resist the impact of online e-commerce.

Between March and August 2019, there was a net increase of 158 stores in Japan, a marked slowdown from 280 in the previous half-year.

At the same time, in Japan's domestic market, labor shortages caused by the aging of young children pose a serious threat to all walks of life.Japan's labour force is expected to fall by 20% between 2017 and 2040, according to a Government study.

In February 2019, a 7-Eleven franchise in Osaka, Japan, reduced its opening hours to 19 hours because of difficulties in recruiting people.7-Eleven headquarters demanded the termination of the treaty and claimed 17 million yen (about 1.1 million yuan) for breach of contract.

The move triggered a public outcry, with the franchisee's owners jointly submitting a request to amend the "24-hour business regulations" for consultation.

Taking into account the actual demand of some stores, from mid-March, 7-Eleven Japanese companies in 10 direct stores, the test to reduce night opening hours to 4-8 hours.

In the reform package, Seven-I Holdings noted that in the Japanese market, labor costs were rising due to a shortage of staff, exacerbating the difficulties of store operations, and that 7-Eleven Japan needed to take a series of steps to achieve sustainable growth.

The reform of the cost structure mainly involves three aspects:

The first is the closure of unprofitable stores, mainly for stores that have been operating for more than a year and are operating for 7-Eleven.By fiscal 2021, about 1,000 convenience stores will be closed and revamped, and in fiscal 2022, it is expected to improve revenues and expenditures by 5 billion yen (about 330 million yuan) per year compared to fiscal year 2019.

The second is to optimize the cost of rent.On the one hand, to establish more stringent standards for the opening of new stores to reduce operating costs, on the other hand, in consultation with existing store operators, to balance sales and rental costs.

Finally, the headquarters staff to implement optimization, involving finance, personnel and other non-business departments.

In response to product sales, 7-Eleven Japan has introduced a new product layout strategy in 855 convenience stores, a number that will expand to 10,400 local stores in fiscal 2020.

The short-term business system will be implemented in some stores in Japan.This summer, a survey of 7-Eleven franchisee operators showed that about 15 percent said they were implementing or discussing testing to shorten business.

By the end of August 2019, nearly 300 Japanese 7-Eleven convenience store owners were willing to experiment with reduced opening hours, of which 200 franchisees had already started to implement.

According to Japan's Kyodo news agency, 7-Eleven, president, said the short-term business system will only be implemented in some stores, the impact on profitability is small.

7-Eleven operates a 24-hour business day and night.This leads to higher turnover.How to find a balance between business hours and earnings after the abolition of the 24-hour business system will be a long-term proposition of 7-Eleven.

2

China market expansion accelerated

In contrast to the over-saturation of the Japanese convenience store market, the Chinese market is fertile ground that has not yet been fully reclaimed.

Since opening its first store in mainland China in 1992, 7-Eleven has been known for its "slow" opening slots, and in 2012 it even experienced a "shut-down boom".

By the end of 2018, 7-Eleven had 2,816 stores in mainland China, with franchises accounting for the majority of 2,318.

By comparison, the family convenience store, which only started expanding in China in 2004, has 2,500 stores.

Rosen, who moved to China in 1996, opened 1,000 stores in China in early 2017 and exceeded 2,000 in January 2019 for just two years.According to Mr Rosen's plan, the number of stores will grow to 4,000 by 2020.

Local Chinese players are also making a fuss, with Suning's stores opening more than 4,000 stores in 2018 at an alarming rate.

China's strategy has quietly changed since 7-Eleven, which has always emphasized the profit ability to run first.

In an interview in May 2019, Mr. Naeda, chairman and general manager of the Chairman and General Manager of Yiyi (China) Investment Co., Ltd., revealed that Beijing and Tianjin will be profitable in the 7th year, and that 7-11 will enter more regional markets after the 7-11, and will strive to shorten the profit cycle of the new region from 7 years to 3 years.

In August 2019, 7-11 opened its first store in Xi'an, and also joined forces with Tangshan Golden Spoon Group and Beijing Zhuangdian Group to set up a wholly-owned company to enter the new market for the first time by opening up the region.

The number of 7-Eleven stores worldwide is planned to expand to 70,000 by the end of February 2020, according to the seven-I Holdings reform programme.

It will be some time before the reform initiatives become effective.