October 4, 2017 / 7:35 AM / 2 years ago

UPDATE 2-Japan's Aeon planning further price cuts as restructuring boosts profit

* Upgrades year operating profit forecast to Y200 bln

* H1 profit Y85 bln - highest for 11 years

* Restructuring at general merchandise store boosted profits

* Pledges further price cuts (Adds executive comment)

By Sam Nussey

TOKYO, Oct 4 (Reuters) - Aeon Co Ltd, Japan’s largest retailer by sales, plans further price cuts as restructuring at its struggling general merchandising stores helped drive first half profits to an 11-year high.

The supermarket and shopping mall operator has been fighting to turn around its general merchandise stores (GMS), which once flourished selling goods as varied as fresh foods and white goods. They have suffered as discount stores and specialists in products such as clothing and electronics draw customers away.

“We are absolutely planning more,” said Soichi Okazaki, president of Aeon Retail. “If we can have some impact we want to make price cuts,” he said.

With Japan’s supermarkets, convenience stores and drug stores battling it out to attract shoppers against a landscape of chronically weak consumption, Aeon has been making reductions on a wide range of own-brand groceries.

After the company cut prices on more than 100 everyday items in August, the number of products sold jumped 180 percent, it said.

Such reductions are possible because “these are our own items, so we can go right back to the basic ingredients and how they are processed... and distributed,” Okazaki said.

For the six months to the end of August, Aeon said improved performance at its GMS division helped lift operating profit 17.5 percent to 85 billion yen - its best first half result since 2006.

The retailer upgraded its operating profit full-year earnings forecast by 2.6 percent to 200 billion yen ($1.78 billion) in the year to February. It made no change to its sales forecast.

While retailers continue to cut prices, there are signs that firms in worker-intensive service sectors are struggling to absorb rising wage bills during Japan’s tightest labour market in decades.

On Wednesday Asahi Group Holdings Ltd said it would raise prices for the first time in 10 years with the brewer saying it is squeezed by rising distribution costs and falling beer consumption. While the hike is focused on products such as bottled and barrelled beer, analysts say the price rise could feed through to higher retail prices.

Other examples include companies famous for low prices such as grilled chicken restaurant chain Torikizoku Co Ltd which this month raised prices for the first time in 28 years. ($1 = 112.6100 yen) (Reporting by Sam Nussey; Editing by Christopher Cushing/Keith Weir)

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