7-Eleven Japan

7-Eleven is a top 100 global brand yet its footprint is spotty. No wonder activist investors smell a bargain

7-Elevens can be found in Japan, Korea, Singapore, Australia, the Middle East, the US and Canada. However there are many countries where the brand has no presence, like the UK, France and Germany, nor is it present in Latin America either.

Japanese retail giant Seven & I holdings owns the 7-Eleven brand as well as other retail businesses including Speedway, a US convenience store chain purchased for a whopping $21b in 2021. 7&I doesn’t manage all businesses itself, franchising is a big part of its operational strategy. Here in Asia-Pacific Dairy Farm International owns the franchise for SE Asia for example.

Seven & I is renowned for Convenience stores but it has other businesses too. One is Ito Yokado, a general merchandise chain that sells food, fashion and apparel.

7&I is under pressure from an activist fund, ValueAct which owns a 4% stake. Last week 7&I announced its plans to shutter 33 Ito Yokado outlets, mainly outside of the Tokyo metropolitan district.

Photo: The Japan News

Ito Yokado has been hard hit in fashion and apparel by online retail competition.

In November 2022, 7&I revealed it would divest its department store chains Sogo & Seibu to a U.S.-based investment fund Fortress Investment Group for $1.8b.

If ValueAct had its way, 7&I holdings would break itself up and the convenience store business, 7-Eleven, would be listed on the Tokyo Stock exchange. This strategy is the exact reversal of what 7&I has done up until recently trying to consolidate all its businesses under the 7&I brand franchise (see the above photo).

The department store divestment and now the restructuring of Ito Yokado suggests that 7&I Holdings directors are at least aware of ValueAct’s proposals.

Whether this latest move goes far enough is hard to see. Initially 7&I’s share price jumped 3% on the Ito Yokado news but the following day it dropped back. Closing under performing stores is not revolutionary, arguably it’s part of any retailer’s playbook.

Amongst activist funds, ValueAct has significant Japan exposure with around US$4b invested in Japanese stocks.

The challenge for ValueAct is leverage. Whilst its stake makes it one of the largest shareholders, it’s not a controlling stake. The other big shareholders are domestic players like Nomura and Sumitomo asset management. So far they have remained on the sidelines.

Does 7-Eleven have the capability to grow in new markets? For a company that has a significant international spread, 7&I’s directors are largely Japanese. There is nothing wrong with Japanese directors, but I can only see two non-Japanese, both non-executive. There are no female directors either. 7&I is on record as stating it plans for 15,000 stores in North America by 2026 plus seeks to grow its fresh food sales outside of Japan. Who is leading these initiatives?

There’s a lot of room for 7-Eleven’s growth internationally, not least because its name is already well-known. This could be in the form of new franchisees in new markets. It could be acquisitions – has 7-Eleven looked more closely at petrol station chains for example? There is another area where it has state-of-the-art skills namely logistics, operations and product development. UK retailer Ocado has been aggressive selling its merchandising know-how to other global retailers.

I think ValueAct has a point, whether the current Management team has the bench strength to execute is altogether a different story.

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