Edion Corporation is the fourth-largest home electronics mass retailer in Japan in terms of sales. The company was established in 2002 through a merger between Deodeo Corporation (based in the Chugoku region) and Eiden Co., Ltd. (based in the Chubu region). In FY03/21, Edion posted sales of JPY768.1bn, with CAGR of 3.8% over the past three years. This was equivalent to 14.5% of the JPY5.1tn total sales for the six largest home electronics retailers (FY03/20). For FY03/21 by product, home electronics (mainly "white goods," such as air conditioners) comprised 55.9% of sales, information appliances (such as computers) 23.0%, and other products 21.1%. Edion has the top market share in terms of directly operated store sales in eight prefectures, including 54.7% in Hiroshima, 55.3% in Shimane, 53.4% in Tottori, 43.5% in Ehime, and 30.7% in Aichi (based on Shared Research’s estimates).

The company’s business model is based on regional dominance achieved by opening stores so densely as to block the entry of competitors. Edion opens one directly operated store per commercial area of 200,000 residents and in the Chugoku region establishes one franchise store per square kilometer. At end-FY03/21, the company had 437 directly operated stores and 750 franchise stores for a total of 1,187 stores nationwide. Shared Research estimates that in the five prefectures of the Chugoku region, Edion’s household coverage rate per store (including franchise chain stores)/sqkm (the smaller the number, the higher the market dominance) was 0.3 households per store/sqkm, followed by 1.5 for Yamada-Denki Co., Ltd. (TSE1: 9831), and 7.5 for K’s Holdings Corporation (TSE1: 8282). Similarly, in the six prefectures in the Chubu region, Edion’s household coverage rate per store/sqkm was 0.5, with Yamada Denki and K’s Holdings lagging behind at an estimated 0.9 and 1.2, respectively. In other words, the company has greater market dominance than its competitors in these regions.

Edion’s customers tend to be in their late 40s and above, and many are seniors. A focus on customer contact and repair and delivery services for home electronics (with same-day service available) supported by regional dominance leads to strong value recognition among customers. So-called "white goods" (home appliances) are the company’s mainstay products, especially air conditioners. Contributions from original product sales keep GPM for air conditioners (including installation fee revenue) high at roughly 40%, and they generate approximately 30% of overall profit. Edion also focuses on its home improvement business, which sells replacement products for bathrooms, toilets, and kitchens and undertakes renovation work. In FY03/21, home improvement business sales were roughly JPY52bn (including ELS business), placing the company ninth overall in the home improvement market (which includes house builders, specialist home improvement companies, and retailers) and first as a retailer for nine years running. The company’s home improvement strategy focuses on plumbing renovations (for bathrooms, toilets, and kitchens). Selling small renovation packages for JPY1mn and under has improved price transparency and led to a large number of home improvement orders. Dense store placement backed by the regional dominance strategy has increased points of contact with customers, regularly exposing them to the idea of renovating their homes. From FY03/22, the company plans to enter in earnest into the big-ticket home improvement market (products and services with a unit price of JPY5mn or more).

Company sales are determined by three factors: the number of register customers, spend per customer, and the number of purchases (where the number of register customers is a function of store visitors and the conversion rate, and spend per customer is a function of the number of purchased items and unit price). Edion says its average customer spend is above industry peers. The company’s GPM was 29.4% (+0.7pp YoY) in FY03/21, and its inventory turnover ratio was 8.1x (7.8x in FY03/20). These figures factor into its high turn-earn index (GPM x inventory turnover ratio) of 238.5% (average of the four large companies was 176.2%, excluding Bic Camera and Kojima whose fiscal year-end is in August) and suggests the company has achieved high efficiency in managing inventory and sales. However, Edion’s cost structure emphasizes spending on delivery and repair services, which makes it easy for the company’s delivery and personnel expenses to rise compared to competitors. The SG&A-to-sales ratio in FY03/21 was 25.9% (27.0% in FY03/20), higher than the 23.6% average for the four major industry players.

Edion’s management strategy focuses on expanding the home improvement business to increase sales while cutting expenses, primarily by reducing sales division and back-office personnel at its head office. The company plans to continue strengthening the exterior wall painting business, which tends to have high order unit prices, and begin offering this service at all stores including franchise stores. It expects cost reductions to bring the SG&A-to-sales ratio down by 3.0pp from 27.0% in FY03/20. The current store opening strategy focuses on urban areas. Specifically, Edion places importance on 1) expanding market share in Osaka and Nara Prefectures, 2) entering Kyoto and Fukuoka Prefectures, and urban markets in Nagoya (Aichi Prefecture), and 3) increasing market share in the urban areas of Shizuoka and Kanagawa Prefectures. Shared Research agrees that these are strategically sound expansion targets considering Edion’s market share by prefecture. Regarding the e-commerce business, while promoting the interactive use of its brick-and-mortal stores and e-commerce site, the company intends to focus on expanding the range of items handled and improving delivery services at the e-commerce site.

Trends and outlook

In FY03/21, sales were JPY768.1bn (+4.7% YoY), operating profit was JPY26.8bn (+118.0%), recurring profit was JPY27.8bn (+108.1%) and net income was JPY16.6bn (+51.5% YoY). GPM rose 0.7pp YoY to 29.4%, OPM rose 1.8pp YoY to 3.5% and ROE rose 2.8pp to 8.9%. Despite a difficult economic environment due to the COVID-19 pandemic, FY03/21 earnings benefited from some increase in personal consumption thanks to new types of demand such as stay-at-home and teleworking demand, and demand related to reducing the risk of infection.

On November 10, 2021, the company revised downward its forecast for FY03/22. The revised forecast calls for sales of JPY715.0bn (-6.9% YoY), operating profit of JPY18.9bn (-29.4% YoY), recurring profit of JPY21.0bn (-24.5% YoY), and net income of JPY12.5bn (-24.8% YoY). The company expects GPM to remain flat YoY.

Strengths and weaknesses

Shared Research sees Edion’s strengths as 1) over 50% market share in the Chugoku and Chubu regions, which presents a considerable barrier to entry for competitors, 2) strength in customer services that promote lasting customer relationships such as same-day delivery, on-site repairs, and long-term warranties, and 3) the home improvement business, which has achieved market differentiation and is emerging as a new earnings pillar.

We see the company’s weaknesses as 1) vulnerability to population decline due to high dominance in the Chugoku and Shikoku regions (areas with shrinking populations), 2) little experience with operating urban stores, with the success of future urban store openings hinging on the creation of an integrated logistics platform, and 3) the fact that the company needs to expand its relatively small share of the growing e-commerce market.

Key financial data

Income statement			FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/22
(JPYmn)			Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Est.
Sales			759,025	685,145	766,699	691,216	692,087	674,426	686,284	718,638	733,575	768,113	715,000
	YoY		-15.8%	-9.7%	11.9%	-9.8%	0.1%	-2.6%	1.8%	4.7%	2.1%	4.7%	-6.9%
Gross profit			185,215	173,617	202,500	190,360	196,076	193,034	198,165	209,820	210,605	225,638
	YoY		-14.7%	-6.3%	16.6%	-6.0%	3.0%	-1.6%	2.7%	5.9%	0.4%	7.1%
	Gross profit margin		24.4%	25.3%	26.4%	27.5%	28.3%	28.6%	28.9%	29.2%	28.7%	29.4%
Operating profit			9,286	-2,476	13,720	10,745	17,050	15,273	15,378	17,842	12,284	26,785	18,900
	YoY		-64.7%	-	-	-21.7%	58.7%	-10.4%	0.7%	16.0%	-31.2%	118.0%	-29.4%
	Operating profit margin		1.2%	-	1.8%	1.6%	2.5%	2.3%	2.2%	2.5%	1.7%	3.5%	2.6%
Recurring profit			16,384	1,476	14,883	11,118	17,275	16,005	16,167	18,889	13,365	27,811	21,000
	YoY		-52.4%	-91.0%	908.3%	-25.3%	55.4%	-7.4%	1.0%	16.8%	-29.2%	108.1%	-24.5%
	Recurring profit margin		2.2%	0.2%	1.9%	1.6%	2.5%	2.4%	2.4%	2.6%	1.8%	3.6%	2.9%
Net income			3,697	-2,640	5,149	4,929	6,022	13,118	8,944	11,642	10,977	16,633	12,500
	YoY		-77.2%	-	-	-4.3%	22.2%	117.8%	-31.8%	30.2%	-5.7%	51.5%	-24.8%
	Net margin		0.5%	-	0.7%	0.7%	0.9%	1.9%	1.3%	1.6%	1.5%	2.2%	1.7%
Per-share data (split-adjusted; JPY)
Shares issued (year-end; '000)			105,665	105,665	112,005	112,005	112,005	112,005	112,006	112,006	112,006	112,006	-
EPS (JPY)			35.9	-25.8	48.4	45.8	60.0	133.0	90.8	105.3	101.3	155.3	119.6
EPS (fully diluted; JPY)			34.9	-	48.3	42.7	47.7	102.9	71.9	93.8	90.5	139.8	-
Dividend per share (JPY)			20.0	20.0	22.0	20.0	22.0	26.0	28.0	32.0	34.0	46.0	44.0
Book value per share (JPY)			1,385	1,361	1,325	1,389	1,438	1,559	1,536	1,602	1,686	1,810	-
Balance sheet (JPYmn)
		Cash and cash equivalents	10,684	9,966	20,293	9,001	12,246	9,927	8,227	9,035	15,974	43,072
Total current assets			147,144	162,446	177,797	167,030	167,785	167,981	166,059	152,436	153,296	192,549
Tangible fixed assets			154,474	154,002	154,599	148,734	143,809	145,166	137,758	139,970	130,891	125,864
Investments and other assets			49,730	53,585	48,321	47,411	43,991	48,870	56,858	55,337	55,093	55,960
Intangible assets			11,304	8,053	5,080	4,162	4,726	6,158	8,772	8,202	10,743	11,836
Total assets			362,653	378,087	385,799	367,338	360,312	368,177	369,448	355,947	350,024	386,210
		Short-term debt	42,757	49,927	26,798	43,470	20,812	22,549	21,269	4,169	3,413	3,122
Total current liabilities			123,762	132,605	132,980	115,577	104,783	107,665	113,907	85,934	79,766	103,798
		Long-term debt	62,848	76,348	74,763	74,792	80,316	75,382	53,903	58,564	55,952	53,643
Total fixed liabilities			94,661	106,992	106,062	106,674	113,542	108,998	86,535	91,841	89,856	88,571
Total liabilities			218,424	239,598	239,042	222,252	218,326	216,664	200,443	177,775	169,623	192,369
		Shareholders' equity	143,370	138,213	146,440	145,023	141,939	151,512	168,997	178,172	180,400	193,841
Total net assets			144,229	138,489	146,756	145,086	141,986	151,512	169,005	178,172	180,400	193,841
Total interest-bearing debt			105,605	126,275	101,561	118,262	101,128	97,931	75,172	62,733	59,365	56,765
Cash flow statement (JPYmn)
Cash flows from operating activities			15,133	-4,643	45,741	-17,215	37,154	19,333	21,553	28,304	25,278	42,964
Cash flows from investing activities			-10,231	-13,400	-13,154	-3,774	-9,753	-13,484	-8,944	-12,419	-5,559	-7,975
Cash flows from financing activities			-14,210	17,325	-22,259	9,697	-24,156	-8,168	-14,308	-15,077	-12,780	-7,891
Financial ratios
ROA (RP-based)			4.3%	0.4%	3.9%	3.0%	4.7%	4.4%	4.4%	5.2%	3.8%	7.6%
ROE			2.6%	-1.9%	3.6%	3.4%	4.2%	8.9%	5.6%	6.7%	6.1%	8.9%
Equity ratio			39.5%	36.6%	38.0%	39.5%	39.4%	41.2%	45.7%	50.1%	51.5%	50.2%
Total asset turnover			2.0	1.8	2.0	1.8	1.9	1.9	1.9	2.0	2.1	2.1
Net margin			0.5%	-0.4%	0.7%	0.7%	0.9%	1.9%	1.3%	1.6%	1.5%	2.2%

Source: Shared Research based on company data; per-share data adjusted for stock split

Recent updates

Revision to full-year earnings forecast

2021-11-11

On November 10, 2021, Edion Corporation announced a revision to its full-year FY03/22 earnings forecast.

On November 10, 2021, the company downwardly revised its full-year forecast in conjunction with the announcement of its Q2 financial results. The revised forecast calls for sales of JPY715.0bn (-6.9% YoY), operating profit of JPY18.9bn (-29.4% YoY), recurring profit of JPY21.0bn (-24.5% YoY), and net income of JPY12.5bn (-24.8% YoY).

Monthly sales results for October; telephone conference

2021-11-08

Edion Corporation announced monthly sales results for October and that it held a telephone conference.

October sales (based on POS data; includes orders): All-store sales were up 1.8% YoY, directly operated store sales were up 2.4% YoY, and same store sales were down 0.9% YoY.

In October 2021, temperatures varied greatly from the first half to the second half of the month, driving demand for air conditioners (sales up 23.1% YoY) and other seasonal electronics.

Due to increases in electricity bills on rising energy prices and heightened awareness about energy/electricity conservation, home improvement-related inquiries increased, with the ELS business posting a strong 4.2% YoY increase in sales.

Monthly sales and store openings/closures

Sales metrics												FY03/22
Sales metrics			Apr	May	Jun	Q1	Jul	Aug	Sep	Q2	Oct	FY03/22
All-store sales YoY			110.2	95.6	80.4	92.7	99.7	78.8	96.8	91.5	101.8	93.2
Directly operated store sales YoY			110.2	95.8	80.7	92.9	99.3	78.5	97.0	91.3	102.4	93.3

Store openings			4	3	8	15	0	0	4	4	5
	Directly operated stores		2	2	3	7	0	0	3	3	2
		Home electronics	2	2	3	7	0	0	1	1	2
		Non-home electronics	0	0	0	0	0	0	2	2	0
	Franchise stores		2	1	5	8	0	0	1	1	3
Closures			1	0	0	1	1	3	2	6	5
	Directly operated stores		0	0	0	0	1	1	1	3	0
		Home electronics	0	0	0	0	0	1	0	1	0
		Non-home electronics	0	0	0	0	1	0	1	2	0
	Franchise stores		1	0	0	1	0	2	1	3	5
Store count (end of month)			1,187	1,193	1,201	1,201	1,200	1,197	1,199	1,199	1,199
	Directly operated stores		439	441	444	444	443	442	444	444	446
	Franchise stores		751	752	757	757	757	755	755	755	753
Total floor space (directly operated stores; sqm)						-				-

Source: Shared Research based on company data

Monthly sales results for September; telephone conference

2021-10-06

Edion Corporation announced monthly sales results for September and that it held a telephone conference.

September sales (based on POS data; includes orders): All-store sales were down 3.2% YoY, directly operated store sales were down 3.0% YoY, and same store sales were down 4.3% YoY.

September 2021 had few sunshine hours due to a rain front and Typhoon No. 14 that hit Japan in the middle of the month. However, sales of "white goods" home electronics increased, with washing machine sales growing 12.7% YoY. The temperature differences between day and night in the second half of the month were greater compared to previous years, which the company thinks made somewhat of a contribution to seasonal electronics sales.

Due to increased time spent at home and heightened awareness about energy—including electricity—conservation, home improvement-related inquiries increased, with the ELS business posting a strong 0.8% YoY increase in sales.

Edion commented that same store sales in 1H FY03/22 were up 2% versus 1H FY03/19. By product, sales of TV, air conditioners, refrigerators, washing machines, PCs, and home improvement-related products were higher compared to 1H FY03/19.

Monthly sales and store openings/closures

Sales metrics									FY03/22
Sales metrics			Apr	May	Jun	Q1	Jul	Aug	FY03/22
All-store sales YoY			110.2	95.6	80.4	92.7	99.7	78.8	89.3
Directly operated store sales YoY			110.2	95.8	80.7	92.9	99.3	78.5	88.9

Store openings			4	3	8	15	0	0
	Directly operated stores		2	2	3	7	0	0
		Home electronics	2	2	3	7	0	0
		Non-home electronics	0	0	0	0	0	0
	Franchise stores		2	1	5	8	0	0
Closures			1	0	0	1	1	3
	Directly operated stores		0	0	0	0	0	1
		Home electronics	0	0	0	0	0	1
		Non-home electronics	0	0	0	0	1	0
	Franchise stores		1	0	0	1	0	2
Store count (end of month)			1,187	1,193	1,201	1,201	1,200	1,197
	Directly operated stores		439	441	444	444	443	442
	Franchise stores		751	752	757	757	757	755
Total floor space (directly operated stores; sqm)						-

Source: Shared Research based on company data

Monthly sales results for August; telephone conference

2021-09-03

Edion Corporation announced monthly sales results for August and that it held a telephone conference.

August sales (based on POS data; includes orders): All-store sales were down 21.2% YoY, directly operated store sales were down 21.5% YoY, and same store sales were down 23.3% YoY.

August 2021 was extraordinary in that record rainfall hit western Japan among other regions, depressing sales of air conditioners and other seasonal products.

Demand for TVs, which performed well in FY03/21, benefited from replacement demand for large screen TVs during the Tokyo Olympics and was down only 0.6% YoY.

Monthly sales and store openings/closures

Sales metrics									FY03/22
Sales metrics			Apr	May	Jun	Q1	Jul	Aug	FY03/22
All-store sales YoY			110.2	95.6	80.4	92.7	99.7	78.8	89.3
Directly operated store sales YoY			110.2	95.8	80.7	92.9	99.3	78.5	88.9

Store openings			4	3	8	15	0	0
	Directly operated stores		2	2	3	7	0	0
		Home electronics	2	2	3	7	0	0
		Non-home electronics	0	0	0	0	0	0
	Franchise stores		2	1	5	8	0	0
Closures			1	0	0	1	1	3
	Directly operated stores		0	0	0	0	0	1
		Home electronics	0	0	0	0	0	1
		Non-home electronics	0	0	0	0	1	0
	Franchise stores		1	0	0	1	0	2
Store count (end of month)			1,187	1,193	1,201	1,201	1,200	1,197
	Directly operated stores		439	441	444	444	443	442
	Franchise stores		751	752	757	757	757	755
Total floor space (directly operated stores; sqm)						-

Source: Shared Research based on company data

Trends and outlook

Quarterly trends and results

Cumulative		FY03/21				FY03/22				FY03/22		FY03/22
		Revenue recognition standards				Revenue recognition standards
		Prior to changes				Prior to changes		After changes		% of Est.	1H Est.	% of Est.	Rev. FY Est.
(JPYmn)		Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1	Q1–Q2	Q1	Q1–Q2	% of Est.	1H Est.	% of Est.	Rev. FY Est.
Sales		175,304	382,629	581,289	768,113	170,654	360,226	165,081	348,768	93.0%	375,000	48.8%	715,000
	YoY	2.7%	-3.6%	2.3%	4.7%	-2.7%	-5.9%	-5.8%	-8.8%		-2.0%		-6.9%
Gross profit		52,765	115,334	171,694	225,638	51,429	109,110	50,112	106,114
	YoY	4.0%	-1.2%	4.6%	7.1%	-2.5%	-5.4%	-5.0%	-8.0%
	Gross profit margin	30.1%	30.1%	29.5%	29.4%	30.1%	30.3%	30.4%	30.4%
SG&A expenses		47,228	98,639	148,668	198,852	48,995	99,134	47,656	96,104
	YoY	-12.0%	-6.9%	-3.5%	0.3%	3.7%	0.5%	0.9%	-2.6%
	SG&A ratio	26.9%	25.8%	25.6%	25.9%	28.7%	27.5%	28.9%	27.6%
Operating profit		5,536	16,695	23,026	26,785	2,434	9,975	2,456	10,010	74.1%	13,500	53.0%	18,900
	YoY	-	55.1%	128.4%	118.0%	-56.0%	-40.3%	-55.6%	-40.0%		-19.1%		-29.4%
	Operating profit margin	3.2%	4.4%	4.0%	3.5%	1.4%	2.8%	1.5%	2.9%		3.6%		2.6%
Recurring profit		5,461	16,681	23,469	27,811	2,561	11,166	2,583	11,200	81.8%	13,700	53.3%	21,000
	YoY	-	39.9%	106.1%	108.1%	-53.1%	-33.1%	-52.7%	-32.9%		-17.9%		-24.5%
	Recurring profit margin	3.1%	4.4%	4.0%	3.6%	1.5%	3.1%	1.6%	3.2%		3.7%		2.9%
Net income		3,049	10,395	14,688	16,633	1,721	7,595	1,737	7,606	82.7%	9,200	60.8%	12,500
	YoY	-	12.2%	47.9%	51.5%	-43.6%	-26.9%	-43.0%	-26.8%		-11.5%		-24.8%
	Net margin	1.7%	2.7%	2.5%	2.2%	1.0%	2.1%	1.1%	2.2%		2.5%		1.7%
Quarterly		FY03/21				FY03/22
(JPYmn)		Q1	Q2	Q3	Q4	Q1	Q2	Q1	Q2
Sales		175,304	207,325	198,660	186,824	170,654	189,572	165,081	183,687
	YoY	2.7%	-8.3%	15.9%	12.9%	-2.7%	-8.6%	-5.8%	-11.4%
Gross profit		52,765	62,569	56,360	53,944	51,429	57,681	50,112	56,002
	YoY	4.0%	-5.1%	18.8%	16.1%	-2.5%	-7.8%	-5.0%	-10.5%
	Gross profit margin	30.1%	30.2%	28.4%	28.9%	30.1%	30.4%	30.4%	30.5%
SG&A expenses		47,228	51,411	50,029	50,184	48,995	50,139	47,656	48,448
	YoY	-12.0%	-1.7%	3.9%	13.4%	3.7%	-2.5%	0.9%	-5.8%
	SG&A ratio	26.9%	24.8%	25.2%	26.9%	28.7%	26.4%	28.9%	26.4%
Operating profit		5,536	11,159	6,331	3,759	2,434	7,541	2,456	7,554
	YoY	-	-18.3%	-	70.8%	-56.0%	-32.4%	-55.6%	-32.3%
	Operating profit margin	3.2%	5.4%	3.2%	2.0%	1.4%	4.0%	1.5%	4.1%
Recurring profit		5,461	11,220	6,788	4,342	2,561	8,605	2,583	8,617
	YoY	-	-23.2%	-	119.7%	-53.1%	-23.3%	-52.7%	-23.2%
	Recurring profit margin	3.1%	5.4%	3.4%	2.3%	1.5%	4.5%	1.6%	4.7%
Net income		3,049	7,346	4,293	1,945	1,721	5,874	1,737	5,869
	YoY	-	-35.4%	543.6%	85.9%	-43.6%	-20.0%	-43.0%	-20.1%
	Net margin	1.7%	3.5%	2.2%	1.0%	1.0%	3.1%	1.1%	3.2%

Source: Shared Research based on company data

1H FY03/22 results

Summary

Sales: JPY348.8bn (-8.8% YoY; 48.8% of the revised full-year forecast)
Gross profit: JPY106.1bn (-8.0% YoY)
Operating profit: JPY10.0bn (-40.0%; 53.0%)
Recurring profit: JPY11.2bn (-32.9%; 53.3%)
Net income: JPY7.6bn (-26.8%; 60.8%)

Key points of earnings

Sales were down JPY33.9bn YoY. 1H FY03/21 saw significantly higher sales due to special government relief payments, teleworking demand, and demand related to reducing the risk of infection. On the other hand, in 1H FY03/22, the number of existing stores closed temporarily due to a state of emergency were a maximum of 93 compared to a maximum of 54 stores during the same period the previous year. In June 2021, sales of seasonal products also did not rise. Seasonal products were sluggish due to weather factors such as extended rains in August. The gross profit margin increased 0.3pp YoY to 30.4% from 30.1%.

Operating profit decreased by JPY6.7bn YoY. SG&A expenses were down JPY2.5bn YoY, but the decline in sales was significant.

The company downwardly revised its full-year forecast based on 1H results. Sales are expected to be JPY715.0bn (-6.9% YoY), operating profit JPY18.9bn (-29.4% YoY), recurring profit JPY21.0bn (-24.5% YoY), and net income JPY12.5bn (-24.8% YoY).

Sales by product category

Compared to 1H FY03/21, sales and orders of TVs were down 6.2%, washing machines down 4.3%, air conditioners down 15.0%, home improvement up 10.7%, and mobile phones (number of units) up 25.8%.
Although sales of TVs and washing machines were down YoY, sales levels were high, with TVs up 33.4% and washing machines up 17.7% compared to 2018 sales before the consumption tax hike.

Gross profit margin

1H FY03/22 gross profit margin was 30.4%, up 0.3pp from 30.1% in 1H FY03/21.

Store count

In 1H, the company opened 10 directly operated stores and nine franchise stores for a total of 19 stores while closing three directly operated stores and four franchise stores. There were a total of 1,199 group stores (end-September 2021). The total floor space increased by 18,783sqm compared to end-FY03/21 due to opening the Kyoto Shijo Kawaramachi store as a new urban-style store.

Company forecasts for FY03/22

Numerical targets

		FY03/20			FY03/21			FY03/22
										Revised on Nov. 10	Initial
(JPYmn)		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	1H Act.	2H Est.	FY Est.	FY Est.
Sales		396,736	336,839	733,575	382,629	385,484	768,113	348,768	366,232	715,000	755,000
	YoY	12.6%	-8.0%	2.1%	-3.6%	14.4%	4.7%	-8.8%	-5.0%	-6.9%	-1.7%
Operating profit		10,761	1,523	12,284	16,695	10,090	26,785	10,010	8,890	18,900	23,500
	YoY	1.2%	-78.9%	-31.2%	55.1%	562.5%	118.0%	-40.0%	-11.9%	-29.4%	-12.3%
	Operating profit margin	2.7%	0.5%	1.7%	4.4%	2.6%	3.5%	2.9%	2.4%	2.6%	3.1%
Recurring profit		11,922	1,443	13,365	16,681	11,130	27,811	11,200	9,800	21,000	24,000
	YoY	7.7%	-81.6%	-29.2%	39.9%	671.3%	108.1%	-32.9%	-11.9%	-24.5%	-13.7%
	Recurring profit margin	3.0%	0.4%	1.8%	4.4%	2.9%	3.6%	3.2%	2.7%	2.9%	3.2%
Net income		9,264	1,713	10,977	10,395	6,238	16,633	7,606	4,894	12,500	14,200
	YoY	29.9%	-62.0%	-5.7%	12.2%	264.2%	51.5%	-26.8%	-21.5%	-24.8%	-14.6%
	Net margin	2.3%	0.5%	1.5%	2.7%	1.6%	2.2%	2.2%	1.3%	1.7%	1.9%

Source: Shared Research based on company data

For FY03/22, the company forecasts sales of JPY755.0bn (-1.7% YoY), operating profit of JPY23.5bn (-12.3% YoY), recurring profit of JPY24.0bn (-13.7% YoY) and net income of JPY14.2bn (-14.6% YoY). The company expects GPM to remain flat YoY. From FY03/22, the company will apply the revised Accounting Standard for Revenue Recognition. In terms of the impact of the accounting change on FY03/22 results, sales are expected to decrease by JPY22.7bn, gross profit is expected to decrease by JPY6.6bn and SG&A expenses are expected to decrease by JPY6.6bn.

Application of earnings recognition accounting standards:
(1) Point costs: The company has made provisions for points awarded for purchases as provisions for point card certificates (SG&A expenses), but will disclose net amounts offset by sales.
➁ Long-term warranties: The company has made provisions for warranties awarded for purchases by Anshin Guarantee Card members as provisions for merchandise warranties (SG&A expenses), but will disclose net amounts offset by sales.
➂ Supplies of products to some franchise stores: For supplies of products to franchises, the company has disclosed the total amount of sales and accounts payable, but for the supply of products to some franchises such as on remote islands, it will disclose net amounts.

The following information is as of the beginning of the period and will be updated based on interviews with the company.

Edion’s thinking on FY03/22 earnings targets

The forecast factors in downward pressure on sales brought about by the government’s declaration of a third state of emergency on April 25, 2021, given that some stores will temporarily close or shorten business hours and customer volume will contract. However, the company thinks there is latent demand in the home electronics market, primarily for replacement purchases, and anticipates an upturn in sales after the pandemic subsides.

Key initiatives

(1) Addressing new lifestyles

Edion will address the rise in demand for TVs, games and entertainment, and cooking appliances driven by customers spending more time at home as well as the demand for air safety products and anti-virus products such as air purifiers backed by growing security and safety awareness among consumers. Additionally, it plans to capture demand for PCs and peripherals as teleworking continues while strengthening efforts to sell home workspace products. This is a measure the company started in FY03/21, but Shared Research understands that it is ongoing.

(2) Expanding e-commerce sales

The company will expand the selection of home electronics products it offers in the Edion Net Shop online store and enhance collaborative efforts with Forest. In addition to meeting the demand for non-home electronics products such as daily necessities, stationery, clothing, alcoholic beverages, leisure goods, and corporate office supplies, the company aims to improve service quality and reduce logistics costs by optimizing e-commerce logistics. Furthermore, it is considering handling large products through its own supply chain with aims to reduce costs and improve convenience, such as by shortening delivery times. This is a measure the company started in FY03/21, but Shared Research understands that it is ongoing.

(3) Digital transformation initiatives

The company intends to build a system framework and infrastructure through Hampstead, a subsidiary of PTN, which Edion acquired in FY03/21. It will roll out electronic pricing at stores to improve store operational and cost efficiency. Only 30% of stores currently use electronic pricing; the company hopes to extend this to all stores over the next two years.

(4) Targeting the big-ticket home improvement market

Until now, the company’s mainstay home improvement products and services have been relatively small-ticket, such as fixture replacements (Petit de Refo), plumbing renovation, and exterior wall and roofing renovation. Going forward, while fortifying the capabilities of subsidiary EDION HOUSE SYSTEM, the company said it will increase its presence in full-scale renovation and big-ticket home improvement areas (at the company’s FY03/21 results briefing). This indicates products and services with a unit price of JPY5mn or more.

(5) Green growth strategy to realize a carbon-free society

The company has focused on generating orders in its ELS (eco/living/solar) business, but will gradually step up its focus on solar projects in particular, retraining sales staff and developing proposals for customers.

Targets/KPIs

The company expects GPM to be flat YoY (29.4% in FY03/21). Shared Research thinks the company is maintaining its basic stance of placing an emphasis on seasonal and lifestyle products in order to bolster the margin mix.

The company said its aims to keep ROE at around 8% (8.9% in FY03/21).

Medium- to long-term strategy

Edion is maintaining a close eye on how the COVID-19 pandemic impacts society and consumer behavior. Taking this impact into account and reflecting its expectations for the group based on a provisional management vision, the company has established its “four pillars of growth.” The company’s key strategies include: 1) developing new home electronics markets in the 5G and IoT era; 2) strengthening its dominance and opening flagship stores in urban areas; 3) expanding sales to corporate clients and the e-commerce businesses; 4) further strengthening the home improvement business; 5) developing on a nationwide basis the logistics services business and taking on consigned work from other companies; and 6) developing new businesses, such as the education business. Edion is continuing to consider M&A and alliances with other companies in new businesses, logistics services, the home improvement business, and the e-commerce business.

Four pillars of growth

The company intends to develop its business over the medium to long term focusing on the following four pillars of growth: home appliances, home improvement, logistics, and education. The key points for each business area are as follows. According to the company, if its target for each pillar is assumed to be 100%, its rate of progress so far is 80% for home appliances, 70% for home improvement, 60% for logistics and 30% for education.

Home electronics

The core strategy is to scale back home video appliances and TVs while boosting sales of higher margin air conditioners. In the medium term, the company is stepping up its focus on new products such as 5G/IoT home electronics. It also intends to strengthen its dominance and open flagship stores in urban areas, and expand its e-commerce and corporate sales businesses.

The company as a general rule aims for newly opened stores to turn a profit within three years and for investment on these stores to be recovered within 10 years. This also applies to stores acquired through business investment and M&A. However, for stores that are opened in areas that are considered extremely important in the company’s strategy for dominance and stores where the company is experimenting in a new format, the company estimates that recovery on investment may take a little longer.

Home improvement

The company expects the home improvement market to remain stable and is aiming for sales of JPY100bn in this business over the medium to long term. The company is aiming to boost sales through quality customer service by increasing personnel, adding new exterior wall painting products and services, utilizing local high-quality contractors, and growing home improvement and renovation orders. It also plans to develop new products. The company is gearing up to enter in earnest into the big-ticket home improvement market (products and services with a unit price of JPY5mn or more).

Logistics

The company’s key objectives are to strengthen its peak-time delivery system.

collaborate with other companies in delivery services, take on consigned work from other companies.

leverage Jtop’s delivery network.

Education

The company aims to take advantage of the fact that programming education is compulsory in elementary schools in 2020.

Edion aims to utilize its assets and know-how in “Robo-Done” to become Japan’s largest robot programming school.

It is focusing on the Edion Robot Academy business and acquired Youmemiru to help foster children’s creative thinking abilities through independent learning in addition to supporting their acquisition of knowledge and skills. The company also places an importance on making social contributions, including fostering the development of human resources qualified to work internationally, expanding online classes to correct for regional disparities in IT education, and assisting in efforts to adapt to the post-COVID-19 environment. By 2025, the company aims to increase enrollment, including online students, to 100,000.

Operating portfolio strategy

In principle, the company does not engage in businesses operating below the cost of capital.

(1) With the aim of strengthening and expanding high margin businesses, Edion is focused on continually bolstering the home electronics business, where gross profit margins are particularly strong. While profit margins in the e-commerce business are currently rather low, the company is developing the business based on its synergistic effects, including e-commerce customers being directed to the company’s brick-and-mortar stores.

(2) When deciding whether to support or liquidate a low-margin business, the company focuses on whether that business contributes to an improvement in the lives and convenience of customers visiting its stores and whether the business could generate synergies with stores focused on home electronics. As an example of this, the home improvement business was once a low-margin business, but thanks to continued assistance and an ongoing expansion, not only did the business become profitable, but it is now one of the top ten home improvement businesses in Japan. On the other hand, the company in recent years has sold off some businesses, including a regional home center business and a home furniture catalogue sales business, that did not at the time align well with the company’s mainstay business. In regard to solar power generation systems and the home electronics recycling business, the company faces a tough operating environment, but as the company looks at sales of home electronics from the perspective of creating a recycling-based society, it understands that these businesses are essential to customers and accordingly intends to continue operating and supporting them.

(3) When looking at new business candidates, the company focuses not only on profit margins and returns on investment, but also on potential synergies with the home electronics business.

Reducing costs

Edion plans to reduce the number of employees in sales and back-office roles at its head office by 30% (from a total of approximately 1,000 employees), including through relocation. The head office personnel structure has not been overhauled since the 2002 merger that formed the company. Edion aims to reduce the SG&A-to-sales ratio by about 3.0pp from the FY03/20 level of 27.0% in the medium term by promoting back-office productivity and deploying robotic process automation (RPA). The company aims to pare down the SG&A-to-sales ratio to around 24% over the medium term. It thinks it can boost consolidated OPM (3.5% in FY03/21) to 5% in the medium term by improving operational efficiency, primarily at its head office, while leveraging digital platforms to streamline sales promotion activities, and enhancing its operating framework by realigning logistics and investing in IT.

Strategies for improving ROE

In FY03/21, Edion recorded a consolidated ROE of 8.9%. For the time being, the company’s baseline strategy is to maintain stability in its gross profit margin, and to focus on improving profit margins through SG&A spending reductions.

Dominance strategy

According to the company, the basic store opening strategy is to achieve even greater dominance in areas where it has a strong presence and expand into urban areas. Edion plans to open large stores in the range of 10,000–13,000sqm when entering urban areas. Normally 3,500sqm of floor space is enough to maximize sales of home electronics. The company aims to gain the top share in the Kinki region. Regional strategies include 1) strengthening regional dominance in the Kinki region, centered on Osaka, 2) expanding into urban areas in Kyoto and Fukuoka Prefectures, as well as in Aichi Prefecture, which formed the base of Eiden (one of the companies from which Edion was formed), and 3) increasing share in the Kanto area, especially in Kanagawa Prefecture.

To gain a better perspective on the above strategy, Shared Research confirmed the market shares held by the company and its competitors by prefecture (estimated by sales based on the number of directly operated stores; market shares in the tables below are Shared Research estimates). At 1,482, the countrywide Herfindahl-Hirschman Index (HHI) of the home electronics mass retailer industry is relatively competitive. However, competition differs by prefecture: Niigata, Saitama, Kyoto, Osaka, Chiba, and Aichi Prefectures have relatively high levels of competition, while HHIs for other prefectures fall within the 2,000 to just over 6,000 range, indicating increasingly oligopolistic markets in these areas.

Herfindahl-Hirschman Index (HHI): A measure of competitiveness within an industry, the HHI is calculated by summing the squares of each company’s market share. If the market consists of two companies with 70% and 30% market share respectively, the HHI will be 5,800 (= 70 × 70 + 30 × 30). The index value approaches 10,000 as the market approaches monopoly (characterized by a small number of companies and large disparities between companies), and approaches zero as the market approaches perfect competition. The Japan Fair Trade Commission (JFTC) use HHI as a benchmark for a reasonable level of competition (safe harbor) when reviewing mergers to ensure they do not substantially limit competition. Upon referencing past reviews to find the specific level deemed acceptable, JFTC found mergers must fulfill one of the three following sets of conditions to be approved: 1) HHI is 1,500 or less, 2) HHI is 1,500–2,500 and will increase by no more than 250, 3) HHI is over 2,500 and will increase by no more than 150. When a proposed merger does not fulfill these conditions, a separate review is required. In light of past reviews, it is unlikely competition will be substantially restricted if HHI is 2,500 or below and the pre-merger market share of the merging companies is 35% or below.
(Source: Shared Research based on Japan Fair Trade Commission “Business Combination Guidelines” and other materials.)

Improving dominance in the Kinki region, especially in Osaka

Joshin Denki Co., Ltd. has the largest market share in Osaka Prefecture at 28.1%, compared to 20.8% for Edion. Joshin Denki also has a 40.6% market share in Nara Prefecture. The company will have to compete with Joshin Denki to strengthen regional dominance in the Kinki region, especially in Osaka Prefecture. If Edion can secure a presence along the route from Osaka to Nara, it will be able to connect to Mie Prefecture (Chubu region), where it has the largest market share. The opening of Edion Namba in June 2019 makes sense in light of this possibility. Starting in Namba (Osaka), the company can harness the route along the Nankai Electric railway to access Wakayama Prefecture, and the Kintetsu railway to access Nara and ultimately secure a path to Mie.

Entering urban areas in Aichi Prefecture, where Eiden was based (one of the companies from which Edion was formed)

Aichi Prefecture gave birth to Eiden, one of the companies that formed Edion in the 2002 merger. Eiden has opened many stores in Aichi Prefecture, mainly in suburban areas, and has many loyal customers. However, its network of stores in the urban area surrounding JR Nagoya Station is thin. In 2003, three years after the opening of the JR Central Towers complex in 2000, Bic Camera (TSE1: 3048) opened a 15,000sqm store (Nagoya Station West) in front of Nagoya Station. Also, in 2011, Yamada Denki opened its LABI Nagoya store in Meitetsu Department Store’s former Young Building, also near Nagoya Station.

Nagoya Station is a terminal station where JR lines (Tokaido Shinkansen and conventional lines), the Higashiyama and Sakuradori subway lines, and the Meitetsu (Nagoya Railway) and Kintetsu Nagoya lines converge. The linear Chuo Shinkansen between Tokyo and Nagoya is scheduled to open in 2027. JR Nagoya Station is located on the border of Nishi and Nakamura wards, which have a combined population of 286,000, in line with the company’s target of 200,000. Pushing into Nagoya city center will create head-to-head competition with other urban mass retailers (for differences between urban mass retailers and suburban mass retailers, see “Market and value chain” below), but the company considers the area essential to strengthening its regional dominance in the medium term.

Herfindahl-Hirschman Index (HHI) and market share by prefecture

	HHI	Edion	Yamada Denki (9831)	K's Holdings (8282)	Bic Camera (3048)	Yodobashi Camera (unlisted)	Nojima (7419)	Joshin Denki (8173)	Laox (8202)	Population (mn)	Home electronics volume retailers' sales (JPYmn)	Sales per head (JPY'000)	Annual income per head (JPY'000)
Niigata	1,720	-	22.8%	23.0%	8.5%	18.7%	12.9%	10.7%	3.4%	2.281	66,312	29.1	2,826
Saitama	1,738	1.8%	19.3%	11.0%	32.4%	9.7%	21.5%	4.3%	-	7.363	187,951	25.5	2,958
Kyoto	1,743	24.7%	17.2%	8.4%	6.7%	22.2%	-	16.9%	4.0%	2.563	95,935	37.4	2,926
Chiba	1,752	0.7%	23.2%	17.2%	16.3%	10.8%	25.3%	2.7%	3.9%	6.299	181,351	28.8	3,020
Osaka	1,844	22.7%	20.4%	5.4%	9.9%	8.2%	-	27.6%	5.9%	8.856	466,937	52.7	3,056
Aichi	1,926	32.1%	22.1%	12.7%	12.6%	9.3%	0.6%	10.6%	-	7.552	266,567	35.3	3,633
Tokyo	2,015	0.3%	13.6%	2.4%	28.8%	33.9%	15.5%	1.1%	4.5%	13.637	899,597	66.0	5,348
Shizuoka	2,167	23.8%	15.2%	10.4%	16.6%	-	32.9%	1.2%	-	3.743	109,094	29.1	3,300
Tochigi	2,268	-	20.3%	15.1%	41.6%	22.9%	-	-	-	1.986	95,209	47.9	3,318
Mie	2,290	28.7%	21.8%	23.6%	5.4%	-	-	20.5%	-	1.834	53,352	29.1	3,155
Kanagawa	2,324	2.0%	14.5%	3.0%	18.4%	25.6%	35.7%	0.8%	-	9.171	330,921	36.1	3,180
Fukushima	2,336	-	22.8%	20.7%	29.1%	27.5%	-	-	-	1.920	50,589	26.4	3,005
Yamanashi	2,399	-	24.5%	17.4%	22.4%	-	35.7%	-	-	0.839	19,036	22.7	2,873
Toyama	2,418	14.9%	34.6%	11.4%	14.6%	-	-	24.5%	-	1.070	33,432	31.3	3,295
Hokkaido	2,479	7.2%	41.1%	19.9%	6.6%	14.6%	-	-	10.5%	5.340	150,545	28.2	2,617
Hyogo	2,497	29.5%	24.2%	9.7%	6.2%	-	-	30.4%	-	5.590	174,158	31.2	2,896
Miyagi	2,514	-	32.8%	19.6%	18.0%	29.7%	-	-	-	2.312	70,542	30.5	2,926
Shiga	2,552	23.8%	26.1%	20.2%	-	-	-	29.9%	-	1.420	44,366	31.3	3,181
Ishikawa	2,732	28.9%	33.2%	25.2%	-	-	-	12.7%	-	1.150	35,452	30.8	2,908
Nara	2,847	16.4%	20.6%	22.5%	-	-	-	40.5%	-	1.372	46,536	33.9	2,522
Wakayama	2,862	16.2%	21.7%	24.7%	-	-	-	37.4%	-	0.975	28,291	29.0	2,949
Gifu	2,920	41.4%	21.8%	24.2%	-	-	-	12.5%	-	2.054	57,303	27.9	2,803
Fukui	2,998	38.2%	34.2%	14.6%	-	-	-	13.1%	-	0.791	23,672	29.9	3,157
Fukuoka	3,013	14.4%	49.9%	4.7%	11.8%	11.1%	-	-	8.0%	5.131	158,225	30.8	2,800
Tottori	3,036	53.8%	34.4%	11.7%	-	-	-	-	-	0.571	14,702	25.8	2,407
Gunma	3,058	-	47.4%	20.2%	32.4%	-	-	-	-	1.991	84,640	42.5	3,098
Nagano	3,388	29.3%	47.7%	14.2%	-	-	6.0%	2.7%	-	2.114	53,384	25.3	2,882
Ibaraki	3,407	-	30.0%	48.3%	9.1%	-	12.5%	-	-	2.951	87,012	29.5	3,116
Okayama	3,413	43.8%	37.3%	9.5%	5.1%	-	-	4.3%	-	1.921	65,339	34.0	2,732
Ehime	3,490	43.9%	28.6%	27.4%	-	-	-	-	-	1.394	38,412	27.5	2,656
Tokushima	3,706	6.4%	51.3%	29.2%	-	-	-	13.1%	-	0.757	19,023	25.1	2,973
Hiroshima	3,719	55.6%	22.8%	6.1%	15.6%	-	-	-	-	2.849	110,963	39.0	3,068
Kagawa	3,854	16.6%	48.4%	34.9%	-	-	-	-	-	0.993	29,323	29.5	2,945
Aomori	3,948	-	47.0%	40.1%	12.9%	-	-	-	-	1.309	27,659	21.1	2,558
Shimane	3,999	55.7%	44.3%	-	-	-	-	-	-	0.691	17,837	25.8	2,619
Akita	4,022	-	49.4%	38.3%	12.3%	-	-	-	-	1.015	22,296	22.0	2,553
Iwate	4,127	-	48.5%	41.3%	10.2%	-	-	-	-	1.264	27,608	21.8	2,737
Yamagata	4,261	-	52.6%	37.4%	-	-	-	10.1%	-	1.107	23,962	21.6	2,758
Yamaguchi	4,325	44.7%	48.0%	-	7.3%	-	-	-	-	1.396	40,838	29.2	3,048
Kumamoto	4,332	8.2%	62.2%	18.7%	5.0%	-	-	-	5.9%	1.789	45,512	25.4	2,517
Okinawa	4,387	-	58.3%	-	29.9%	-	-	-	11.8%	1.472	34,916	23.7	2,273
Kagoshima	4,674	3.5%	63.4%	24.3%	8.7%	-	-	-	-	1.656	39,833	24.1	2,414
Oita	4,748	13.5%	63.4%	23.2%	-	-	-	-	-	1.169	30,240	25.9	2,605
Nagasaki	6,100	22.0%	74.7%	3.4%	-	-	-	-	-	1.379	25,945	18.8	2,519
Kochi	6,207	-	74.6%	25.4%	-	-	-	-	-	0.725	14,095	19.4	2,567
Miyazaki	6,463	12.0%	78.8%	9.2%	-	-	-	-	-	1.112	26,734	24.0	2,407
Saga	6,477	9.8%	79.0%	11.2%	-	-	-	-	-	0.833	19,728	23.7	2,509
Nationwide	1,489	14.3%	27.2%	11.8%	15.2%	12.0%	9.9%	7.6%	2.0%	127.707	4,545,374	35.6	2,907

Source: Shared Research based on company data
Population figures are based on the Basic Resident Register figures as of January 1, 2018. Annual income figures by prefecture are based on the 2019 Annual Report of Prefectural Accounts (Economic and Social Research Institute, Cabinet Office; November 29, 2019)
Sales figures for home electronics mass retailers are based on Yearbook of the Current Survey of Commerce (Part 5, Table 3) (Ministry of Economy, Trade and Industry; 2018 Annual Report)
Estimates for each company’s market share are based on the number of directly operated stores. Company sales are divided by the number directly operated stores to calculate sales per directly operated store. Sales per store is then multiplied by the number of stores in each prefecture to calculate market share. Edion’s consolidated sales figure does not include e-commerce sales, franchise store sales, or home improvement sales.
Concerning market share in Okinawa Prefecture, Edion is developing stores in collaboration with general retailer San-A Co., Ltd. According to Edion, the company has a market share of around 35% in Okinawa. The franchise agreement with Kakoi Electro has also given Edion access to 39 stores in Kagoshima Prefecture. The company expects its market share to increase in both of these prefectures.
We have omitted Yamada Denki’s consolidated subsidiary Berrys Corp. (a voluntary chain company in the home electronics industry) from this analysis. At end-December 2019, Berrys had 3,786 franchise stores and 11,686 stores in 83 industries. Its franchise stores are engaged in a range of businesses including gas stations (37.3%), e-commerce (14.2%), and electronics retail (13.1%) and thus are not comparable to Edion’s franchise stores.
The scope of this report is limited to analysis of the six major home electronics mass retailers (Edion, Yamada Denki [including Best Denki], K’s Holdings, Bic Camera [including Kojima], Yodobashi Camera, Joshin Denki). However, we have included Nojima and Laox in our analysis of HHI estimates by prefecture.

Increasing share in the Kanto region, especially in Kanagawa Prefecture

If Edion can increase its market share in urban Nagoya, it will be able to connect its network in the area to Shizuoka Prefecture, where it has the top market share. Extending east from Nagoya is a string of three major cities, Hamamatsu (pop. 792,000), Shizuoka (691,000), and Fuji (245,000). Pressing through to Kanagawa, the number of municipalities with populations over 200,000 begins to increase. These include Atsugi (225,000), Yamato (237,000), Chigasaki (242,000), Hiratsuka (258,000), Yokosuka (394,000), Fujisawa (435,000), Sagamihara (723,000), Kawasaki (1,530,000) and Yokohama (3,748,000). (Population estimates as of January 1, 2020).

M&A potential

The table below shows the market shares of competing home electronics mass retailers by prefecture, alongside sums of the market shares each M&A scenario would yield. While the potential for mergers remains, it should be noted that the size of the HHI after business integration could bring the legality of a deal into question vis-à-vis the Antimonopoly Act. In fact, Yamada Denki's 2012 consolidation of Best Denki was permitted on condition that the company transfer five stores in the Kyushu region to Edion. In other words, if Edion pursues consolidation with individual competitors, it may benefit a third-party competitor, depending on the combined regional market shares.

Transfer of stores in the Yamada Denki–Best Denki merger: On July 13, 2012, Yamada Denki and Best Denki announced a capital and business alliance. The Japan Fair Trade Commission approved the deal in December of the same year, provided the partners transferred eight stores to other companies in 10 regions that had no competitors other than Yamada Denki and Best Denki (problem regions). Six of the eight stores targeted were Best Denki stores that were transferred to Edion. One Yamada Denki store was also transferred to Edion. Also, Kakoi Electro Corp., which had operated franchise stores for Best Denki in Kagoshima Prefecture, ended its franchise agreement with Best Denki and switched its allegiance to Edion. Best Denki subsequently lost around one-third of its approximately JPY48bn in franchise sales and withdrew from the Kyushu area.

M&A scenarios: Simple sums of company market shares (Shared Research estimates)

	HHI	Edion (1)	Yamada Denki (2)	K's Holdings (3)	Bic Camera (4)	Yodobashi Camera (5)	Nojima (6)	Joshin Denki (7)	Laox (8)	(1)+(2)	(1)+(3)	(1)+(4)	(1)+(5)	(1)+(6)	(1)+(7)	(1)+(8)
Hokkaido	2,490	7.2%	41.1%	19.9%	6.6%	14.6%	-	-	10.5%	48.4%	27.2%	13.8%	21.8%	7.2%	7.2%	17.7%
Aomori	3,985	-	47.0%	40.1%	12.9%	-	-	-	-	47.0%	40.1%	12.9%	-	-	-	-
Iwate	4,161	-	48.5%	41.3%	10.2%	-	-	-	-	48.5%	41.3%	10.2%	-	-	-	-
Miyagi	2,541	-	32.8%	19.6%	18.0%	29.7%	-	-	-	32.8%	19.6%	18.0%	29.7%	-	-	-
Akita	4,059	-	49.4%	38.3%	12.3%	-	-	-	-	49.4%	38.3%	12.3%	-	-	-	-
Yamagata	4,261	-	52.6%	37.4%	-	-	-	10.1%	-	52.6%	37.4%	-	-	-	10.1%	-
Fukushima	2,339	-	22.8%	20.7%	29.1%	27.5%	-	-	-	22.8%	20.7%	29.1%	27.5%	-	-	-
Ibaraki	3,437	-	30.0%	48.3%	9.1%	-	12.5%	-	-	30.0%	48.3%	9.1%	-	12.5%	-	-
Tochigi	2,251	-	20.3%	15.1%	41.6%	22.9%	-	-	-	20.3%	15.1%	41.6%	22.9%	-	-	-
Gunma	3,115	-	47.4%	20.2%	32.4%	-	-	-	-	47.4%	20.2%	32.4%	-	-	-	-
Saitama	1,725	1.8%	19.3%	11.0%	32.4%	9.7%	21.5%	4.3%	-	21.1%	12.8%	34.2%	11.5%	23.3%	6.1%	1.8%
Chiba	1,766	0.7%	23.2%	17.2%	16.3%	10.8%	25.3%	2.7%	3.9%	23.9%	17.9%	17.0%	11.4%	25.9%	3.4%	4.5%
Tokyo	2,030	0.3%	13.6%	2.4%	28.8%	33.9%	15.5%	1.1%	4.5%	13.8%	2.7%	29.1%	34.1%	15.7%	1.3%	4.8%
Kanagawa	2,348	2.0%	14.5%	3.0%	18.4%	25.6%	35.7%	0.8%	-	16.5%	5.0%	20.4%	27.6%	37.7%	2.8%	2.0%
Niigata	1,731	-	22.8%	23.0%	8.5%	18.7%	12.9%	10.7%	3.4%	22.8%	23.0%	8.5%	18.7%	12.9%	10.7%	3.4%
Toyama	2,365	14.9%	34.6%	11.4%	14.6%	-	-	24.5%	-	49.5%	26.2%	29.5%	14.9%	14.9%	39.4%	14.9%
Ishikawa	2,733	28.9%	33.2%	25.2%	-	-	-	12.7%	-	62.1%	54.0%	28.9%	28.9%	28.9%	41.6%	28.9%
Fukui	3,008	38.2%	34.2%	14.6%	-	-	-	13.1%	-	72.3%	52.7%	38.2%	38.2%	38.2%	51.3%	38.2%
Yamanashi	2,429	-	24.5%	17.4%	22.4%	-	35.7%	-	-	24.5%	17.4%	22.4%	-	35.7%	-	-
Nagano	3,384	29.3%	47.7%	14.2%	-	-	6.0%	2.7%	-	77.1%	43.6%	29.3%	29.3%	35.3%	32.1%	29.3%
Gifu	2,936	41.4%	21.8%	24.2%	-	-	-	12.5%	-	63.3%	65.6%	41.4%	41.4%	41.4%	54.0%	41.4%
Shizuoka	2,185	23.8%	15.2%	10.4%	16.6%	-	32.9%	1.2%	-	39.0%	34.1%	40.4%	23.8%	56.6%	24.9%	23.8%
Aichi	1,981	32.1%	22.1%	12.7%	12.6%	9.3%	0.6%	10.6%	-	54.1%	44.8%	44.7%	41.4%	32.7%	42.7%	32.1%
Mie	2,305	28.7%	21.8%	23.6%	5.4%	-	-	20.5%	-	50.5%	52.3%	34.2%	28.7%	28.7%	49.2%	28.7%
Shiga	2,550	23.8%	26.1%	20.2%	-	-	-	29.9%	-	49.9%	44.0%	23.8%	23.8%	23.8%	53.8%	23.8%
Kyoto	1,790	24.7%	17.2%	8.4%	6.7%	22.2%	-	16.9%	4.0%	41.8%	33.0%	31.4%	46.9%	24.7%	41.6%	28.6%
Osaka	1,873	22.7%	20.4%	5.4%	9.9%	8.2%	-	27.6%	5.9%	43.1%	28.1%	32.6%	30.9%	22.7%	50.3%	28.6%
Hyogo	2,514	29.5%	24.2%	9.7%	6.2%	-	-	30.4%	-	53.7%	39.2%	35.8%	29.5%	29.5%	59.9%	29.5%
Nara	2,840	16.4%	20.6%	22.5%	-	-	-	40.5%	-	37.0%	38.9%	16.4%	16.4%	16.4%	56.9%	16.4%
Wakayama	2,744	16.2%	21.7%	24.7%	-	-	-	37.4%	-	37.9%	40.8%	16.2%	16.2%	16.2%	53.6%	16.2%
Tottori	3,038	53.8%	34.4%	11.7%	-	-	-	-	-	88.3%	65.6%	53.8%	53.8%	53.8%	53.8%	53.8%
Shimane	3,993	55.7%	44.3%	-	-	-	-	-	-	100.0%	55.7%	55.7%	55.7%	55.7%	55.7%	55.7%
Okayama	3,442	43.8%	37.3%	9.5%	5.1%	-	-	4.3%	-	81.1%	53.3%	48.9%	43.8%	43.8%	48.0%	43.8%
Hiroshima	3,798	55.6%	22.8%	6.1%	15.6%	-	-	-	-	78.4%	61.7%	71.2%	55.6%	55.6%	55.6%	55.6%
Yamaguchi	4,355	44.7%	48.0%	-	7.3%	-	-	-	-	92.7%	44.7%	52.0%	44.7%	44.7%	44.7%	44.7%
Tokushima	3,699	6.4%	51.3%	29.2%	-	-	-	13.1%	-	57.7%	35.5%	6.4%	6.4%	6.4%	19.5%	6.4%
Kagawa	3,842	16.6%	48.4%	34.9%	-	-	-	-	-	65.1%	51.6%	16.6%	16.6%	16.6%	16.6%	16.6%
Ehime	3,503	43.9%	28.6%	27.4%	-	-	-	-	-	72.6%	71.4%	43.9%	43.9%	43.9%	43.9%	43.9%
Kochi	6,207	-	74.6%	25.4%	-	-	-	-	-	74.6%	25.4%	-	-	-	-	-
Fukuoka	2,990	14.4%	49.9%	4.7%	11.8%	11.1%	-	-	8.0%	64.3%	19.2%	26.3%	25.6%	14.4%	14.4%	22.4%
Saga	6,459	9.8%	79.0%	11.2%	-	-	-	-	-	88.8%	21.0%	9.8%	9.8%	9.8%	9.8%	9.8%
Nagasaki	6,072	22.0%	74.7%	3.4%	-	-	-	-	-	96.6%	25.3%	22.0%	22.0%	22.0%	22.0%	22.0%
Kumamoto	4,344	8.2%	62.2%	18.7%	5.0%	-	-	-	5.9%	70.4%	26.9%	13.2%	8.2%	8.2%	8.2%	14.1%
Oita	4,733	13.5%	63.4%	23.2%	-	-	-	-	-	76.8%	36.6%	13.5%	13.5%	13.5%	13.5%	13.5%
Miyazaki	6,442	12.0%	78.8%	9.2%	-	-	-	-	-	90.8%	21.2%	12.0%	12.0%	12.0%	12.0%	12.0%
Kagoshima	4,704	3.5%	63.4%	24.3%	8.7%	-	-	-	-	67.0%	27.9%	12.2%	3.5%	3.5%	3.5%	3.5%
Okinawa	4,430	-	58.3%	-	29.9%	-	-	-	11.8%	58.3%	-	29.9%	-	-	-	11.8%
Nationwide	1,489	14.3%	27.2%	11.8%	15.2%	12.0%	9.9%	7.6%	2.0%	41.4%	26.0%	29.4%	26.2%	24.2%	21.9%	16.3%

Source: Shared Research based on company data

Business

Overview and business model

Background

Establishment

Edion was founded in 2002 as a holding company of Deodeo Corporation in the Chugoku region and Eiden Corporation in the Chubu region. Edion is the third-largest suburban home electronics mass retailer in terms of sales after Yamada Denki and Bic Camera. (For definitions of suburban and urban home electronics mass retailers, see “Market and value chain” below.)

In 2005, the company made Midori Denka Co., Ltd., based in the Kinki region, a subsidiary. In 2007, it converted Ishimaru Electric Co., Ltd., which had been based in the Kanto region (mainly Akihabara), into a consolidated subsidiary. In 2009, the subsidiaries were reorganized into Edion West and Edion East before merging in 2010.

Corporate philosophy

The company’s corporate philosophy is “achieving long-lasting customer satisfaction through outstanding products and reliable service.” According to Edion, to sell “outstanding products” means to focus on the value products provide rather than simply selling products detached from an understanding of their long-term value. Of course, a product’s value drops to zero if it breaks. This is where the company’s commitment to “reliable service” comes into play. Edion places an emphasis on promptly repairing products that become defective so that customers can use them in optimal condition until they reach the end of their product life. In fact, one of Edion’s origin companies, Deodeo, had promoted speedy on-site repairs as far back as the 1960s when it went by the name Daiichi. Daiichi used Japan’s first radio-mounted service car to drive around Hiroshima gathering customer information and keeping a detailed customer ledger, giving rise to the catchphrase “Daiichi responds faster than a police car.”

Home electronics mass retailers

A home electronics mass retailer is a home electronics store that purchases products in huge quantities from manufacturers so that it can employ unique pricing schemes and customer services. The format is one of the main sales channels in the industry’s distribution web, with e-commerce specialist companies constituting another main channel. Wholesalers are also present in the market, but they are often subsidiaries of manufacturers. We have omitted mention of independent retailers in this report due to their small size. The six major home electronics mass retailers have a 70% share of the market (see “Market and value chain” below).

Business overview

As of March 2021, the group comprised Edion Co., Ltd., 13 consolidated subsidiaries, and two equity-method affiliates (see “Consolidated subsidiaries and equity-method affiliates” below). Edion’s main business is selling home electronics, and it operates home electronics retail stores across the nation from Hokkaido to Okinawa. The company does not disclose results or forecasts by segment.

Edion sells home electronics through directly operated stores (including consolidated subsidiary SANKYU Co., Ltd.), franchise stores, and e-commerce site Edion Net Shop. It also offers delivery and repair services at its directly operated stores and franchise stores. As of end-FY03/21, the company had 437 directly operated stores (including 36 non-appliance stores) and 750 franchise stores for a total of 1,187.

Other businesses include the internet service provider business. Subsidiary EDION HOUSE SYSTEM Corporation (wholly owned) handles sales and installation of solar power generation system and home improvement services, and consolidated subsidiary Forest Co., Ltd. sells office supplies and daily necessities through its e-commerce website. Consolidated subsidiary e-Logi Corporation provides delivery/installation services and warehouse management. To further expand the business, Edion acquired Jtop Co., Ltd., an operator of print ad distribution business and logistics services in November 2019, and acquired Youmemiru Corporation, a robot programming education business operator, in December.

In FY03/21, sales were JPY768.1bn (+4.7% YoY), operating profit was JPY26.8bn (+118.0% YoY), recurring profit was JPY27.8bn (+108.1% YoY), and net income was JPY16.6bn (+51.5% YoY).

Earnings trends

Income statement	FY03/12	FY03/13	FY03/14	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21
(JPYmn)	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
Consolidated sales	759,025	685,145	766,699	691,216	692,087	674,426	686,284	718,638	733,575	768,113
Recurring profit	16,384	1,476	14,883	11,118	17,275	16,005	16,167	18,889	13,365	27,811
ROA (RP-based)	4.3%	0.4%	3.9%	3.0%	4.7%	4.4%	4.4%	5.2%	3.8%	7.6%
ROE	2.6%	-1.9%	3.6%	3.4%	4.2%	8.9%	5.6%	6.7%	6.1%	8.9%

Source: Shared Research based on company data

Business model

Customers

Edion’s customer base is comprised of general consumers concentrated in the Chugoku region (mainly Hiroshima Prefecture; the base of the former Deodeo) and the Chubu region (especially Aichi Prefecture; the base of the former Eiden), and also in Shikoku, Kyushu, and Hokkaido. The company has the top industry share in the following nine prefectures: Hiroshima (54.7%), Tottori (53.4%), Shimane (55.3%), Ehime (43.5%), Fukui (37.8%), Gifu (41.08%), Mie (28.3%), Aichi (30.7%), and Okayama (43.2%) (SR estimates; directly operated stores only). Typical customers have an annual income of at least JPY5.0mn and most are over 45 years old, with seniors comprising a large percentage. Awareness of the Edion brand is beginning to grow among inbound tourists, especially among those coming to Japan on package tours.

Product mix

Looking at the company’s sales in FY03/21 (see table below), home electronics accounted for 55.9% of sales, information appliances for 23.0%, and other products for 21.1%. Home electronics are divided into audio and video products such as TVs and home appliances such as refrigerators, with the latter accounting for 43.2% of sales. Other products include games, toys, and home fixtures.

Products in descending order of sales composition are: 1) washing machines/vacuum cleaners, 2) air conditioners, 3) mobile phones, 4) TVs, and 5) refrigerators. The so-called “white goods” (e.g., 1, 2, and 5) comprise a large part of Edion’s product mix. The company is focusing on the home improvement business, and home renovations accounted for 6.4% of total sales, coming in just after computers.

Edion has been focusing on selling original products for some time. It defines original products as those to which an additional function has been added. More than 90% of the company’s air conditioners are original products, and original products are well represented in other product categories as well. The company also sells private brand products (e angle), which it designs and manufactures in-house.

Number of items handled

The company handles approximately 20,000 items at its directly operated stores of approximately 2,600sqm (regular size), and handles approximately 150,000 products in its e-commerce business.

Product mix

(JPYmn)			FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	Share ranking
(JPYmn)			FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	FY03/15	FY03/16	FY03/17	FY03/18	FY03/19	FY03/20	FY03/21	Share ranking
Consolidated sales			691,216	692,087	674,426	686,284	718,638	733,575	768,113	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Home electronics			372,851	383,813	383,381	385,404	401,754	405,234	429,312	53.9	55.5	56.8	56.2	55.9	55.2	55.9
	Audio and video products		95,617	94,119	88,251	85,819	87,252	91,428	97,279	13.8	13.6	13.1	12.5	12.1	12.5	12.7
		TV	41,939	43,518	44,500	45,954	49,179	54,952	62,105	6.1	6.3	6.6	6.7	6.8	7.5	8.1	(4)
		Video and camera	35,704	33,337	28,675	26,503	24,722	22,892	20,004	5.2	4.8	4.3	3.9	3.4	3.1	2.6
		Audio	17,974	17,264	15,076	13,362	13,351	13,584	15,170	2.6	2.5	2.2	1.9	1.9	1.9	2.0
	Home appliances		277,228	289,690	295,125	299,581	314,497	313,800	332,026	40.1	41.9	43.8	43.7	43.8	42.8	43.2
		Refrigerator	47,158	48,883	49,696	50,058	53,214	56,709	55,027	6.8	7.1	7.4	7.3	7.4	7.7	7.2	(5)
		Washer and vacuum cleaner	59,431	63,412	65,004	66,742	69,832	73,344	77,437	8.6	9.2	9.6	9.7	9.7	10.0	10.1	(1)
		Microwave oven, cooking appliances	36,974	38,690	37,708	35,988	35,807	36,268	39,607	5.3	5.6	5.6	5.2	5.0	4.9	5.2	(10)
		Beauty and healthcare appliances	29,312	29,489	27,268	26,360	26,292	25,716	26,722	4.2	4.3	4.0	3.8	3.7	3.5	3.5
		Lighting fixtures	10,242	9,675	8,738	8,121	7,578	6,798	6,526	1.5	1.4	1.3	1.2	1.1	0.9	0.8
		Air conditioner	54,861	58,792	64,968	69,377	78,424	73,330	75,916	7.9	8.5	9.6	10.1	10.9	10.0	9.9	(2)
		Other air conditioner	21,411	20,586	21,288	22,692	22,250	20,332	31,770	3.1	3.0	3.2	3.3	3.1	2.8	4.1
		Other	17,839	20,163	20,455	20,243	21,100	21,303	19,021	2.6	2.9	3.0	2.9	2.9	2.9	2.5
Information appliances			177,585	175,127	161,366	163,981	173,231	175,850	176,717	25.7	25.3	23.9	23.9	24.1	24.0	23.0
		PC	52,049	44,841	42,809	39,260	40,165	50,346	51,296	7.5	6.5	6.3	5.7	5.6	6.9	6.7	(6)
		PC-related, peripherals	44,927	44,762	42,500	44,119	44,018	44,023	48,112	6.5	6.5	6.3	6.4	6.1	6.0	6.3	(8)
		Mobile phone	65,762	70,034	60,476	63,949	72,149	65,265	62,210	9.5	10.1	9.0	9.3	10.0	8.9	8.1	(3)
		Other IT products	14,845	15,488	15,580	16,652	16,897	16,215	15,097	2.1	2.2	2.3	2.4	2.4	2.2	2.0
Other			140,779	133,146	129,678	136,898	143,652	152,489	162,083	20.4	19.2	19.2	19.9	20.0	20.8	21.1
		Games and toys	21,179	23,117	22,644	26,976	25,123	26,699	34,326	3.1	3.3	3.4	3.9	3.5	3.6	4.5
		Music and musical instruments	4,818	4,500	4,243	3,722	3,363	3,113	2,956	0.7	0.7	0.6	0.5	0.5	0.4	0.4
		Home renovation	43,528	44,422	41,882	41,759	45,755	51,496	49,008	6.3	6.4	6.2	6.1	6.4	7.0	6.4	(7)
		Home electronics repair and other work	22,517	24,215	25,047	26,323	29,001	29,483	29,978	3.3	3.5	3.7	3.8	4.0	4.0	3.9
		Other	48,734	36,890	35,860	38,115	40,409	41,698	45,813	7.1	5.3	5.3	5.6	5.6	5.7	6.0	(9)

Source: Shared Research based on company data

Sales channels

Number of stores

The company’s main sales channel is brick-and-mortar stores. As of end-FY03/21, it had a total of 1,187 stores, including 401 directly operated home electronics stores, 36 other (non-home electronics) stores, and 750 franchise stores. There has not been a significant change to the company’s total sales floor area (1,058,141 sqm (320,649 tsubo)) in the past 10 years.

Number of stores and floor space

(stores)	Home electronics	Other direct	Total directly operated stores	Franchisees	Total stores	Floor space (direct; sqm)	Floor space (direct; tsubo)
FY03/10	335	83	418	683	1,101	1,081,762	327,807
FY03/11	340	75	415	715	1,130	1,028,029	311,524
FY03/12	352	73	425	751	1,176	1,039,584	315,025
FY03/13	355	70	425	752	1,177	1,041,859	315,715
FY03/14	369	66	435	777	1,212	1,053,080	319,115
FY03/15	373	59	432	780	1,212	1,029,801	312,061
FY03/16	376	54	430	776	1,206	1,023,812	310,246
FY03/17	380	44	424	761	1,185	1,019,475	308,932
FY03/18	384	41	425	761	1,186	1,020,001	309,091
FY03/19	395	41	436	755	1,191	1,038,617	314,732
FY03/20	396	37	433	751	1,184	1,055,359	319,806
FY03/21	401	36	437	750	1,187	1,058,141	320,649

Source: Shared Research based on company data

Store type

The company’s basic policy is to open stores in areas with trade area populations of around 200,000. The size of the store varies depending on the region and size of the trade area, but is generally divided into the following types.

Urban superstores: Terminal location, e.g., near major train stations (6,500–10,000sqm)
Suburban superstores: Suburban location (5,000–10,000sqm)
Suburban regular stores: Suburban location (1,500–3,500sqm) (trade area population of more than 200,000)
Small franchise stores: Satellite stores (15-70sqm)

Since 2017, the company has focused on establishing “experience-based” stores. As e-commerce takes more of the market, it has become paramount for brick-and-mortar stores to provide value that e-commerce stores cannot. The value of stores as simply places to sell products is likely to decline over time, making it essential for brick-and-mortar stores to offer customers unique experiences.

Opened in April 2017, Edion Tsutaya Electrics is located in the commercial building of the large Eki City Hiroshima complex, a one-minute walk from the south exit of JR Hiroshima Station. Aiming to fulfill the store concept of “a home electronics store where you can enjoy a cozy time and discover new things,” Edion continuously experiments with new arrangements such as combining the sales floor with a café and space selling books and stationery.

In June 2019, the company opened Edion Namba. The store has nine floors above ground with 15,000sqm of floor space, making it the company’s largest flagship store. The store emphasizes providing shoppers with hands-on experiences. The layout includes dedicated seats for enjoying popular video games and holding esports competitions. Visitors can also use VR technology to see what their homes could look like after renovation. The fourth floor is set aside for cosmetics, and the eighth floor is dedicated to watches and other products primarily targeting inbound customers. The ninth floor is a food court featuring ramen shops from every corner of Japan.

New store concept