Pandemic devastates earnings of major department stores

he nation’s leading department stores posted huge net deficits for the six months through Aug. 31, largely due to temporary store closures and reduced business hours amid the novel coronavirus pandemic,

As there is unlikely to be an immediate rebound in the number of overseas visitors, who underpinned department stores’ performance until last year, major retailers across the country will aim at regaining their profitability by stepping up such business lines as online sales.

“In a prime downtown [Tokyo] location in Shinjuku, we are producing a deficit to some degree every month. It would be difficult to ignore this from the standpoint of our business operations,” Yoshio Murata, president of Takashimaya Co., explained in a recent telephone press conference in which he announced the closure of the Shinjuku store’s duty-free shop at the end of this month.

This duty- free shop has been open since 2017, jointly run with the ANA Group, but Takashimaya has concluded that it would be difficult to get the shop out of the red.

Takashimaya posted a net deficit of ¥ 23.2 billion in its consolidated financial results for the half year ending on Aug. 31, compared to a net profit of ¥ 12.4 billion for the corresponding period last year. In its just- released forecast of consolidated results for the year ending on Feb. 28, 2021, Takashimaya expects to post a net deficit totaling ¥36.5 billion.

J. Front Retailing Co., which has Daimaru Matsuzakaya Department Stores Co. under its umbrella, registered a net deficit of ¥16.3 billion in its consolidated financial results for the half year ending on Aug. 31, compared to a net profit of ¥14.3 billion during the corresponding period last year.

However, when looking only at the figures for the three months from June to August, J. Front had moved back into the black.

Sogo & Seibu Co. also posted an operating deficit for the half year ending on Aug. 31.

Each department store is aiming for a recovery in profits by beefing up online sales.

Daimaru Matsuzakaya is stepping up efforts by having its buyers promote regional products online.

Meanwhile, Takashimaya hopes that expanding its lineup of gifts and food products will help it increase its online sales for the year ending on Feb. 28 next year by 40% compared with the previous year.

The stores will also advance their reviews of their sales floors.

Masayuki Kubota at the Economic Research Institute of Rakuten Securities, Inc. noted: “Consumption by foreign visitors to Japan cannot be expected for the time being. It is likely that [department store operators] will beef up their e- commerce while shifting further into such a business model as taking in specialty stores as tenants to earn rents.”

With the nation’s major department stores, such as Takashimaya, having plunged into a net deficit for the half year ending on Aug. 31, it is significant that they included “special losses” in their financial results for office rents and personnel expenses that accompanied temporary store closures amid the coronavirus epidemic.

Special losses are usually included in financial results when a company suffers damage to its property and equipment due to a disaster or when it reduces the value of its stores and plants as a result of a greater than expected drop in profits. On the other hand, when certain gains are made, such as through the sale of real property or stock holdings, they will be incorporated as “special gains.” In either case, the special loss or special gain is made for a temporary reason that has nothing to do with the company’s core business functions.

When calculating “operating profit,” which refers to the profits that a company generates from its core businesses, such costs as rents and personnel expenses are usually deducted from sales revenue.