The King of Convenience: Definitely not Lawson!

[oksana126]

My final post about which of the world's biggest convivence store chain makes for the best investment is out here (7-Eleven, FamilyMart & Lawson are all tradable on TSE): Kings of Convenience: Lawson

The Lawson analysis really shocked me in how badly the company is run even though its store are so similar to 7-Eleven and FamilyMart.

The TL;DR of my stock analysis:​

I am just going to say it straight, stay away from the Lawson stock!

Lawson’s Price to Earnings (P/E) ratio was at 40 times 15 years ago, but now it is in the 20 times range. The Price to Sales (P/S) ratio decreased from 1.8 times 15 years ago to 0.9 times. Since the end of last year, stock prices have been on a downward trend and have fallen by nearly 20%. Even though the stock has fallen this much, it is still relatively expensive, and there are no bright signs on the horizon.

There are four core that needs to be addressed for Lawson’s decline to stop:

1) The 24-hour/365 days a year requirement for franchise owners from Lawson’s headquarters are unsustainable.

2) Lawson’s royalty on its franchise owners is too large, but a decrease could result in billions of yen in decrease in profits.

3) Increased logistics and labor costs. The impact of the decrease in profits is likely to be several billion yen.

4) Lawson’s Management is incompetent compared to 7-Eleven and FamilyMart. They all face the issues of labor shortage and anger from franchise owners but 7-Eleven has started to address it with taking on more stores and reviewing the 24h requirement, and FamilyMart by rolling out unmanned stores.

 

[kitten3660]

@oksana126 I can only comment anecdotally but I know of a few store in central Tokyo that have set check outs now to counter the labor shortage. And honestly it’s not a great job anyway. If it can be automated, automate it. It frees up human capital.

I do like the Natural Lawson brand and their product selection. Stronger focus on high quality premium products.

 

[oksana126]

@kitten3660 Yeah, for the self-service registers, Lawson is at least on-par with FamilyMart (7-Eleven has gone a different route here). But Lawson is so far much slower on the unmanned store front. Also, their point system is the least used among the three (ponta points) and kinda useless if you ask me.

Yeah, Natural Lawson is better, but as Lawson owns Seijo Ishi (which in my view is far superior), I don't see why they don't just expand it to convenience stores (in many stations, they have tiny Seijo Ishi stores so its definitely possible) instead of trying to make Natural Lawson happen.