Authored by Naveen Athrappully via The Epoch Times
Convenience store chain 7-Eleven will close hundreds of stores as the company faces declining sales at its U.S. stores.
7-Eleven operates more than 13,000 stores across the United States and Canada. The company plans to shut down 444 “underperforming stores” as part of improving efficiency and managing cost, according to an Oct. 10 financial forecast presentation from the firm. The closures represent more than 3 percent of the company’s U.S. and Canadian stores. This is expected to generate approximately $30 million in operating income benefit for the retail chain this year.
7-Eleven is looking to boost capital efficiency and ensure sustained business growth in North America given the “tough consumer spending environment, particularly among lower-and middle-income earners,” it said in an Oct. 10 statement.
Challenging employment conditions, high interest rates, and inflationary pressures have led to a decline in labor incomes, according to the company.
The firm credited the robustness of the North American economy to consumption by high-income earners, noting that middle- and lower-income groups have taken a “more prudent approach” in this regard.
“In the six months ended August 31, 2024, merchandise sales at existing stores in the U.S. decreased year-on-year in U.S. dollars,” it stated, noting that traffic also declined.
7-Eleven attributed this to several factors, including a large portion of Americans living paycheck to paycheck, the reduction in Supplemental Nutrition Assistance Program (SNAP) benefits, the growth of online retail sales, and a cyber outage incident that affected operations.
The firm specifically highlighted declining tobacco use as a contributing factor affecting traffic and sales. Tobacco use has fallen by 26 percent compared to 2019, the company stated.
Cigarettes made up 21.5 percent of total convenience store sales in 2023. Circle K and 7-Eleven are the two top convenience store chains by store count, meaning that they likely already each capture the largest shares of U.S. tobacco sales, according to Don Burke, senior vice president at Management Science Associates, a market research firm.
The market for U.S. cigarette smokers is declining after decades of warnings about health risks. Convenience stores have long dominated tobacco sales, accounting for about 70 percent of purchases.
The planned closure of 444 stores is part of several steps being taken to ensure the long-term success of 7-Eleven outlets, according to the company. Other measures include growing proprietary foods, accelerating digital sales, and growing and enhancing store networks.
The retail chain reduced its estimate for total store sales in the second half of 2024. The company predicted that it will “return to growth in 2025 and beyond.”
7-Eleven is owned by Japan-based Seven & i Holdings, which has multiple other brands under it.
7-Eleven stated that it plans on setting up “a store network of 50,000 stores in areas outside Japan and North America by the fiscal year ending December 31, 2025, and to extend our presence to 30 countries and regions including Japan and North America by the fiscal year ending December 31, 2030.”
Buyout Attempts
In August, Seven & i Holdings revealed that it received a buyout offer from Canada-based convenience store operator Alimentation Couche-Tard (ACT). In September, the firm announced that it rejected the offer.
According to Seven & i Holdings, Couche-Tard proposed a $14.86-per-share cash deal, which it stated “grossly” undervalued the firm. The Japanese company determined that the transaction was not in the best interests of shareholders.
Even if the Canadian store chain were to raise the proposed buyout value “very significantly,” the possibility of the deal getting through remains uncertain, Seven & i Holdings stated.
Stephen Dacus, chair of Seven & i’s board, wrote a letter to Couche-Tard, clarifying that the Japanese firm remains open to any offer that recognizes their “standalone intrinsic value.”
“However, we do not believe, for several critical reasons, that the proposal you have put forward provides a basis for us to engage in substantive discussions regarding a potential transaction,” he said.
On Oct. 9, Seven & I Holdings stated that it received a revised, nonbinding buyout proposal from Couche-Tard.
Seven & I Holdings “has maintained, and intends to continue to maintain, the confidentiality of its current discussions with ACT at this time.”
“The Company will continue to act in the best interest of its shareholders and other stakeholders of the Company,” it stated.
The Japanese firm announced recently that it plans to establish an intermediate holding company that will watch over its supermarket food business, specialty stores, and other businesses, collectively referred to as the SST Business Group. A total of 31 companies will be brought under the group.
Sourced from ZeroHedge
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