ar in Changsha, in the south-central province of Hunan, and a second one in the same city in 2025. Apart from those, three additional malls in China are on the drawing board. In Vietnam, it expects to open in Hue next year, and has also announced the development of malls in Hanoi, Thanh Hoa, Binh Duong, Danang and Dong Nai.   The overseas numbers are compelling Aeon currently has malls in four countries outside Japan – China, Vietnam, Cambodia and Indonesia – and in the latest quarter, these properties chipped in 38 per cent of the growth in total company operating revenue. This brings their total contribution to more than 20 per cent of all company revenues. They occupy almost 30 per cent of company leasing space and this makes it look like they are punching below their weight, but disposable income (and by extension retail spending) are materially less in some of the company’s non-Japan local markets. The domestic operations are still by far the biggest revenue spinners, but the gap is closing and is set to close much more over the next few years. Regional trends This year, Aeon expects specialty store sales in its China shopping malls to grow by 30 per cent, which would normally be a forward indicator of strongly positive leasing spreads. The sales forecast is based on epic growth in the first five months of 2023, including 21.8 per cent growth in the May quarter itself. The company noted that this was the first time in four years that there were no restrictions on Chinese New Year celebrations. Sales growth has been stellar but it should be remembered that the comparisons throughout this year with 2022, when much of the country was subject to periodic harsh lockdowns, are not going to be particularly helpful in understanding the fundamental growth of the business. Perhaps more meaningful at this stage is the ‘two-year stack’ for specialty store sales (the sum of this year’s and last year’s growth), which came in at 6.8 per cent. Not bad, but hardly a hit out of the park. China now contributes 14 per cent of Aeon’s total revenues and 67 per cent of its revenues from overseas. The top line for the China malls was up by 12.3 per cent in the May quarter and they made a contribution of 9.5 per cent of total company operating income for the quarter.  Meanwhile, Aeon expects specialty store growth in both its Japan and Vietnam malls of 10 per cent this year. One thing to keep an eye on is that growth in Vietnam might be pinched a little as the Vietnamese economy downshifts to a growth rate somewhat below its historical average. This isn’t the fault of the Vietnamese consumer, it’s because of Vietnam’s vulnerability to falling demand for its exports as the global economy softens. Economists have downgraded their forecasts for Vietnam’s GDP growth accordingly. Aeon Mall’s operating revenues in Vietnam were up 31.6 per cent in the May quarter, partly due to the strong specialty store sales and higher rents. The company has six malls in Vietnam, including two each in Hanoi and Ho Chi Minh City, and sees the country as a juicy target for development, although it is going up against a well-established local competitor in Vincom. In Aeon’s Cambodian malls, operating revenue was up 71.9 per cent, partly due to the opening of its third mall, Aeon Meanchey in the south of Phnom Penh, which also helped to more than double the operating costs of the Cambodian operations. Cambodia, perhaps more so than any of the other countries in which Aeon operates, has a hangover from vacancy that resulted from Covid-19 lockdowns but is gradually dealing with it as more foreign retailers enter the market. In Indonesia, the other country in which Aeon operates, revenues were up 25.4 per cent in the May quarter. Japan malls see big skew toward experiential and services tenants In Japan itself, operating revenue at Aeon’s malls grew by 7.4 per cent in the May quarter. Sales at mall specialty stores increased by 8.0 per cent, while mall traffic was up by just over half that, so customers are now spending more per visit. What is really striking about the numbers though is the shift in distribution of spending from goods to dining, entertainment and services in the post-Covid world. This is not to say that apparel and other merchandise isn’t moving at all, but rather at a much more sedate pace than the more social and experiential forms of retail. A few numbers to illustrate: apparel specialty sales increased by 4.0 per cent, accessories by 5.7 per cent and miscellaneous goods by 2.1 per cent.  Compare those gains with dining, up 15.8 per cent, services, up 19.2 per cent, and the biggest beneficiary of all from the post-Covid recovery, cinemas, up 41.8 per cent. For the whole company, taking in domestic and overseas business, operating revenue for the May quarter was up 9.7 per cent from a year ago, close to being on target for the company plan for the first half. However, costs increased at a slightly faster rate and net income rose by only 2.3 per cent. Aeon attributed the cost increase partly to higher electricity bills, some of which it was not able to recoup from mall tenants, and higher marketing costs. The company is looking for operating revenue of 447 billion yen this year ($4.7 billion) and net income growth of 7.8 per cent. All up, Aeon now operates 8.5 million sqm of leasable area over the four countries, consisting of 96 malls and 21 urban shopping centres in Japan, 21 malls in China and 14 in ASEAN.