Their ambitions may not stop with providing the Japanese shopper with carrots, lunchboxes and compact discs over the Internet, analysts said on Thursday. One goal may be to offer a simple retail banking service.

"In terms of Japan's unique e-commerce model based on convenience store chains, Seven-Eleven leaves the rest behind," said Eizo Uchikura, retail analyst at Goldman Sachs, referring to Japan's giant.

"It thus enjoys a huge lead because of its intensive retail network, strong business partners and the looming possibility that the group may obtain a banking licence."

Seven-Eleven Japan Co Ltd, operator of the biggest convenience store chain of some 8,000 franchise shops, unveiled last week a venture with blue-chip firms such as Sony Corp for online sales in suchareas as travel, music, photography and books.

It was followed a day later by an alliance among five similar convenience chain operators, including Japan's third biggest, FamilyMart Co, to set up an e-commerce infrastructure. Their combined retail network would be 1.5 times that of Seven-Eleven, although analysts doubt if the five can compete with the giant in terms of efficiency.

On Wednesday, a joint venture involving retailers and Internet investors - including Softbank Corp - was unveiled to set up Japan's first Web-based supermarket.

Seven-Eleven will take the lead - at least for the next couple of years - in the race for Japan's fast-expanding e-tailing market, where intensive retail networks of convenience stores offer a core infrastructure, analysts said.Drive to build up retail empire
Its parent company, Ito-Yokado Co Ltd, a leading supermarket chain operator, has already shown its desire to enter the world of banking - possibly by setting up its own bank - as part of its drive tobuild up a retail empire.Japan's lumbering banks, laden with bad loans, have tried to appear unperturbed by a potential threat from these ambitious minnows nibbling at the fringes of their business.

"We don't think they (Ito-Yokado and Sony) are our rivals. We cannot deny they pose a threat, but we would like to cooperate with them if necessary," said a Sakura Bank official.

Ito-Yokado or Sony would be unable to derive large earnings from the banking business because their operations would be limited to such low-margin activities as helping clients to settle their bills, he said.

However, Japan's convenience store networks of more than 50,000 outlets, many of them open 24 hours a day and all year round, would play a major role by taking online orders, distributing merchandise and helping customers settle their bills in a country where people remain reluctant to bank online for security reasons.

The Ito-Yokado group's planned entry into banking, still subject to approval by financial regulators,nevertheless poses a threat to Japan's rigid banking sector, which has been slow to adjust to the fast-changing world of the Internet.

"It's possible the banks don't feel the commissions to be gained from e-commerce settlements are worth their while, but they can't afford to miss new business opportunities in this lucrative area," said Nozomu Kunishige, senior analyst at Lehman Brothers.

Feeling the threat from the possible banking entry of Ito-Yokado and Sony, some banks are already going online. Sakura Bank plans to set up an online joint venture by next September.

Japan's business-to-consumer (B2C) e-tailing market is expected to total 3.16 trillion yen in 2003, up sharply from 65 billion yen in 1998, but still only 15 per cent of that of the United States.

About one-fourth of Japan's total B2C e-commmerce transactions could be made through the top three convenience store chains, led by Seven-Eleven, by 2003, said Masafumi Shoda, analyst at Nomura Securities Co's research arm."Convenience storechains will take the lead in the market of business-to-consumer e-commerce...at least for a year or two," said Goldman's Uchikura.

-- (Reuters)