David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Activist shareholder Dan Loeb's campaign against a titan of corporate Japan scored a magnificent scalp last year.

Seven & i Holdings Co.'s now-84-year-old chairman and chief executive officer Toshifumi Suzuki, a towering figure in the country's retail sector for four decades, quit after coming under fire from Loeb's Third Point LLC and losing the confidence of his board. Ryuichi Isaka, the former boss of the 7-Eleven chain in Japan and Third Point's favored successor, took over and immediately announced a Loeb-style turnaround.

Show Me the Money
Third Point hasn't had an opportunity to profit from its agitation for change at Seven & i
Source: Bloomberg

If Third Point was only concerned with a selfless campaign to improve Japanese corporate governance, this run of events could be considered a success. If the fund is looking to make money out of its Seven & i position, however, the victory starts looking a lot more Pyrrhic.

Since Third Point disclosed its position in October 2015, shares in Seven & i are down about 17 percent. We don't know the exact size of the holding or when it was bought, but there was only one day in the six months prior to Third Point's initial announcement when the shares were lower than the highest point they've reached since Suzuki was dethroned.

That doesn't appear to be about to change. First-quarter net income fell 22 percent from a year earlier to 33.6 billion yen ($297 million), the company said Thursday, almost 14 billion yen below the 47.1 billion yen average analyst estimate, due largely to restructuring costs at the Sogo & Seibu department store chain and goodwill writedowns at overseas convenience stores. There's little sign yet that Isaka's revitalization program is taking effect.

What went wrong?

Part of the problem is the gap between theory and practice. As Gadfly argued at the time, Loeb's basic thesis -- that Seven & i is an impressive convenience-store operator yoked to underperforming supermarkets and department stores -- remains sound. Delivering on actual change, however, remains elusive.

Winners and Losers
Operating margins at Seven & i's convenience stores are consistently ahead of its other retail units
Source: Bloomberg, company reports, Gadfly calculations

At the Sogo & Seibu department stores, where profit margins are almost invisible and revenue has fallen in seven of the past nine years, transformation has been gradual at best. The stores are old and tired, with about two-thirds opened more than three decades ago. A much-touted divestment of outlets in the Kansai region will help reduce store numbers to 17 by next February from 23 a year ago, but management's ambitions for the segment as a whole don't range higher than achieving a measly 1.8 percent operating margin by 2020.

It's a similar story at Ito-Yokado supermarkets. Plans to shutter 10 of the unit's 180-odd outlets every 12 months were in place before Third Point came on the scene and are progressing only slowly, with just six branches slated for closure in the current fiscal year. As Isaka's turnaround plan demonstrated last October, the outlets that could be most attractively converted for their real-estate value are often ones where Seven & i is a tenant with little discretion over how the property is disposed.

The real problem within Seven & i is that it remains in essence a confederation of business empires, where patriarchs of the underperforming Ito-Yokado, Sogo & Seibu and York-Benimaru chains still hold a lot of sway.

Activist shareholders like Loeb and veterans of 7-Eleven like Isaka would dearly love to cut those businesses loose and give the core a chance to prosper. But the status quo -- where the convenience stores' cash flows are being used to prop up the weaker peripheral chains -- remains very congenial to an influential slice of group management.

Until that changes, Third Point will face an ongoing war of attrition.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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David Fickling in Sydney at

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