Tesco admits defeat and abandons Japan venture

Group Business Correspondent

Thursday 1 September 2011

TESCO said yesterday it is pulling out of Japan, joining a growing list of Western grocery chains that have struggled to establish a viable business there.

challenge: A string of Western firms have struggled to make an impression in Tokyo and across Japan. Picture Mark Kolbe/Getty

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DOUGLAS HAMILTON

Japan is the smallest of Tesco’s international retail businesses, with 129 small, leasehold-owned stores in the Greater Tokyo area. This represents less than 0.5% market share in the capital, the company said.

Tesco said Japan was the weakest country for sales growth in its 2010-11 financial year, with like-for-like sales down by 8.1%, way below the performance of other Asian countries like South Korea and Thailand.

“We have concluded that we cannot build a sufficiently scaleable business,” chief executive Philip Clarke said, adding that the division made a small operating loss last year. Tesco plans to sell its Japanese assets in the coming months, during which the business will continue to trade.“It has proven very difficult to shift consumers from the stores that they use. You are competing with some extremely large Japanese retailers, both national and regional,” he said. Mr Clarke added Japan’s ailing economy had affected trade, with the last couple of years being “particularly difficult.” Tesco entered the Japanese market with the purchase of 78 shop units from retailer C Two-Network in 2003. It acquired a further 27 stores from Fre’c the following year, before expanding the business with its own stores. It has since invested around £100 million in the country, where it operates small-format stores, supermarkets and convenience stores under the Tsurukame, Tesco and Tesco Express banners. The British group employs about 4000 people in Japan. However, Japanese consumers continue to shop at ubiquitous convenience stores like 7-11, Lawson and FamilyMart, or big supermarkets such as Aeon, Ito-Yokado and Seiyu. Mr Clarke said more than half the Japanese stores were profitable and he was confident the business would attract a buyer, but would not comment on valuation. However, Justin Scarborough, an analyst at Royal Bank of Scotland, forecast the sale could fetch between £50m and £75m.Mr Clarke rejected speculation that Tesco also planned to sell its US business Fresh & Easy.“Any comparison with Fresh & Easy would be inappropriate. We are going to get ourselves to profit, we are going to drive the growth and then we are going to get the return on capital shareholders want. I stick by it until things prove otherwise,” he said. Tesco has struggled to turn a profit at its US stores, which were introduced in 2007, delaying its plans to grow rapidly in California, Nevada and Arizona. Three years later, the company has around 175 American stores but is still losing money.Tesco’s exit from Japan follows French grocer Carrefour’s retreat in 2005 after just five years, selling its eight hypermarkets to Aeon, Japan’s largest supermarket group.US-based Wal-Mart Stores entered the Japanese market nine years ago and operates 414 stores there, but has reported losses in the country for seven straight years. Seymour Pierce analyst Kate Kalvert said investors will welcome Tesco’s decision to leave Japan. “Tesco has never made an acceptable return from the business. Japan will remain a notoriously difficult country to make money out of,” she stated.

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Tesco admits defeat and abandons Japan venture

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