Wal-Mart to Buy Out Remaining Shares of Struggling Seiyu Unit

Wal-Mart has held a majority stake in Japanese retailer Seiyu for several years, and all the while Seiyu has lost money. There are a lot of reasons why this is the case, including, but not limited to, Wal-Mart being insensitive to cultural differences, Japanese consumers equating “low prices” with “poor quality,” tough competition from other retailers and difficulty with Seiyu’s store formats.

Wal-Mart apparently isn’t bothered by any of these difficulties, and has decided to buy up the 4% of Seiyu shares it didn’t already own. By sinking even more money into Seiyu Wal-Mart hopes to avoid the fate that befell stores in Germany and Korea. As international expansion plays a larger role in Wal-Mart’s expansion, Wal-Mart needs to keep building in countries where it can. What do you think: Is Seiyu a wise investment for the company?

Wal-Mart To Make Seiyu 100% Unit [Dow Jones Newswire via Wall Street Journal]

Wal-Mart Stores Inc. will make Seiyu Ltd. a wholly-owned unit, as the U.S. retail giant seeks the flexibility it says it needs to turn around the long-unprofitable Japanese supermarket operator

Seiyu, Japan’s fifth-biggest supermarket retailer by sales, said Tuesday the move was approved at its shareholders meeting earlier in the day, enabling Wal-Mart to buy the remaining stake it doesn’t already own in Seiyu for Y140 per share. The approval cleared the way for Wal-Mart to boost its stake in Seiyu to 100% from about 96%, effective April 25.

Separately, the Tokyo Stock Exchange said it will delist the company shares April 19. Seiyu shares closed down Y1, or 0.7%, at Y136 on the Tokyo Stock Exchange Tuesday.

Seiyu has struggled in the intensely competitive Japanese market since Wal-Mart first invested in it in 2002 and hasn’t made a net profit on an annual basis since then.

Seiyu reported in February that it posted a net loss of Y20.93 billion last year, underscoring the tough time Wal-Mart is having in returning the Japanese unit to the black.

Weak sales of clothing and other seasonal goods amid poor weather led to a 0.9% fall in revenue to Y952.30 billion, down from Y960.86 billion a year earlier.

The poor earnings suggests the Arkansas-based company’s “Everyday Low Price” strategy has backfired in Japan, where consumers tend to equate low prices with low quality.

Wal-Mart’s track record at its international operations hasn’t been perfect. While its business has flourished in Mexico and Latin America, local shopping cultures in some other areas have failed to respond in to the sales formats that proved successful at its home territory.

The company sold its German operations to rival German retailer Metro AG in 2006 and earlier sold its 16 stores in South Korea.

Posted by Alex Goldschmidt on Tuesday, March 18, 2008

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