LONDON -- In a move that some observers see as an indication that it will do the same in the United States, Tesco PLC is leaving the Japanese retail market after nine years, as the company focuses on turning around its U.K. domestic operations and making its U.S. business profitable, reported The Wall Street Journal.
The U.K. retailer said Monday it will sell 50% of Tesco Japan to Aeon Co., Japan's largest retail group, for a nominal sum. Tesco said it will form a joint venture with Aeon and invest £40 million ($63 million U.S.), then sell the remaining 50% to Aeon at a later date that it did not specify.
Intense competition and rapidly changing consumer tastes often make it difficult for foreign retailers to succeed in Japan, said the report. Wal-Mart Stores Inc., the world's biggest retailer, and Germany's Metro AG have struggled to make an impact there, while Carrefour SA of France left Japan after only five years.
Tesco has invested about £100 million ($156.7 million U.S.) in Japan since entering the country in 2003, operating small-format stores, supermarkets and convenience stores under the Tsurakame, Tesco and Tesco Express banners. It built up a portfolio of 117 stores in the Tokyo area but failed to make the business profitable.
"The fact is that Tesco's supermarket format and product mix, even toned down, did not suit a market that is dominated by convenience," Jon Copestake, chief retail analyst at the Economist Intelligence Unit, told the newspaper.
After issuing a profit warning in January--its first in 20 years--Tesco said it would invest £1 billion ($1.6 billion U.S.) to revive its ailing domestic operation. The retailer generates about one-third of its £72-billion ($112.8-billion-U.S.)-a-year revenue overseas, but has drawn criticism from investors in recent years for focusing on global expansion as its share of the U.K. market has fallen.
CEO Philip Clarke first announced plans for Tesco to exit Japan in August of last year, reasoning that with less than 1% of the market, the company's business wasn't big enough to make it profitable.
He rejected suggestions at the time that the decision to leave Japan could mean a future disposal for the company's unprofitable U.S. business, Fresh & Easy Neighborhood Market Inc., despite calls by some shareholders for such a move (see Related Content below for previous CSP Daily News coverage).
He has said since that Fresh & Easy will not break even in the current financial year, despite previously saying it would. Last week, Tesco faced criticism from a U.S. pensions group over lack of transparency in its U.S. strategy.
"It's almost a point of pride now that Tesco continue to plow millions into Fresh & Easy," Copestake told the Journal. "Like Japan, the U.S. market is a very difficult market to crack and their attempts haven't succeeded so far."
In the 13 weeks to May 26, sales from Fresh & Easy stores open at least a year increased 3.6%, a big slowdown from the previous quarter.
In addition to the U.K. and United States, Tesco still operates in countries including Hungary, Poland, South Korea and Thailand, which is one of the company's fastest-growing markets.
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