Wal-Mart (WMT) is buying out the minority shareholders in Japanese supermarket unit Seiyu Ltd. Wal-Mart owns 51% of the company and it is offering a 61% premium, or $878 million, to get the rest. Wal-Mart has never made money in its Japan unit which has had five straight years of losses. By some accounts the world’s largest retailer has put over $1 billion into the enterprise.
According to Reuters "cracking Japan’s retail market, the world’s second-largest, has proved a challenge for foreign companies, due to fickle shoppers and tough competition."
So, why would Wal-Mart do something so wild and expensive? Because its growth in the US is behind it and during the last quarter it was more clear than ever that international operations are the company’s only real growth area.
Wal-Mart’s strongest market is Mexico. China is probably next, but the government there has already put in a union and a branch of the communist party. So, it is hard to predict how stable WMT’s business may be in the world’s most populated country.
WMT has already pulled out of West Germany and Korea due to lack of ability to pick up significant market share and to make a profit.
Why pay a huge premium for a minority interest in its Japan operation? Because Wal-Mart is running out of big markets.
Douglas A. McIntyre