Wal-Mart to fully acquire Japanese supermarket
Last updated Wednesday, March 19, 2008 9:18 AM CDT in Business
By Kimberly Morrison
THE MORNING NEWS
Shareholders of Japanese supermarket operator Seiyu Ltd. on Tuesday gave their blessing for Wal-Mart Stores Inc. to complete its takeover, but Wal-Mart may have a tougher time winning over the Japanese consumer.
Wal-Mart has said it will boost its stake in Seiyu to 100 percent, effective April 25, to turn around the struggling supermarket. But Japan's fifth largest retailer has yet to turn a profit under the direction of Wal-Mart, which began investing in Seiyu in 2002.
The Bentonville-based retailer announced at an investor meeting in October it would move to fully acquire Seiyu. Analysts were not happy.
Their biggest concern is Wal-Mart's ability to sell the everyday low price model to Japanese consumers, known to equate low prices with poor quality, as well as other failures to understand cultural differences.
But Wal-Mart said unlike failures to expand into Germany and South Korea, it expects everyday low prices to be a win in Japan's fragmented, high-cost marketplace.
"Japan is quite different from Germany or South Korea. We realize they aren't going to sacrifice quality, and our goal is to provide the best value combined with the quality they expect," said Kevin Gardner, a Wal-Mart spokesman.
Gardner said with 100 percent Wal-Mart ownership of Seiyu, the company is in a stronger position to implement its 4-point differentiation strategy. That strategy includes providing the best value for food, the best value for consumables, the best fresh food experience and the most convenient shopping experience.
There are early indications the strategy may be working for the retailer.
Wal-Mart reported in fourth quarter earnings it had restructured the home office in Japan, the everyday low price strategy in general merchandise was "significantly outperforming" expectations and food sales were solid.
Japanese consumers are picky, but beginning to look to more discounted products, said Camille Schuster, marketing professor at California State University at San Marcos and president of Global Collaborations Inc.
But quality remains a big issue to Japanese consumers.
"Wal-Mart can't use a cheap product for a low price in Japan, it has to be quality products for a low price," Schuster added. "They are incredibly demanding."
There has been virtually no chatter from analysts about the Seiyu acquisition since the October analyst meeting, as many adopt a wait-and-see stance.
"It was really obvious people weren't excited at the end of the analyst meeting, but you've got to wait and see if they are going to make things profitable," said Patricia Edwards, fund manager with Seattle-based Wentworth, Hauser and Violich. "We'll be watching. That's really all you can do."
Gardner said Wal-Mart remains committed to the Japanese market and its "special characteristics and needs."
"Our goal is to achieve long-term success and growth in Japan through Seiyu, and we think that full ownership by Wal-Mart is the best way to enable Seiyu to deliver long-term benefits to their consumers, the communities they serve, their associates, and their business partners."
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kprophet wrote on Mar 18, 2008 11:20 PM: