Tesco to sell network of 129 small supermarkets in Japan

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LONDON —
Britain’s biggest retailer Tesco announced on Wednesday that it is pulling out of Japan after eight years and putting its 129 small supermarkets on sale to focus on other operations in Asia.

“Tesco has today announced its decision to sell its business in Japan,” the group said in an official statement to the London Stock Exchange following a major review of its Asian activities.

The company, the world’s third-biggest retailer by sales, added that the under-performing Japanese division was the smallest of Tesco’s international businesses.

“We have reviewed our portfolio in Asia and the performance of our business in Japan,” Tesco chief executive Philip Clarke said in the statement.

“Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business.”

He added: “We have decided to sell our operations there and focus on our larger businesses in the region, in line with our priority of driving growth and improving returns.”

However, the company added that more than half of the 129 small stores in the greater Tokyo area that operate under the Tsurakame, Tesco and Tesco Express names, actually make a profit.

Clarke meanwhile rejected suggestions that the decision could mean that Tesco could dispose of its loss-making U.S. 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 that the shareholders want. I stick by it until things prove otherwise,” he said.

Tesco is the world’s third-largest retail group after U.S.-based Wal-Mart and France’s Carrefour.

Analyst Kate Calvert, at London-based stockbrokers Seymour Pierce, said that Tesco’s departure from Japan would be welcomed by investors.

“While immaterial in group terms, the strategic decision by Philip Clark to finally dispose of its Japanese business will be welcomed by the market for Tesco has never made an acceptable return from the business,” Calvert wrote in a research note.

“It follows Carrefour, which swapped its Japanese assets for Tesco’s Taiwanese asset in 2005, out of the country.

“Japan will remain a notoriously difficult country to make money out of, as Wal-Mart is also finding, having had a presence in Japan since 2002 through Seiyu (now a wholly-owned subsidiary).”

In reaction to the news, Tesco’s share price rallied 2.25% to 373 pence in late morning deals on London’s FTSE 100 index of top companies, which was 1% higher at 5,321.80 points.

Global retail giant Tesco employs 500,000 staff worldwide has more than 5,400 shops in 14 countries around the world.

That includes over 1,400 branches in Asia, where it has stores in China, Japan, Korea, Malaysia and Thailand.

Tesco had entered the Japanese market in 2003 with the purchase of the C2 Network, which ran stores under the Tsurakame brand.