The entry into Japan of Wal-Mart Stores Inc. of the United States, the world’s largest retailer, will throw the industry into chaos as it struggles for survival amid the deepening recession.
Industry sources said Wal-Mart’s entry will accelerate the sector’s reorganization following the collapse of supermarket chain Mycal Corp. in September and the massive financial support for ailing retailer Daiei Inc.
Wal-Mart will acquire the right to put Seiyu Ltd., a major supermarket chain, under its global umbrella by obtaining a 66.7 percent equity stake in it.
Charles Holley, senior vice president and chief financial officer of Wal-Mart, said Japan, the world’s second-largest economy, is indispensable for his company to do business worldwide.
Wal-Mart has annual sales of $218 billion, about four times that of the world’s second-largest retailer, France’s Carrefour, which entered the Japanese market in late 2000.
Wal-Mart’s entry was considered a matter of time, and an executive from a bank affiliated with foreign interests predicted, “Unlike Carrefour, which is opening its own shops in Japan, (Wal-Mart) will try to make its Japan advance by purchasing existing supermarket stores.”
Business sources said Wal-Mart, which has its strength in lower procurement costs due to its unrivaled scale, needs a wide variety of shops immediately after its entry.
Tieup negotiations between Wal-Mart and Seiyu began in summer when executives met at an international conference of the supermarket industry. Seiyu President Masao Kiuchi said full talks started in September.
Wal-Mart was also interested in Mycal. “Wal-Mart was trying to acquire Mycal’s 100 shops all at once as Mycal’s supporting enterprise,” a Mycal source said.
But the idea failed due to uncertainties about the world economy following the Sept. 11 terrorist attacks in the U.S. and a lack of research on the Japanese market, the sources said.
Seiyu’s policy of diversifying its business during the bubble economy in Japan turned out to be a failure, and the group’s interest-bearing debts accounted for about 60 percent of its consolidated sales.
Seiyu at first considered giving up its business as a comprehensive supermarket chain and specializing in food sales whose profitability is relatively stable, an executive of another major supermarket chain said.
But the executive said Seiyu has been unable to produce a future business vision to improve its financial structure and recover its sales power amid deflation in Japan. With Sumitomo Corp., Seiyu’s largest shareholder, as a go-between, negotiations with Wal-Mart advanced rapidly.
One top executive at a major distributor fears the coming of the U.S. giant.
“The Japanese distribution industry’s management is still loose,” the executive said. “There will be many enterprises kicked out of business by Wal-Mart’s advance.”
Major supermarket chain Aeon Co., anticipating Wal-Mart’s move, has been expanding its shops to counter the move by becoming an enterprise supporting Mycal and supermarket chain Kotobukiya Co. in Kyushu.
“The business model of selling things cheaper on a scale basis has collapsed in Japan with Daiei,” said an official at the Ministry of Economy, Trade and Industry.
An executive at a major supermarket chain said: “As Carrefour’s struggle shows, consumers in Japan aren’t satisfied with (low) prices alone. The demand is high for freshness of commodities and rich product selection.”
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