Seiyu Still Struggling, Announces Job Cuts

September 18, 2007
By Ken Worsley

We’ve posted before on why we think Wal-Mart’s investment in the struggling Seiyu supermarket chain is just not working. After announcing in August that it expects to post its sixth consecutive year of losses in 2007, Seiyu downgraded its earnings projection this week to a loss of $91 million in the year ending December 31. As Seiyu continues to renovate its shops and switch more locations to 24 hour openings, it also plans to spend 4.5 billion yen in an effort to let 450 workers go this year.

The big question now is whether Wal-Mart, the world’s largest retailer, will exercise its option to increase its stake in Seiyu from the current 51% to 66.7% by the end of the year. Should Wal-Mart not choose to increase its equity stake in the firm, it could be interpreted as a sort of no-confidence vote in Seiyu. With Wal-Mart recently having pulled out of both South Korea and Germany, we see little reason for it to charge ahead in a market where supermarket sales continue to decline and medium to long-term demographics give little hint of a recovery.

On the other hand, with Seiyu shares down 58% over the past 12 months, any hint of a turnaround means those shares (at 86 yen right now) carry quite a discount. It will be interesting to see how Wal-Mart plays this one.

Filed Under Foreigners, Retail, Supermarkets