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Wal-Mart not giving up on Seiyu

October 22, 2007
By Ken Worsley


In August we reported that struggling supermarket chain Seiyu was set to post its sixth consecutive year of losses in 2007. Wal-Mart, which has spent over $1 billion to acquire a controlling share of the firm, announced in September that it would spend 4.5 billion yen in an effort to let 450 workers go this year.

The climate for supermarkets is currently very difficult in Japan, and it’s hard to see what Seiyu has done to differentiate itself from the other low-end supermarkets in an age when more and more shoppers seem to be making the jump either to convenience store shopping or higher-end ‘lifestyle brand’ supermarkets.

Today, however, Wal-Mart announced plans to step up its engagement with Seiyu. It intends to turn the firm into a wholly-owned subsidiary and delist it from the Tokyo Stock Exchange in a transaction that may cost Wal-Mart up to 40 billion yen. Edit: Kyodo is now telling us that Wal-Mart intends to offer 140 yen per share, which is a nice premium on today’s closing price of 87 yen, though not so nice if you bought into Seiyu in 1999, when they traded above 800 yen a share.

As of the end of June, Seiyu still held 328.6 billion yen in interest-bearing liabilities on its balance sheet.

Filed Under Retail, Supermarkets 

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Comments

5 Responses to “Wal-Mart not giving up on Seiyu”

  1. typecubicles » Blog Archive » Wal-Mart not giving up on Seiyu on October 23rd, 2007 12:05 am

    […] more here […]

  2. df on October 23rd, 2007 3:34 pm

    If anyone can turn this puppy around Toru Noda can.

  3. Greg L. on October 23rd, 2007 11:28 pm

    It’s not just convenience stores. A big development in the last decade or so has been the rise of the large scale discount stores. Think Matsumoto Kiyoshi, ABC Mart, Uniqlo and all those big barns in the suburbs with the car parks around them.

    Also, trying to transform Seiyu has been an enormous waste of money. Wal-Mart would have been better off taking a slow and steady approach and opening their own stores ala Costco or IKEA.

  4. Ken Worsley on October 24th, 2007 1:45 pm

    Greg,

    Absolutely…I agree with you here. I’m tired of hearing analysts say things like, “Wal-Mart’s bulk sales strategy just doesn’t fit the way Japanese people shop.” That’s great, but that’s also not how Seiyu operates. Someone forgot to tell these people that Wal-Mart is operating Seiyu under Seiyu’s business model, not Wal-Mart’s. The name on the door is still Seiyu, and very little has changed inside. I have to wonder if these analysts have ever been to a Seiyu.

    That brings me to your second paragraph: Listening to these people might have prevented Wal-Mart from opening stores in its own style, which, as you point out, might have worked very well.

    Wall-Mart purchased a struggling supermarket operator in a sector that is getting absolutely crushed. Supermarket sales were down again in September, by 1%. This was the 21st consecutive month of declining sales (I haven’t bogged this here yet, should today). Wal-Mart is in a tough market, and is going to have to do something radical to turn Seiyu around.

    I tend to agree with you that transforming Seiyu is a waste of money. It’s no longer a brand that consumers are choosing in a market that consumers are no longer pouring as much money into.

  5. Joe Jones on October 25th, 2007 12:27 pm

    As an aside, I was at a seminar this morning where Paul Hastings, the law firm representing Wal-Mart in the deal, touted themselves as the first “international” firm to represent someone exclusively in a takeover in Japan (i.e. without employing a Japanese firm).

    I have no way of verifying this claim but it sounds interesting enough…

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