Tesco Exits Japan

The British retailer pulls out of Japan, leaving many to speculate on the future of Tesco’s struggling U.S. venture Fresh & Easy.

Tesco has announced it is pulling out of Japan after eight years of heavy losses, leaving some analysts to speculate on the fate of Tesco’s embattled Fresh & Easy Neighborhood Markets in the U.S.

“Having made considerable efforts in Japan, we have concluded we cannot build a sufficiently scaleable business,” Philip Clarke, group CEO said on Wednesday. In March, Clarke succeeded Sir Terry Leahy, veteran chief executive of Tesco and the force behind the company’s rapid overseas growth. “We have decided to sell our operations there and focus on our larger businesses in the region,” he added.

The Guardian reported that Tesco made the decision to leave Japan following a review of its Asian assets, including in Korea, Thailand, Malaysia and China and had $1.6 billion in sales last year.

Clarke’s decision to walk away from Japan after an eight year grapple for success had analysts busy conjecturing that he might consider the same strategy for Tesco’s heavily loss-making Fresh & Easy in California, Nevada and Arizona—if the chain’s performance doesn’t turn around. For more on Fresh & Easy’s challenges, see the cover story in CSD’s September issue.

Clarke insisted Tesco’s withdraw from Japan had no bearing on the future of Fresh & Easy, but has previously made it clear that the next two years will be critical in determining the future of the 176-store chain, the Guardian reported. On Wednesday, Fresh & Easy announced plans to open six stores in the Sacramento region of California in 2012. Fresh & Easy is also debuting a smaller “Express” store format at 3,000 square feet to help it better expand into a variety of areas.

“This decision should send a message throughout the group that Clarke it is not about flag-pitching and is about creating a sustainable, balanced model for growth. Nowhere greater will this decision resonate than in the U.S., where we forecast over ($1 billion) of accumulated losses by February 2012,” Shore Capital analyst Darren Shirley told the Guardian.

Tesco is not the first foreign retailer to exit  Japan—Boots the Chemists and France’s Carrefour have also been defeated there.

Gavin Rothwell, research manager at retail analysts IGD, told the Guardian Japan was “notoriously difficult” due to high operating costs and demanding customers. “The retail market is fragmented and there are many strong regional players, often family-owned,” said Rothwell. “Convenience stores dominate, particularly in the city centres, and a culture of ‘immediacy’ supports large numbers of vending machines.”

“Unfortunately, it has proved to be very difficult to shift consumers from stores they use into new ones,” said Clarke. A formal sale process is set to begin, but Tesco said the stores would continue to trade as usual.

 

 

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