Retail giant Walmart Inc. has recently announced its decision to sell a majority stake in Japanese supermarket chain Seiyu for over $1 billion. This move comes as the company has struggled to make a profit in Japan due to intense competition from local rivals. The deal values Seiyu at 172.5 billion yen ($1.65 billion), which is significantly lower than the amount Walmart had originally sought.

Under the agreement, investment firm KKR will acquire a 65% stake in Seiyu, while e-commerce company Rakuten, which already has a partnership with the chain, will obtain a 20% stake. Walmart will retain a 15% stake. This marks Walmart’s near-exit from the Japanese market, where it initially entered in 2002 by purchasing a 6% stake in Seiyu. Over the years, Walmart gradually increased its ownership until it took full control in 2008.

Foreign retailers in Japan, such as Tesco PLC and Carrefour SA, have faced obstacles in the Japanese market due to fierce competition, despite the country’s high consumer spending power. While Walmart faced similar challenges, it managed to fare relatively better than its counterparts by implementing cost-cutting measures and boosting private brand sales, which helped Seiyu avoid bankruptcy. Experts suggest that Walmart’s struggle was due to the need to turn the business around and increase its volume, requiring further investments that the company was not willing to make.

The divestiture of Seiyu follows Walmart’s previous exits from Britain and Argentina, where it encountered difficulties competing with local competitors. In Asia, the company also withdrew from South Korea in 2006 and shifted its focus in China to expanding its members-only warehouse chain Sam’s Club, in order to counter the growing dominance of online marketplaces like Alibaba. Currently, Walmart is expanding its presence in India through the acquisition of e-commerce provider Flipkart.

Seiyu, which operates approximately 330 supermarkets in Japan, has shown signs of improvement, particularly in its e-commerce initiatives. Its partnership with Rakuten in 2018 has yielded positive results, and the coronavirus pandemic has further increased interest in online grocery shopping in Japan. As major Japanese supermarkets increase their investments in e-commerce, online grocery services are gaining popularity among Japanese consumers.

For Rakuten, the deal presents an opportunity to compete with rival Amazon, which recently expanded its online grocery business by partnering with supermarket chain Life Corp. The partnership with Seiyu will enable Rakuten to accelerate the digital transformation of the brick-and-mortar retail business and merge offline and online retail experiences.

Overall, Walmart’s decision to sell its majority stake in Seiyu signifies its retreat from the challenging Japanese market. Although the company was unable to achieve significant profitability in Japan, it was able to navigate the obstacles better than other foreign retailers. This divestiture aligns with Walmart’s strategy of divesting underperforming assets and focusing on markets where it can maintain a competitive edge.

Useful links:

1. Wall Street Journal – Walmart to Sell Japanese Supermarket Chain Seiyu to Investment Firm KKR
2. Nikkei Asia – Walmart Agrees to Sell Most of Japanese Supermarket Chain Seiyu