Walmart plans to sell its majority stake in its Japanese supermarket chain Seiyu, to investment firm KKR and e-commerce retail company Rakuten in a deal worth over $1 billion. After years of recurring losses due to the stiff competition in the Japanese market, Walmart has formulated a divestiture plan that would see it exit the Japanese market.
The current deal values Seiyu at 172.5 billion yen ($1.65 billion), a steep fall from the reported 300-500 billion yen that Walmart acquired the company. KKR is scheduled to purchase 65% of Seiyu, while Rakuten, already in a partnership with the supermarket chain, will acquire a 20% stake in the company.
Walmart will be retaining a 15% stake in the company. The giant retailer first tested the waters of the Japanese market in 2002 when it bought a 6% stake in the company. Gradually, the world’s biggest retailer built its stake in Seiyu before becoming majority owner in 2008.
However, the Japanese market turned out a lot tougher for the retailer than it initially thought. Walmart is not the only company that has struggled in the Japanese market. Other foreign companies such as Tesco PLC and Carrefour SA, who thought Japan to be a haven for business,0 have been frustrated by the stiff company.
Notwithstanding, Walmart can hold its head high, considering the fact that it did a lot better than other foreign entrants. The company was able to save Seiyu from the brink of bankruptcy while initiating many cost-saving strategies.
Roy Larke, a specialist at JapaneseConsuming analyzed Walmart’s travails and concluded that the company was always going to struggle in the Japanese market because it was not willing to increase its market shares in order to compete. Larke noted that increasing its market shares through more acquisitions was a move Walmart wasn’t willing to make, which caused it to falter.
Walmart announced that after the sale, it would be expecting a non-cash loss of about $2 billion after-tax in its fourth fiscal quarter, Nikkei reports.
Seiyu is one of Walmart’s many divestitures in recent times. The company sold its stake in companies in Britain and Argentina as the local competition proved tough. It had already moved out of South Korea over a decade ago while shifting its focus to China through the Sam’s Club chain. Walmart recently launched into the Indian market with a $16 billion purchase of Flipkart, the e-commerce giant.
Walmart had planned to sell Seiyu two years ago, according to reports from local media, but potential buyers were put off by the sheer asking price of the deal worth about 300 to 500 billion yen.
Seiyu recently started showing signs of recovery through the much-needed partnership with Rakuten in 2018. The company achieved a net profit of 47-million-yen last year after a series of losses in previous years. The company announced that the online supermarket partnership with Rakuten had seen its sales grow by 50% in October.
Judith Mckenna, president, and CEO of Walmart International said the company was looking forward to supporting Seiyu’s growth and success alongside KRR and Rakuten, as a minority investor.