London/Tokyo: Tesco Plc, the world’s third-biggest retailer, put its loss-making Japanese business up for sale, abandoning an eight-year attempt to break into a tough retail market and underscoring its new boss’s commitment to investor returns.
The move is a rare admission of defeat by the British supermarket group and raised speculation it could be prepared to exit its much larger loss-making business in the United States if its current recovery plan fails to deliver.
“It shows (new chief executive) Phil Clarke is taking an unemotional attitude to international businesses,” said analyst Chris Hogbin at brokerage Bernstein.
Tesco’s shares were up 2.1% at 2,190 pence by 2:15 pm, outperforming a 1.3% rise in the STOXX Europe 600 retail index.
Japan is the smallest of Tesco’s 13 international businesses, consisting of 129 stores in greater Tokyo employing just over 3,900 people and making less than £500 million ($813.8 million) in annual sales, according to analysts’ estimates.
Analysts had long tipped the business for disposal after it failed to make significant inroads into a market dominated by general merchandise operators such as Seven & I Holdings and Aeon.
Many foreign retailers have struggled in Japan, hampered by fickle consumer tastes, a super-competitive landscape and prolonged, profit-sapping deflation. French retailer Carrefour SA and British drugstore chain Boots are among the companies to have pulled out over the past decade.
“The move raises hopes that if the US business cannot be moved into profitability within the next couple of years ... that too might be disposed,” Citi analysts said, referring to Tesco’s Fresh & Easy chain, which made £186 million of losses in the year through February.
Tesco chief Clarke, who took over from long-serving predecessor Terry Leahy in March, has laid out a plan aimed at significantly reducing US losses this financial year and moving into profit towards the end of fiscal 2012-13.
“Any comparison with Fresh & Easy would be inappropriate,” Clarke told reporters on a conference call, when asked whether the Japanese exit set a potential precedent.
Clarke was confident Tesco would find a buyer for the Japanese stores.
However, officials at several Japanese retailers said there might not be a lot of appetite for shops, which they described as larger than the average convenience store, but smaller than a regular supermarket.
RBS analyst Justin Scarborough predicted a sale could raise between £50-75 million -- a minimal sum for a business that made more than £3.8 billion of underlying profits in fiscal 2010-11 on sales of more than £67 billion.
Tesco, which trails Carrefour and US industry leader Wal-Mart Stores Inc by annual sales, had already written down the goodwill on its Japanese business and stopped investing in it, fuelling speculation of an eventual exit.
Clarke said it had invested less than £100 million in the operation and wanted to focus resources on more promising business in countries such as China and South Korea.
Tesco, with over 5,300 stores globally, exited Taiwan in 2005 by swapping assets there for stores run by Carrefour in the Czech Republic and Slovakia.