Tesco checks out of Japan

The sun is finally setting on Tesco's Japanese business after eight years of trying to boost its performance. But is further change afoot?

by Dave Waller
Last Updated: 06 Nov 2012

Philip Clark has certainly had an eventful time since following the all-conquering Sir Terry Leahy into Tesco’s CEO shoes in March. Now he’s the one lumbered with the job of winding up its under-performing operations. Turns out even the world’s third-largest retailer couldn’t build a ‘sufficiently scalable business’ of its 129 stores over in Japan – like-for-like sales there were down by 8.1% in 2010-11, and totalled less than £500m, making Japan Tesco’s weakest country for sales growth.
 
This was of course always bound to be a massive part of Clark’s role. Tesco probably couldn’t get rid of these less than stellar performers when Leahy was still around, simply because they would have been a tacit admission that the exhalted one had occasionally made mistakes. And so all the dirty work falls to his successor.

But while no one likes to have to admit a failure, this one comes as no massive surprise after eight years of lumbering on, and by finally pulling the plug Clark is sure to secure himself a bit of a fan club in the City: Tesco’s share price responded accordingly at the news today, providing a bit of rare cheer for the FTSE.

Tesco will of course have to answer one major question: will it be able to flog its operation there? Clark reckons it’ll be attractive to anyone already in the market with expansionist ambitions, and with 129 stores largely in the Greater Tokyo area, over half of which are profitable, he may have a point. But the stores haven't exactly been a hit with the Japanese shopper, and it’s not the best time – Japan’s economy isn’t exactly known to be secure right now. Not that Tesco will be too concerned, perhaps: RBS analyst Justin Scarborough reckons the sale may only be worth between £50m and £75m – given that Tesco made profits of £3.8bn this year, that's really stretching the notion that every little helps.

The end of the Japanese experiment looks like being only one of a raft of changes to come following Leahy’s departure. New chairman Sir Richard Broadbent arrives in November, and only last week Andrew Higginson, head of Tesco’s banking and online operations, announced he was off – just as Tesco gets ready to launch new banking products including mortgages and current accounts.

But while observers speculate over further board changes, Tesco is preferring to look outwards, saying it will now concentrate on its larger Asian businesses, in China, South Korea, Malaysia and Thailand. This at a time when fellow retailers are having a tough time too. Carrefour, the world’s second-largest retailer, posted another profit warning today, saying that full-year profits would slump 15% as it cuts prices in a bid to reverse market share losses in Europe. Carrefour shares have plunged 40% this year.

The other question for Tesco is whether it should consign its struggling American Fresh & Easy stores to the sale rail. Clark says he’s committed to a plan aimed at driving that business into profit by the end of fiscal 2012-3. As to whether he can get the sun to rise there again, only time will tell…

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