Seiyu (Wal-Mart Japan) optimistic despite record loss

Today Wal-Mart’s Japanese subsidiary Seiyu reported a net loss of JP¥54bn (US$465mn) for the first half of its 2006 business year. This is a fivefold of the net loss for the first half of 2005. Still, Seiyu’s management remains confident in restoring the the 400-store chain’s profitability. Operating profit was gradually improving, while the big net loss was due to a one-time write-off for impaired assets (representing 88 per cent of the losses).

Seiyu’s chief executive Ed Kolodzieski told reporters of Associated Press that there were clear signs of progress in the first half of the year, with comparative store sales rising 1.4 per cent, which is the first year-on-year gain in 14 years. Seiyu has been reducing costs and it opened new stores while closing underperforming stores. During the first half like-for-like food sales were up 1.7 per cent, apparel up 0.8 per cent and general merchandise up 3.9 per cent.

Recently, Wal-Mart decided to divest its operations in South Korea (last May) and Germany (last July). Its Japanese operation – where it holds a 53 per cent majority stake in Seiyu – will not face a similar fate, Kolodzieski acknowledged. He said the move to leave Korea and Germany allows Wal-Mart to focus on markets with growth potential like Japan. “There is no doubt in my mind that Japan is a key market and a great growth opportunity”, he said. Still, Wal-Mart is struggling with Japan where it invested heavily in distribution facilities, store remodeling and the opening of new large-scale supermarkets.