The supermarket chain Tesco has announced it will pay to exit its Japanese business interests. The move has come as the chain is suffering from falling sales in the UK.
Tesco is reportedly disappointed that they have been forced to pay a rival company to take the business off of their hands. It will sell half of its shares in Tesco Japan to Aeon for a “nominal” sum. Aeon is the biggest retailer in Japan.
Aeon and Tesco will operate a joint venture, with Tesco paying £40million into the new partnership to pay for restructuring. It is hoped that the investment and restructuring will save jobs. Once the investment is over, Tesco will have no further involvement with the partnership, stating that at a later date the remaining share will be sold to Aeon too.
Shore Capital analyst Craig Black said: “Having to pay £40m to exit the market is a disappointment of sorts to our mind but it reveals the challenges of the Japanese market and caps the damage from what is a subscale business.”
Philip Dorgan at Panmure Gordon said: “I don’t think anyone really thought they’d make any money for the business. Paying £40m for someone to take it off their hands isn’t a bad result. Frankly, in this climate it’s nice to just get rid of it.”
Tesco first opens stores in Japan in 2003, it currently has 117 supermarkets in and around Tokyo. One of the reasons for the departure from Japan has been put down to the business not being big enough to be profitable. The stores lost £60 million over a 2 year period. The company revealed that that it had failed to win over commuters from their usual local convenience stores to the Tesco Express format.
Tesco can take comfort in the fact that it isn’t the only large brand that has tried, and failed to make a huge profit in Japan. Carrefour, which is a French supermarket chain owning company is much bigger than Tesco but is still struggling to make a profit.