LITTLE ROCK — Wal-Mart Stores Inc. offered Monday to buy all outstanding shares of its Seiyu Ltd. subsidiary in Japan at a cost of about $875 million despite expectations that the Seiyu retail chain will lose money for the sixth year in a row.
Wal-Mart's international division grew sales by 30 percent last year, well ahead of the 11 percent gain in U.S. store sales. The company does not post figures by country.
That trend has continued this year with international sales up 20.1 percent in September and 16.7 percent for the quarter that ended Oct. 5. For the same period, U.S. store sales were up 6.4 percent and 6.3 percent.
The retailer also has stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Puerto Rico and the United Kingdom.
Wal-Mart said the move reaffirms its commitment to the world's second-largest economy, which it entered in 2002 by buying a stake in Seiyu.
Wal-Mart has steadily increased its ownership share since then.
"The Japanese retail market is of major strategic importance to Wal-Mart, and our goal is to achieve long-term success and growth in Japan," Mike Duke, vice chairman in charge of the company's international division, said in a statement.
Wal-Mart currently owns 50.9 percent of Seiyu, which is Japan's fifth largest supermarket chain. Its offer of $1.23 a share or 140 yen is 60.9 percent above Seiyu's closing price Friday on the Tokyo Stock Exchange.
Trading in the stock was suspended Monday after Wal-Mart's buyout offer.
The stock had fallen more than 50 percent this year.
Seiyu's board approved the buyout offer Monday. Wal-Mart said the offer begins today and will close Dec. 4.
The company hopes to obtain at least two-thirds of Seiyu's shares during that period.
No. 1 British retailer Tesco Plc entered the crowded Japanese supermarket scene earlier this year with small-scale stores based on its Express format.
France's Carrefour SA, the world's No. 2 retailer behind Bentonville-based Wal-Mart, pulled out of Japan in 2005 after four years of mounting losses.
A Massachusetts university professor who has studied Wal-Mart's and Carrefour's movesinto Japan said Wal-Mart got off on the wrong foot when it entered Japan.
"They bought into this chain that wasn't performing well in the first place," said Yuko Aoyama, an associate professor who specializes in economic and industrial geography at Clark University in Worcester, Mass.
Once there, she said, Wal-Mart has been slow to undertake needed renovations.
Aoyama said Wal-Mart wisely retained the Seiyu name rather than putting its own brand on its stores.
"The average Japanese consumer may not even be aware it's Wal-Mart-owned," she said.
But mostly, she said, Wal-Mart entered a market that, despite its abundance of buying power, is already saturated.
"The supermarket format itself is going down the drain in Japan," she said.
Seiyu has 393 stores in Japan. Last month, the company announced a reduction of 450 jobs in the chain, or 7 percent, through early retirement buyouts.
Charlie Georgas, a Chicagobased retail analyst with Jackson Securities, said the Seiyu buyout will enable the company to fully utilize its scale in the Japanese market.
A big question, he said, is how the Japanese consumer will respond to the growingpresence of discount retailers.
"They're very image-conscious there. They do appreciate luxury items, so that kind of counters the discount, lowprice strategy," he said.
But full ownership gives Wal-Mart the chance to customize its approach to Japanese consumers, he said.
"Ultimately, people do like bargains," he said.
In the company statement, Duke said that owning Seiyu outright will give Wal-Mart more flexibility to invest in store renovation, merchandising, distribution and logistics.
Patricia Edwards, a fund manager with Wentworth, Hauser & Violich in Seattle, said Wal-Mart faces challenges in Japan similar to those in Europe, where she said the company is "up against a structure that's been in place hundreds of years."
Wal-Mart exited Germany and South Korea in 2006 after eight unsuccessful years in eachnation.
Still, she said, if Wal-Mart is going to stay in Japan, it's best if the company has full control of the operation.
"Duke is not stupid. It tells me Duke believes they can do it," she said.
Wal-Mart's stock closed Monday at $45.25 a share, up 27 cents or 0.6 percent, in trading on the New York Stock Exchange.
Front Section, Pages 1, 2 on 10/23/2007