Wal-Mart Stores Inc Japan affiliate Seiyu Ltd booked a net loss for a second straight year on Tuesday, with slow sales adding to its problems as it tries to adopt its US parent's systems and strategies.
Japanese supermarket chains, suffering from deflation and a slumping economy, were also hurt by unusual weather in 2003, with a cool summer, a hot autumn and a mild winter disrupting sales of seasonal clothing and other goods.
Difficulty over sales strategies has added to problems at Seiyu, Japan's fourth-largest supermarket chain with 400 stores, as it strains to adapt to Wal-Mart's "Every Day Low Price" ways.
Seiyu, which has begun implementing the parent's computer-linked management supply system that allows suppliers to monitor product sales in stores, has said the effects of the integration are unlikely to be seen for at least two more years.
Seiyu, owned 37.8 percent by Wal-Mart, the world's biggest supermarket firm, reported a group net loss of 7.09 billion yen ($67.23 million) for the business year ended December 31. Because of a change in its accounting period, the term covers only 10 months. Revenues totalled 937.6 billion yen.
"It was a tough year. But I believe we could lay the foundations for future growth that we expect to come around 2007," Seiyu President Masao Kiuchi told a news conference.
The figures follow a group net loss of 90.84 billion yen for the year ended February 2003, when Seiyu took a massive charge to clean up its balance sheet after Wal-Mart took a majority stake.
It had forecast Tuesday's figures would show a 10 billion yen net loss.
It aims for a group net profit of 500 million yen for the 2004 business year and sees same-store sales down one percent, following a 3.7 percent fall in 2003.
TOUGH ROAD AHEAD: Wal-Mart, based in Bentonville, Arkansas, made a big splash in 2002 when it announced its entry into the Japanese retail market through a capital alliance with Seiyu, but Wal-Mart's methods have so far not shown good results at Seiyu.
"It's too early to comment (on whether the alliance was successful or not), but Wal-Mart's methods so far have failed to stem falling sales at Seiyu," said Yasuyuki Sasaki, an analyst at Credit Suisse First Boston.
"Revamping Seiyu's ageing stores and computer systems will also cost a large amount of money," Sasaki added.
Seiyu last year stopped distributing flyers and newspaper inserts to advertise bargain prices, following Wal-Mart's practice. But sales fell further, forcing it revive its traditional sales promotion methods.
Some analysts doubt if Wal-Mart will ever be able to turn Seiyu around. Hit by slumping sales and huge asset write-downs, Seiyu's shareholder equity ratio hovers at one percent, despite the $580 million fund injection from the US parent.
Complex distribution channels and picky consumers have prevented Western retailers from achieving any major success in Japan's retail market, the world's second-largest, with the exception of speciality US toy-maker Toys R Us Inc
French retailer Carrefour and British supermarket chain Tesco Plc are testing the waters in Japan but have so far adopted low profiles.
Seiyu's shares slipped one percent in 2003, against a 6.5 percent gain in the Tokyo stock market's retail sector index IRETL. The results came out just as the Tokyo stock market closed.
Shares in Seiyu finished up 1.46 percent at 348 yen, while the benchmark Nikkei average rose 1.44 percent.
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