Wal-Mart's Japan unit plunges deeper into red

Struggling Japanese retailer Seiyu, a subsidiary of US giant Wal-Mart, said on August 22 that its losses soared fivefold in the first half of 2006 because of disappointing sales and restructuring costs.
Seiyu said net losses for the six months through June widened to 54.03 billion yen (465.24 million dollars) from 10.59 billion a year earlier. The result was more than three times worse than the net loss of 17.8 billion yen posted for the whole of 2005.
Revenue declined 2.9 percent in the first-half period to 467.94 billion yen. The company's bottom line also took a big hit from one-off charges of 47.6 billion yen as it reduced the value of its stores on its balance sheet.
"Unfortunately, sales did not meet our expectations and the same goes for profit," said chief executive Ed Kolodzieski, who was parachuted in by Wal-Mart in December after it took control of ailing Seiyu.
On a brighter note, operating losses shrank to 1.36 billion yen in the first-half period from 2.48 billion as existing store sales rose 1.4 percent. Wal-Mart, the world's largest retailer, spent 67.5 billion yen late last year to raise its stake in Seiyu from 42.48 percent to a controlling 53.56 percent, chasing a slice of the world's second-largest retail market.
Although Wal-Mart has recently decided to exit Germany and South Korea, Kolodzieski said he believed the group had no plans to leave Japan.
"Japan is a key market for Wal-Mart and has growth opportunities," he said, noting that Seiyu had now managed to halt a decline in existing store sales for the first time in 14 years. For the full year, the retailer stuck to its previous forecasts of operating profit of 6.6 billion yen and a net loss of 54.5 billion yen as a result of the large restructuring charges.
Wal-Mart, which has come under growing criticism at home over its labour practices, first took a stake in Seiyu in 2002 and set about a restructuring drive that included slashing one-quarter of the workforce.
However, observers say the US giant faces an uphill struggle in Japan, where many shoppers still prefer smaller stores, as other international retail heavyweights such as Carrefour of France have found to their cost.