Tesco, the supermarket chain, have recently seen falling sales in the UK and they have just seen another hit to their business as they have announced they are going to have to pay around £40 million in order to leave their business venture in Japan.
However, analysts have stated that Tesco should be pleased with this figure in order to get rid of the investment they made into Japan. However, some sources have said that the supermarket chain are disappointed that they had to pay a sum out in order to get rid of the stores.
The company have announced that they are going to be selling half of the shares in their Japanese venture to the largest retailer in Japan, Aeon. Aeon and Tesco will continue to own the supermarket chains as a joint-venture with Tesco paying the £40 million in order to conduct a restructuring.
It is also thought that this payment sum is going to help the employees in Japan who might be made redundant by the withdrawal of Tesco. A statement from Tesco said, “This payment is going to mean that the supermarkets no longer have financial exposure to the country or the business operations conducted there.” It is widely expected that a further 50 percent of the shares will be sold off to Aeon at a later date.
An analyst from Shore Capital, Clive Black stated, “This figure is probably going to be a disappointment for Tesco and it really shows to people that the Japanese market can be a real challenge.” Last year Tesco’s operations in Japan lost the company around £25 million and the year before that the losses were even greater at £35 million.
Another analyst, Philip Dorgan has stated, “In reality Tesco having to pay someone to take the loss-making supermarkets off their hands was expected. £40 million isn’t an unreasonable sum and Tesco should actually be pleased with this result. The supermarket should be pleased that they managed to get rid of these loss-making assets in this time of economic uncertainty.”
It is thought that the main reasons Tesco failed to succeed in Japan were because the economy was in a difficult state and the supermarket was simply not big enough. It didn’t manage to establish itself as a major player and only managed to win a market share of about one percent. This is not the only loss-making overseas investment for Tesco.