Tesco has managed to offload its troubled Japanese business for a “nominal sum” to the country’s biggest retailer, but the UK grocer will have to commit a further £40 million to the operation before its exposure ends.
The supermarket giant entered Japan in 2003 but the business has struggled and racked up trading losses of about £60 million over the last two years. Tesco, which has operations in 14 countries, including China, Turkey and the US, announced its intention to exit Japan in 2011.
Tesco, which has just 117 small stores in Japan, typically sets itself the long-term target of becoming the number one or second-biggest player in markets overseas, but it has just a 0.1% share of the Japanese market. In a two-stage process, it is to sell 50% of its shares to Aeon, which has 12 core retail businesses, including its own supermarket chain, for a nominal sum to create a joint venture.
Second, Tesco said it will invest an additional £40 million into the joint venture to “finance further restructuring”, after which it will have no further financial exposure to Japan.
At an unspecified date, Tesco will sell its remaining 50% stake to Aeon. The transaction will come as a relief to Philip Clarke, Tesco’s chief executive, who is under pressure after the grocer posted its first profit warning in 20 years in January. It continues to suffer falling underlying sales in the UK.
