Wal-Mart, Japan and Deflation

Originally published by Nikkei Asian Review on July 12, 2018

As we’ve noted in these pages, consumer spending in Japan continues to languish.

Indeed, Japan’s Wal-Mart unit barely broke even as of the fiscal year ending December 2017, and now, the retail giant is heading for the exit.

You can get details from this July 12 Nikkei Asian Review article excerpt:

Walmart is withdrawing from general-merchandise retailing in Japan at a time of persistent deflationary pressures and blossoming e-commerce, highlighting the U.S. giant’s desperate bid to reallocate resources to more promising India and China.

Japanese retailing could be in for a shake-up no matter who ultimately buys Seiyu, analysts say.

Seiyu has gained a reputation among Japanese consumers by using Walmart’s “everyday low price” strategy. The chain has reinforced its standing among bargain hunters with TV commercials. …

Ever since it formed a capital tie-up with Seiyu in 2002, the U.S. retail giant has been transferring many of the strategies it used on its home soil to Japan. Walmart increased Seiyu’s customer numbers and profitability by cutting distribution costs and pushing prices below those of its rivals.

Seiyu was made a wholly owned subsidiary in 2008.

However, while Seiyu’s annual sales are estimated at around 700 billion yen, Walmart’s Japan unit barely broke even in the fiscal year through December 2017. Some experts have pointed out that many of Seiyu’s stores are aging, but the company has not invested in refurbishments to bring in more customers.

Walmart is not the first global retailer to pull out of Japan. French chain Carrefour left in 2005, and the U.K.’s Tesco did so in 2013. Their departures were triggered by the peculiarities of Japan’s retail sector and a rapidly changing competitive environment.

Blame Japan’s economy. Dogged by sluggish consumption for many years, the country remains a long way from achieving its goal of escaping deflation, largely because of an aging society and declining population.

Budding deflationary forces have already had an impact on retailers elsewhere, including the United States.

As far back as April 2017, the Elliott Wave Financial Forecast noted:

Softness is showing up in malls across America, as droves of stores that were once the backbone of the American consumer-driven economy are closing their doors. “Each day, it seems another beloved shopping icon is issuing bad news as retailers continue to face a challenging environment.” So far in 2017, the roster of store closings runs from J.C. Penney (138) to K-mart (42), Sears (42), Macy’s (68) and Gander Mountain (32). In all, Forbes reports that 21 retailers will close 3,951 stores. A year ago, EWFF held out weakness in Sears Holdings Corp. as an example of “deflation’s modus operandi.”

You are encouraged to read the free report, “What You Need to Know NOW About Protecting Yourself from Deflation.”

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