Clarke sends out clear signal as Tesco pulls out of Japan

SUPERMARKET giant Tesco is selling its loss-making business in Japan in a move that has raised fresh speculation about its international expansion.

New boss Philip Clarke yesterday admitted that after eight years of trying to make headway in the country it was time to withdraw.

Markets responded positively, with analysts at Killik & Co describing the Japanese operation – the group’s smallest international business with 129 stores in the greater Tokyo area – as having “long been a thorn in Tesco’s side”.

A sale could raise up to £75 million, but the financial impact of the decision is expected to be minimal with some forecasters believing that disposal of a weak business may lead to a small profits boost.

The markets also saw it as a signal that Clarke, who took over from long-serving Sir Terry Leahy in March, was willing to take tough decisions on poorly- performing international operations. There was immediate speculation about Tesco’s embattled US division, Fresh & Easy, which racked up losses of £186m in the year to February.

Clarke was quick to pour cold water on any parallels with the American operation, which he has pledged to turn around by 2013, saying: “Any comparison with Fresh & Easy would be inappropriate.”

But the City insisted yesterday’s move sent a strong signal to the managers of the firm’s other 12 international businesses that Clarke would be willing to take tough action if performance remained lacklustre.

Clive Black, analyst at Shore Capital, said: “If Fresh & Easy needed a public message that a stick will be applied if there is not a significant improvement in performance, then it should think again [after yesterday’s announcement].”

Shore Capital is forecasting that the US business will have built up more than £700m of accumulated losses by February, but Black also pointed to a recent improvement in Fresh & Easy’s performance.

The Japanese operation, which traded under the brands Tsurakame, Tesco and Tesco Express, had long been tipped for disposal as – like many other foreign operators – the supermarket heavyweight had struggled to compete in the notoriously difficult and competitive Japanese retail environment.

Clarke admitted that the firm had experienced difficult in building a “sufficiently scaleable business” in the country, where retailers struggle with fickle consumer tastes, prolonged deflation and a domination by general merchandise stores. Tesco’s Japanese operation saw like-for-like sales fall 8.1 per cent in the year to February.

Clarke said he was confident that a buyer would come forward for the business, which has been valued by Royal Bank of Scotland analyst Justin Scarborough at £50m-£75m. But there were reports from retail officials in Tokyo that there might not be a lot of appetite for the stores, which fall awkwardly between the popular convenience store format and a normal-sized supermarket.

Tesco entered the Japanese market in 2003 with the acquisition of C2 Network, which was valued at the time at £173m.