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Japan Isn't Buying The Wal-Mart Idea

Its Seiyu affiliate is struggling to put Everyday Low Prices into practice

Time was, Japan had a well-deserved reputation as a black hole for foreign retailers. Its close-knit webs of suppliers, customers raised on high-cost department stores and mom-and-pop shops, and a Byzantine distribution system made Japan nearly impenetrable to outsiders. Three years ago, though, Wal-Mart Stores Inc. (WMT ) bought a stake in struggling Seiyu Ltd. as relaxed restrictions on retailers and changing consumer attitudes appeared to create an opening for its big box stores.

Today it looks as if Japan may not have changed so much after all. Seiyu -- in which Wal-Mart owns a controlling 37% share -- on Feb. 15 reported a loss for 2004 of $117 million, more than triple its earlier projections. Revenues, meanwhile, slipped by 3.7%, to $9.8 billion. Worse, the decline seems to be accelerating: Sales tumbled by 5.7% in the second half, compared with a 3.5% drop in the first. Blaming the shortfall on unseasonable weather, stiff competition from rivals, and difficulties with new computer systems, Seiyu says it expects sales to fall a further 2% this year. "Clearly we're disappointed with the results," says Jeff McAllister, Wal-Mart Japan's chief operating officer. "We recognize that with the changes we've been through, we created some confusion for our associates and our customers." Profits, meanwhile, aren't likely before 2006, Seiyu says. Investors don't like the sound of that, and Seiyu's shares are off by 31% in the past 12 months.