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Sun, Dec 14, 2003 - Page 12 News List

Wal-Mart appears content to work in the shadows in Japan

The American giant's decision to ally itself with the nation's fourth-largest retailer has won praise, but it faces a big battle to get manufacturers to cut prices

By Ken Belson  /  NY TIMES NEWS SERVICE , AKABANE, JAPAN

It's 8:15 on a Friday morning and about 50 managers of the Seiyu supermarket chain are assembled on the second floor of their headquarters in Akabane, 30 minutes from downtown Tokyo. Surrounded by signs listing hot products, new promotions and performance rates, many of the chiefs have already been at work for an hour.

Powered by coffee, tea and Diet Coke, they begin their daily pledge of allegiance, just as their counterparts do in Bentonville, Ark., home of Wal-Mart Stores, which owns 38 percent of Seiyu.

"Give me an S!" a Japanese boss shouts.

"S!" comes the reply.

And so on, until the group spells "S-E-I-Y-U."

"Who's No. 1?" he asks.

"Customers!" they reply, punching the air with their fists.

The routine is one of the small ways in which Wal-Mart is revamping the struggling Seiyu, Japan's fourth-largest retailer. Unlike Toys "R" Us, Costco and other outside rivals that opened their own stores here, Wal-Mart has spent US$513 million for a chunk of Seiyu, whose name still adorns its 400 stores.

The logic is simple: By working through a local partner, Wal-Mart is hoping that it can better navigate Japan's serpentine and costly network of suppliers, which has long frustrated other foreign investors. The company also avoids having to build stores and can take advantage of Seiyu's well-recognized brand.

But as it dips its toes into Japan, the world's second-largest economy, mighty Wal-Mart is confronting something it seldom encounters: skeptics who doubt that it can succeed. The retail market in Japan is dominated by powerful manufacturers and wholesalers whose high prices have made the country an inhospitable place for foreign dis-counters. And Japanese consumers are famously finicky -- as other US retailers who have simply imported goods with little regard for local tastes have learned the hard way.

Further complicating matters, Wal-Mart must repair a chain whose sales peaked a decade ago. Seiyu, which also sells housewares, appliances and general merchandise, has a debt-to-capital ratio that is more than twice the industry average in Japan. In the half-year that ended in August, the retailer lost ?8.4 billion (US$77 million) as sales slipped 3.9 percent from the period a year earlier. The company expects to lose Y10 billion for the full year.

To Wal-Mart, though, Seiyu is a risk worth taking. Japan's dense supplier network and expensive labor and land give the US discounter a chance to cut costs and bolster profitability. The company's "everyday low prices" may also prove a hit with the increasingly bargain-conscious Japanese consumer, analysts said.

"Wal-Mart has a lot of work to do, but their timing to be in Japan is really good," said Hidehiko Aoki, a retail analyst at Goldman Sachs in Tokyo. "They can bring a new retail model to Japan."

To that end, Wal-Mart has unveiled a five-year plan to reduce the hours worked by full-time staff members by about 40 percent, partly through early retirement and increasing the percentage of part-time workers to 85 percent from 70 percent. The company is computerizing the chain's operations, remodeling aging stores and trying to do what it has done so effectively in the US: persuade manufacturers and wholesalers to cut prices so Seiyu can pass along the savings to consumers.

If all goes well, Wal-Mart can use its option to raise its share in Seiyu to 50 percent by 2005 and to 66.7 percent two years after that, giving it further management control. It is then, analysts say, that Wal-Mart will consider opening stores under its own name.

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