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Wal-Mart searching for retail alliances in Japan

Wal-Mart Stores Inc, which has acquired a stake in Japanese retailer Seiyu Ltd, may form alliances with other store chains to expand in the world's second- biggest retail market, the Yomiuri newspaper reported.

The reported move would be a departure from the three-way alliance Wal-Mart, Sumitomo Corp and Japan's fifth-largest retailer agreed to in March. In that arrangement, Seiyu was to become the nucleus of Wal-Mart's entry into Japan. Sumitomo is Seiyu's biggest shareholder.

Wal-Mart, the world's biggest retailer, completed its purchase of 6.1 percent of Seiyu for Japanese yen 6 billion (US$48 million) last month, culminating five years of study of the Japanese market.

Wal-Mart may be concluding that Seiyu alone won't be a sufficient vehicle for growth in Japan, an investor said.

"Seiyu is too small," said Edwin Merner, president of Atlantis Investment Research Corp in Tokyo, which manages US$600 million including retail stocks. "You need volume to really have a viable business."

Wal-Mart and Sumitomo will undertake a separate study of Japan's retail market without Seiyu's participation by year's end, the Yomiuri said, citing unnamed people at Sumitomo.

"This is a total surprise to us," said Seiyu spokesman Satoshi Suzuki.

"Nothing has changed in our schedule, which is to decide by the end of this year which kind of stores Wal-Mart and Seiyu will open."

Sumitomo issued a statement saying it had no plans to study the retail market without Seiyu's involvement. "Our company will proceed our tie-up plans with Wal-Mart and Seiyu, and there's no strategy change at all," Sumitomo said.

Wal-Mart officials weren't immediately available for comment.

The reported move may jeopardize Wal-Mart's relationship with Seiyu, an analyst said. "For now, Wal-Mart wants to respect Seiyu's wishes, so I think such a move is unlikely," said Mizuho Securities analyst Toshio Takahashi.

"Economically, however it makes sense for Japan's retailers to be consolidated," Additional alliances by Wal-Mart would threaten local store operators, said Shigeki Ubukata, who manages Japanese yen 20 billion at Sumisei Global Investment Trust Management Co.
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