Breakingviews - Walmart sale is nod to Japan’s online Suga rush

A woman is reflected on a logo of Seiyu at its chainstore in Tokyo, Japan, July 12, 2018. REUTERS/Kim Kyung-Hoon

HONG KONG (Reuters Breakingviews) - Walmart’s sale of a majority stake in its Seiyu supermarkets is an example of how a global health crisis can accelerate change even in the stodgiest of markets. The U.S. retail giant is offloading 65% to private equity shop KKR and 20% to Seiyu’s Japanese e-commerce partner Rakuten, retaining 15% for itself and valuing the business at $1.7 billion. The new owners are betting that an increase this year in online buying by Japan’s picky shoppers is only the beginning of a good growth story.

The deal ends years of speculation over the future of Seiyu, which has 333 stores. The U.S. titan first invested in 2002 and took the 57-year old chain private in 2008. Last year its local head told staff it was planning to list a minority stake. At least this format allows Walmart to benefit from any upside generated by its new partners.

Japan’s retailers have long suffered from a shrinking population and years of deflation that have squashed margins. Supermarkets have also contended with customers whose interest in only perfectly fresh produce had made them wary of shopping in fresh ways: A mere 2.5% of total grocery sales were online before the pandemic, according to a Reuters report in June citing industry estimates, compared with 7% in Britain and 15% in China.

But online is now a bright spot, accounting for up to 5% of grocery sales since the pandemic began. Sales growth for Rakuten Seiyu Netsuper, the joint venture launched in 2018, grew 30% in its first year of taking over from Seiyu’s solo effort. KKR is new to the Walmart-Rakuten party, but it has history with Rakuten though other joint investments. That will help with what’s likely to be a lively board with representatives of all three.

The deal comes as Yoshihide Suga, Japan’s new prime minister, has shown himself willing to shake up industries – a push to lower mobile phone bills encouraged NTT to reacquire NTT Docomo for $40 billion - and to spur digitisation of backward-looking sectors. If KKR’s move can capitalise on that as well as changing shopping trends, it may just be able to profit from a sector where so many others struggled.


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