In 2003, Walmart began branching out into the Japanese market as part of their global retail expansion. However, this move proved unsuccessful in the end. By the time they sold off their Japanese retail holdings in 2020, Walmart had lost an impressive sum of money.
The chain Walmart purchased in 2003 is called Seiyu, which continues to operate under different ownership since Walmart’s departure.
Today we will look at how and why Walmart’s attempt to break into the Japanese consumer market failed so badly.
What Is Seiyu?
According to Walmart’s corporate website…
Seiyu is one of the largest supermarket chains in Japan, offering a wide range of groceries to discerning Japanese customers. Established in 1963, Seiyu reaches 7 million customers weekly through a nationwide network of more than 300 stores.
To be exact, Seiyu currently has 328 retail locations across Japan.
(If you’re curious what the inside of a Seiyu store looks like, check out this 2018 article from Business Insider.)
Walmart first began purchasing Seiyu shares in 2003, shortly after the two companies entered into a partnership, through which Walmart agreed to teach the long-standing Japanese company about global supply chain practices. Although Seiyu has been around for well over 50 years, they didn’t start expanding into global markets until recent decades.
By 2008, Walmart had acquired full ownership of the company and continued operating as its parent organization until 2020.
That’s when Walmart finally came to terms with the fact that a Walmart-owned Seiyu wasn’t working the way they’d hoped it would.
Through a complex brokerage deal, Walmart sold off 65% of its holdings to American global investment company KKR (Kohlberg Kravis Roberts). Another 20% were sold to Japanese e-commerce company Rakuten Inc.
As it stands in 2023, Walmart owns just 15% of Seiyu and retains a seat on the company’s board of directors.
The current prevailing investor in Seiyu is KKR.
Challenges in the Japanese Market
At the end of the day, Walmart’s attempt at expanding into the Japanese market through Seiyu just wasn’t successful. When the company sold off its shares, they didn’t even come close to making a profit on their investment.
In fact, estimates show that Walmart lost 210 billion yen with its sale of Seiyu, which translates to about $1.6 billion USD. Other sources estimate that the loss could have been as high as $2 billion, though exact numbers haven’t been reported.
So, why did the most successful corporation in the world for 30+ years running fail so miserably in the Japanese market?
Here are some of the challenges Walmart faced with the Seiyu model in Japan…
1) Japanese Consumers Aren’t “One-Stop Shoppers”
According to an opinion piece posted on GlobalMarketingProfessor.com, Japanese shoppers tend to visit multiple stores to find the lowest prices possible instead of doing all of their shopping in one place.
Walmart’s business model, on the other hand, relies on customers who buy all (or at least most) of their groceries and household essentials at Walmart.
While the big box store model works well in the US, it hasn’t proven to be nearly as successful in Japan.
2) Japanese Consumers Want Healthy Local Food
If you don’t already know, Japan is known for having one of the healthiest cultures in the world. In fact, Japan has the longest average life expectancy of any other country and is commonly referred to as the healthiest country in the world by health metrics and overall happiness.
For this reason, many Japanese shoppers just aren’t interested in the low-cost, low-quality food offerings available at places like Seiyu and Walmart. Japanese consumers are known for purchasing locally sourced food directly from producers or local sellers whenever possible.
According to an article from Nikkei Asia, the Walmart-owned incarnation of Seiyu switched product procurement operations from a regional system to the corporate headquarters in Tokyo, causing “popular local items [to] disappear from shelves, resulting in customers fleeing the chain in droves.”
3) Walmart Doesn’t Adapt Well To Foreign Business Practices
The same Nikkei Asia article referenced above also asserts that Walmart “failed to take into account local business customs, dietary habits, and labor relations” during their time in Japan.
But Walmart hasn’t just failed in one overseas endeavor. They’ve ended up retreating from several countries, including Germany and South Korea, for similar reasons.
What works for Walmart in the US doesn’t work the same way everywhere else, but the retail giant has yet to develop successful locally tailored approaches.
4) A Focus on eCommerce Distracted From The Growth of Seiyu
In recent years, Walmart has poured an increasing amount of its business focus into the world of e-commerce. As it struggles to compete with Amazon, the second-largest retail corporation in the world next to Walmart, some analysts believe that the corporation’s leadership has lost focus on its brick-and-mortar stores, especially those overseas.
The Role of Rakuten and KKR
When Walmart first started considering selling off their Seiyu investments in 2018, they began collaborating with Rakuten to form what they called a “strategic alliance.”
Rakuten began helping Walmart operate grocery delivery through Seiyu in Japan, and the two companies first started discussing the possibility of an investment transfer. However, Walmart’s leadership was worried that selling off their shares too soon would negatively impact their ability to expand into other Asian consumer markets.
By 2020, Walmart’s tune had changed, and they officially announced their plans to sell off the majority of their holdings to KKR and Rakuten. From that point forward, the only relationship between Walmart and Rakuten has been that they both own significant percentages of the same company. Rakuten, however, owns a larger portion of Seiyu than Walmart.
As far as KKR goes, the only relationship they have to Walmart is one of vested interest in a common investment.
Those paying close attention to the shift suspect that KKR plans to use Seiyu as a transitional investment. In other words, they’ll stick around long enough to reestablish the Seiyu brand and strategize for success in a largely digital market. Then, once Seiyu has increased its overall profitability, they’ll sell off their investment and move on.
The future of Walmart’s stake in Seiyu is unclear.
Has Walmart Expanded Into Other Asian Markets?
Although Walmart hasn’t found much success in Japan, there are other Asian countries where you can find Walmart retail stores under the Walmart brand name.
Walmart and Sam’s Club both have a presence in China, which is home to the highest number of Walmart stores of any other Asian country. Walmart first expanded into the Chinese market in 1996 and has been relatively successful there ever since. To learn more about Walmart’s relationship to the Chinese market, reference our post here.
That said, it’s starting to become clear that Walmart is struggling in China for many of the same reasons they’ve failed in Japan–a lack of understanding of the needs and desires of the foreign market.
The only other Asian country currently home to any Walmart retail locations is India.
Moving forward, the future of Walmart’s presence in Asia is deeply uncertain. The corporation will likely have to renovate their overseas business practices to maintain relevance and viability in a new economic age.