Wal-Mart Is Right To Pursue Seiyu, But....

Last Updated Nov 6, 2007 2:15 PM EST

Wal-Mart Chief Executive Lee Scott and his management team have made a courageous decision--to spend $860 million to acquire the remaining shares of Seiyu Ltd., the Japanese retailer, that the American company doesn't already own. Wal-Mart has previously spent more than $1 billion to acquire a 51 percent stake in the firm and begin to modernize and refurbish its nearly 400 stores around Japan.

Shareholder groups are squawking about the decision because they want Wal-Mart to take steps to goose up its share price in the short term. "There are a lot more pressing issues than the consolidating of Japan," William Dreher Jr., a Deutsche Bank retail analyst was quoted as saying in the Wall Street Journal.

But Wal-Mart must get Japan right because it is the world's second largest economy and is sitting on $13 trillion in household wealth. Sure, the population is declining but the purchasing power in Japan is immense. Wal-Mart has to get its Japan strategy right because it has pulled out of South Korea and Germany. Wal-Mart has gotten the formula right in China, Mexico and Britain, but it needs a truly global strategy to avoid oversaturation in the American market.

The real problem Wal-Mart has in Japan is that its management is small-town American. The head of Wal-Mart International, Michael Duke, has no international experience. Nor does the CEO of Wal-Mart's Japan operations, Ed Kolodzieski, have deep Asian or Japanese experience. Wal-Mart needs to find a seasoned Japanese retailing executive and put him in charge of Seiyu. Until it figures out the right management mix, no amount of investment is going to transform its Japanese operations into a success. That's the real issue.