Tesco admits defeat in Japan

The move is a rare admission of defeat by the supermarket group and raised speculation it could be prepared to exit its much larger loss-making business in the United States if its current recovery plan fails to deliver.

“It shows new chief executive Phil Clarke is taking an unemotional attitude to international businesses,” said analyst Chris Hogbin at brokerage Bernstein.

Japan is the smallest of Tesco’s 13 international businesses, consisting of 129 stores in greater Tokyo employing just over 3,900 people and making less than £500m in annual sales, according to analysts’ estimates.

Analysts had long tipped the business for disposal after it failed to make significant inroads into a market dominated by general merchandise operators.

Many foreign retailers have struggled in Japan, hampered by fickle consumer tastes, a super-competitive landscape and prolonged, profit-sapping deflation.

French retailer Carrefour SA and UK chain Boots are among the companies to have pulled out over the past decade.

“The move raises hopes that if the US business cannot be moved into profitability within the next couple of years... that too might be disposed,” Citi analysts said, referring to Tesco’s Fresh & Easy chain, which made £186m of losses in the year to February.

Tesco CEO Mr Clarke, who took over from long-serving predecessor Terry Leahy in March, has laid out a plan aimed at significantly reducing US losses this financial year and moving into profit towards the end of 2012-13.

“Any comparison with Fresh & Easy would be inappropriate,” Mr Clarke said, when asked whether the Japanese exit set a potential precedent.