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The Honolulu Advertiser
Posted on: Tuesday, May 23, 2006

Wal-Mart's pullout ends struggle in South Korea

Advertiser News Services

Analysts say Wal-Mart, which has agreed to sell its 16 stores in South Korea, failed to adjust to consumers in that country. Homemakers, in particular, didn't like Wal-Mart's food and beverage offerings.

LEE JIN-MAN | Associated Press

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This Wal-Mart branch in Seoul is among the 16 stores that Shinsegae Co. purchased for $882 million.

LEE JIN-MAN | Associated Press

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SEOUL, South Korea Wal-Mart Stores Inc., in an unusual move, said yesterday it is leaving the South Korean market because it has proved too tough for the world's largest retailer to make a profit.

The world's largest retailer said Shinsegae Co. would buy Wal-Mart Korea for $882 million, pending approval by South Korean regulators. Wal-Mart said the decision to withdraw was part of its global strategy.

"As we continue to focus our efforts where we can have the greatest impact on our growth strategy, it became increasingly clear that in South Korea's current environment it would be difficult for us to reach the scale we desired," Mike Duke, vice chairman of Wal-Mart Stores, said in a statement.

Wal-Mart Korea, established in 1998, is a 100 percent-owned subsidiary of the U.S. retailer.

Bentonville, Ark.-based Wal-Mart's performance in South Korea has been lackluster, with Wal-Mart Korea ranked at the bottom among five major discount store operators.

Wal-Mart had sales in 2005 in South Korea of about $787 million, company spokesman Beth Keck said. The company had a loss of $10 million last year, according to figures released at a news conference in Seoul.

The sophistication of South Korea's approximately $26 billion discount market proved difficult for Wal-Mart, analysts said.

"They failed to attract customers to the stores," said S.K. Lee, a retail analyst at Hyundai Securities in Seoul, adding that housewives in particular were dissatisfied with food and beverage offerings.

Wal-Mart also has struggled in Japan, known for its finicky consumers, but has lately boosted its investment there. Last year, it made Seiyu Ltd., the nation's fifth-largest chain with more than 400 stores, a subsidiary. But Seiyu said its loss widened in 2005 to $151 million.

Oh Seung-taek, an analyst at Hanwha Securities, said that Britain-based Tesco PLC's Home Plus chain, ranked No. 2 in South Korea, hired a Korean chief executive and made stores "friendly" to the needs of Korean shoppers, who don't like a "warehouse-style" environment.

Shinsegae is South Korea's largest discount store chain and also runs the country's third-ranked chain of department stores.

In a statement, Shinsegae said it plans to operate Wal-Mart Korea as a separate subsidiary and the stores will be called E-Mart, the name of its discount chain. E-Mart, which has 86 stores, accounts for 30 percent of the local discount market, according to analysts.

The sale comes only months after Wal-Mart made major investments in other geographical areas. In March, Wal-Mart said it had lifted its ownership to 51 percent in Central American Retail Holding Co. and renamed it Wal-Mart Central America.

The division operates 375 supermarkets in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.

"This additional investment demonstrates our confidence in the partnership and in the future of this business in Central America," Duke said then.

The retailer also has made two other strategic international purchases, boosting its holdings in Seiyu Ltd. to 53 percent and lifting its market position to No. 3 in Brazil with the acquisition of Sonae Distribuicao Brasil S.A.

And more buying opportunities are ahead. "We are continuing to look for growth opportunities all around the world," spokesman Bill Wertz said yesterday.

Wal-Mart is the second Western retailer to beat a retreat from South Korea in the past month. France's Carrefour, the world's second-largest retailer behind Wal-Mart, sold its 32 South Korean outlets to local retailer E-Land on April 28 for $1.85 billion.