Wal-Mart's Foreign Flameout?

Wal-Mart (NYSE: WMT) has been trying to crack the Japanese market with its 96% stake in Seiyu (OTC BB: SYLTF.PK), but investors seeking reassuring signs there will have to keep waiting.

According to Reuters, Seiyu's 2007 loss is now expected to double previous expectations, at 20.9 billion yen, or $196 million, for the year. (This will be the sixth straight year it's posted a loss.) Its same-store sales slumped 1.2% in 2007. The company also intends to write down the value of 10 stores, taking a charge of 6.5 billion yen.

With American consumers increasingly troubled, investors might appreciate any retailer's attempt to hedge its bets with a bit of foreign-market diversity. But back in October, I noted that while Wal-Mart wouldn't retreat from Japan, the country may be a difficult market to conquer. Japanese consumers covet quality over low price, stripping Wal-Mart of one of its historical advantages. In addition, the country has a stable population, forcing retailers to steal market share from one another -- and Japan's already thick with rivals vying for the upper hand.

While Wal-Mart's Seiyu struggles, fellow U.S. retailer Costco (Nasdaq: COST) seems to be holding its own in Japan, wooing consumers with the same discounted high-end goods that enthrall its American shoppers. In addition, Seiyu must do battle with Japanese retailers Aeon and Ito Yokado, and U.K.'s formidable Tesco, which is also expanding here in the U.S.

I've gotten a lot less bearish on Wal-Mart lately as recession looms. Although last month's Wal-Mart comps lagged, its performance in the preceding months suggested that it'd still be shoppers' first resort in penny-pinching times.

Then again, Wal-Mart clearly needs a better strategy than "always low prices" to succeed in the long run. Here in the States, it's making some headway with new environmental initiatives. If Wal-Mart can turn Seiyu around, in a far different culture than it faces domestically, it may give investors another heartening sign that the Bentonville behemoth is learning to think outside its own big box. Unfortunately, Wal-Mart's efforts in Japan thus far seem decidedly boxed in.