It's an interesting move by Wal-Mart, one that could be interpreted as either throwing good money after bad or presciently investing in a turnaround play on the cheap. Whatever the case, there are still many obstacles for the company to climb in Japan. Ito-Yokado and AEON are both strong and established competitors that already have a lock on a number of prime locations. While Americans may drive a bit out of their way in order to save money on "everyday low price" bulk items, the shopping habits of Japanese consumers are quite different, especially since Japanese homes do not have the storage room available to load up in bulk.
Back in the U.S., Wal-Mart faces a different battlefield, with Target
Regardless of the outcome in Japan, Wal-Mart's total investment in Seiyu is relatively small (a fraction of Wal-Mart's free cash flow in a single year). Furthermore, its efforts in China, which may be of more importance in the long run, appear to be bearing fruit. Let's not forget that Wal-Mart's stock is historically cheap, currently trading at only 15.6 times forward earnings estimates. It's even caught the eye of a number of value fund managers, including those working at Motley Fool Champion Funds picks Oakmark and Dodge & Cox. So while I find it difficult to envision Wal-Mart's investment in Japan working out any time soon, I find it equally difficult to bet against Wal-Mart itself.
Fill your cart with further Foolishness:
Nathan Parmelee lived in Japan for nearly three years, but quirky retailer Don Quijote was the best bet in his neighborhood for goods on the cheap. He owns shares of Costco, but no other company mentioned. The Motley Fool has an ironclad disclosure policy.