Tesco withdraws from Japan

Today's news that Tesco is seeking to sell it's Japanese chain and withdraw completely from the market should not be a great surprise.  Japan has a highly developed retail sector with many established & highly competent chains - why would Tesco think that it could enter a market that it doesn't know, doesn't have any real logistical links to & is already full of good shops.  Students will also be very familiar with the notion of 'Critical Mass' - where by you need a very significant chain of stores to contribute to the costs of building and employing the large warehouses and infrastructure to support stores - Tesco simply wasn't big enough in Japan to start with and then struggle to grow to a sufficient scale to become competitive.

So no big surprise that withdrawal has come, a sensible decision after an unwise investment - of course they will never disclose how many hundreds of millions they will have wasted in the process.  How long till they give up on their equally misguided American venture??

The opening of new markets

The internationalisation of retailers has not been a linear journey but rather witnessed big splurges of activity due to political and economic changes.  One such change is just happening in India.  Until now the Indian market has been almost closed to international retailers in a bid to protect businesses indigenous to the country, however such restrictions prevent the modernisation of the sector and can lead to inflationary pressures on consumer goods.  A relaxation of the laws on foreign direct investment into the retail sector now looks likely & will lead to a wave of activity from the worlds largest retailers seeking expansion into the massive Indian market.  Under the proposals, incoming retailers would be able to own 51% of any venture (i.e. a controlling stake), and will have to invest at least $100m, half of which will need to be invested into infrastructure that will benefit all retailers in the sector.  They will only be able to operate multi-brand stores in cities with a population in excess of 1m.  This really does represent a huge change in the attractiveness of the Indian market and a great opportunity for the likes of Tesco who desperately needs strong international sales given it's weak strategic position in the UK.  For sure further liberalisation of the market will come in future years and so any investment now is likely to reap even greater opportunities in the future.

Cheer up consumers!

It's a long time since the financial chaos started in the Summer of 2008, however the effects will be felt for a long time yet.  Nobody could have missed the riots over job losses and the continued national debt mounting & so it is timely to remember the critical role that the retail sector plays in all of this and the potential damage that the riots could inflict on all of our purses. 


The logic runs like this.  Consumer retail sales accounts for approximately one third of the entire economy of the country and represents a huge revenue flow for the government through all manner of taxes not least VAT.  How much the consumer spends depends on a number of factors, though most significant is not their actual wealth but their perceived wealth & perception of the security of their wealth - i.e. feel good/bad factor.  If consumers believe that the economy is struggling they may fear unemployment, consequently will cut back on their spending - collectively this will itself lead to the economy shrinking and redundancies being made - so a self fulfilling prophecy.  Consumers will feel bad about their economic prospects in reaction to negative press stories of economic woes or wider negative stories such as the riots.  In short the riots are likely to have the reverse effect of that sought by the trouble makers.