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Tesco has announced that it intends to sell off its Japan business after eight years trying to break into the market, according to BBC News.

The firm owns 129 small stores in the Greater Tokyo area, half of which it says are profitable.

Chief executive Philip Clarke was quoted saying the company has decided that it could not build a sufficiently scalable business in Japan.

Japan is the smallest of Tesco’s 13 international businesses. Analysts said the decision will now shift attention to the firm’s loss-making US Fresh ‘n’ Easy chain which Clarke has vowed to turn around by 2013.

The report said Tesco would undertake a formal sale process of its Japan business in the coming months, and that business there would continue as usual in the meantime.

The UK retailer operates stores under its own name and the Tsurukame brand in Japan. It also has its own-label product line and a fresh kitchen providing fish and other products for the market.

Tesco first moved into the market in 2003, with the acquisition of C2 Network, which owned 78 stores. Despite expanding its chain, the firm faced persistent losses and the Japanese business was seen as too small and a distraction for management.

In February – before the earthquake struck – like-for-like sales in Japan were reported to have fallen 8.1% from a year earlier.

Gavin Rothwell, research manager at groceries analyst IGD was quoted saying sales growth had been hard to come by in Japan where the retail market is fragmented and there are many strong regional players, often family-owned.

He said Japan’s market is dominated by convenience stores, particularly in the city centres, and a culture of ‘immediacy’ supports a large numbers of vending machines/kiosks.

The UK firm is not the only outsider to fail in Japan.

French supermarket chain Carrefour sold its eight Japanese hypermarkets in 2005, and UK chemists Boots has also pulled out of the market, while Wal-Mart of the US is finding business at its Seiyu subsidiary tough.

Source: BBC News

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