Asian exit sends message to ailing US arm

IF a butterfly flaps its wings in China, it changes the weather in New York. And if Tesco exits Japan, it sends a chill wind through its US business.

The decision to pull out of Japan was a no-brainer. It had a sub-scale operation of just 140 stores, a work-force of 4,367, and annual sales of £476m. In the year to February 2011, the business knocked around £20m off group profit.

The future of Tesco’s US operation Fresh & Easy is less secure after this announcement. On paper, the business is remarkably similar, with 164 stores, headcount of 4,134, and annual sales of £495m.

One major difference is the scale of losses. Last year, the US operation lost £186m, – almost £150m more than Japan. So far, the retailing giant has racked up a staggering £700m worth of cumulative losses since it tried to crack America in 2008.

Fresh & Easy has some things going for it. Like-for-like sales were up 9.4 per cent in 2010-11, compared to an 8.1 per cent fall in Japan, while total sales grew by almost 40 per cent.

Crucially, Tesco is trying to introduce the far superior European grocery model to Americans. The kind of high quality ready meal that is common in the UK – think stuffed chicken wrapped in prosciutto – doesn’t exist there. If Tesco does succeed, the rewards could be very great indeed.

By exiting Japan, Clarke is serving time on America. Global ambition doesn’t come at any cost.