|
How can this be?
Wal-Mart, the mega retailer that Americans seemingly cannot
live without, was a bust in Germany.
Yet, Wal-Mart's
international sales continue to grow faster than their
domestic growth. Why did this happen? What are
the most important reasons? And, what formula has made
Wal-Mart an international powerhouse despite its failure in
a
few countries? The answers to these questions provide an
interesting case study in both how and how not
to conduct
international business.
The following background information is provided to give you
a start: Wal-Mart
entered the German market in January, 1998 with the
acquisition of Wertkauf and Interspar. After eight
years
selling from 85 retail units (some stores have been closed
during this time), Wal-Mart is calling it quits by the
end
of 2006 with a pre-tax loss of at least $1 billion.
Market entry in Europe came in 1997 with the
purchase of 21 hypermarkets from Wertkauf
GmbH in
Germany. The following year Wal-Mart acquired 74
additional hypermarkets from
Spar Handels AG; the two
acquired companies were merged under a centralized
headquarters,
a major remodelling program affecting most
of the stores was launched, and distribution was
centralized. In addition, the company's aggressive
pricing resulted in a price war among
Germany's
retailers who had already been through traumatic changes
related to the reunification
with East Germany in 1990.
The early going was difficult because of
many cultural misjudgements—it turned out that
Germans
didn’t quite like exactly the same products as
Americans. Many American festivities
such as Halloween
hardly exists in Europe, so why should customers want to
buy related goods.
On the hand, Wal-Mart ignored the
deep-rooted German carnival tradition. On top of that,
the
German workforce expected a different treatment, so
when the morning “team-call” was established,
half of
staff went to the restrooms.
Finally, no taste research was carried
through, so that e.g. American bread didn’t live up
to
expectations in a Country that boasts over 350 different
sorts of bread. Wal-Mart's losses in
Germany for 1999
were estimated to run as high as $200 million. However,
with the transition
largely in place by 2000, company
officials announced plans to open 50 more stores in
Germany
and to double its share of the hypermarket
sector to 20 percent by 2003. They couldn’t quite live
up to their expansion strategy, as they opened about 20
new stores (and closed some to have a
total of 92) by
mid-2004.
Still, Germany is the only country where
Wal-Mart is in the red, as retailing is a
cut-throat
competition in Germany with ALDI and LIDL as very strong
local competitors offering good
value and very low
prices. Moreover, these companies have arrived in the US
too to “battle” in North
America as well.
_____________________________________________________________________
Unlock the key to
Wal-Mart's successes and failures and you will begin to get
a global picture of what it takes to
succeed in business. A
"Google" search with: "Wal-Mart leaves Germany" yielded the
following articles that you
should read:
1) "Walmart Leaves Germany: Blame Smiles, Love or
Plastic Bags?" July 30, 2006 12:38 PM -
Christine Lepisto, Berlin
2) "World's Biggest Retailer Wal-Mart Closes Up Shop in
Germany" Louisa Schaefer,
www.dw-worlde.de,
Deutsche Welle.
3) "Germany: Wal-Mart Finds That Its Formula Doesn't Work
in All Cultures," Mark Landler and Michael
Barbaro, The New
York Times, August 1, 2006.
In addition, you should consult Wal-Mart information from
them. Most notably:
4) Their annual report (2006): (look at pages 22 and 51 -
[the pages on the actual report]).
More cases
coming soon. |
