Background/Introduction of Wal-Mart Germany: A Failed Marketing Plan

Wal-Mart is not only the world’s most dominant player in the retail home market industry, it is also the world’s largest corporation in terms of revenue earning more than $240 billion in 2003. It is also the biggest private-sector employer in the world today with around 1. 38 million staff on its payroll. The first Wal-Mart was set up in 1962 by brothers Sam and Bud Walton as a five and dime store in Rogers, Arkansas. Forty years later, branches have mushroomed all over America.

Today there are 1,647 Discount Stores, 1,066 Supercenters, 500 SAM’s clubs and 31 Neighborhood Stores in operation across the country—all under the Wal-Mart corporate umbrella. Wal-Mart thrives on its everyday low prices (made possible by its sophisticated inventory management system and the biggest private satellite communication system in the world), emphasis on customer service, and highly-motivated personnel. With its huge and uncontested success in the homeland, Wal-Mart decided in 1991 to embark on an ambitious campaign to become an international retail store corporation.

Its goal was to have its international operations contribute a third of its total profits by 2005. It opened a SAM’s club outfit, its first overseas branch, in Palenco, Mexico City. Since then, Wal-Mart has opened branches in 9 countries and in 1993, it opened the Wal-Mart International Division, to oversee the company’s international operations. So far, revenue returns has been spectacular. In 1979, its annual turnover reached $1 billion for the first time. In 1993, it earned a billion in only a week and in November, 2001, in a record-breaking single day. In the year ending January 31, 2003, Wal-Mart posted sales of $244.
5 billion, with about 16. 5% earned abroad. Its 2003 turnover is three times higher than Carrefour’s, the world’s second biggest retailer. However, while Wal-Mart has become the market leader in the US, Mexico and Canada, the same didn’t hold true for its other overseas markets. Its operations in Asia (which includes China, South Korea and Japan) and Latin America (Brazil and Argentina) are profitable but not as much as the North American profit rates. A notable case to consider, however, is Wal-Mart’s failure in the German market. The Wal-Mart Germany Fiasco
Germany is the third biggest retail market in the world after US and Japan. In December 1997, Wal-Mart decided to expand into Germany—a move that was once considered as an initial foray to make its presence known throughout Europe. The company took over the chain of retail stores, Wertkauf, for about $1. 04 billion and Interspar hypermarkets for €560 million. However, revenues have not mirrored those of North American postings. By 2002, Wal-Mart Germany only earned an estimated €2. 9 billion, a market share of 1. 1%. By 2003, it has lost about €1 billion, closed two outlets and laid-off around 1,000 staff.
Wal-Mart’s German operations is said to have failed because of four reasons: First, Wal-Mart’s entry into the German market was through acquiring 74 Spar hypermarkets, a company which before the buyout was already the weakest player in the market. Spar stores were located in less well-off areas and has the industry’s highest logistics cost and lower returns. Meanwhile, its acquisition of Interspar is considered as an overpriced deal since the same chain of stores were bought by its former company only two years earlier at a price seven times lower than what Wal-Mart had to pay for.
The second reason is the clash of cultures between Wal-Mart Germany’s American CEOs and German employees. The ignorance of these executives regarding Germany’s laws and culture has created widespread employee dissatisfaction and union-bashing. American Rob Tiarks, Wal-Mart Germany’s first CEO, was unwilling to learn the German language, ignorant with the country’s framework of retail market and ignored the strategic advice given to him by former Wertkauf executives. The company installed a German CEO in 2001 but his ability to turn Wal-Mart’s future around is yet to be judged.
It also has to deal with unions, a factor that is absent in its US operations. Third, Wal-Mart has not been able to deliver its promise of lower prices and compete with other and bigger discount stores in the country like Aldi. German shoppers have also been turned-off by the concept of “greeters” which, in America, is considered good customer service but a form of harassment in the European country whose people are used to self-service. It also cannot offer the 24/7 convenience of its American store counterparts because of Germany’s restrictive shopping hour regulations.
Finally, Wal-Mart Germany has been continually accused of infringing German laws and regulations like the anti-trust act which requires all corporations to disclose financial information. More problems could be foreseen for the company using the present situation as gauge. So far, it has failed to accomplish the financial benchmarks it has set for its first European foray. The future of Wal-Mart Germany is, indeed, not encouraging at this point in time. Reference Knorr, Andreas and Andreas Arndt. Why did Wal-Mart Fail in Germany? Bremen: Institute for World Economics and International Management, June 2003.