Why Walmart Failed In Germany - Cheddar Examines

Summary

In 1997, Walmart ventured into Germany's retail market, acquiring 95 stores through Wertkauf and Interspar. However, facing a hostile market with restrictive shopping hours, high unemployment, and fierce competition from local discount retailers like Aldi and Lidl, Walmart struggled. Accusations of predatory pricing led to regulatory intervention, and their Southern hospitality-based practices were deemed inauthentic by German culture. Walmart's anti-union stance and strict ethics code further alienated them. By 2006, with a mere 3% market share and high operational costs, Walmart exited Germany, selling 85 stores to Metro, marking a $1 billion loss and a lesson in the importance of adapting to local business environments.

Takeaways

• 🏬 Walmart entered the German market in 1997 by purchasing two retail chains, Wertkauf and Interspar, with 95 stores.
• 📉 Germany's retail market in the late '90s was challenging with restrictive shopping hours, regulated zoning, and high unemployment.
• 🛒 Walmart faced strong competition from successful native discount retailers like Aldi and Lidl, which offered lower prices due to German laws favoring smaller stores.
• 💸 Walmart was accused of predatory pricing and had to raise the prices of essential items, which later became too high compared to competitors.
• 📊 The discount retail sector in Germany was significant, accounting for 40% of the supermarket business, leading to lower prices than the European average.
• 🤝 Walmart's Southern hospitality-based practices were perceived as inauthentic and culturally incongruent in Germany.
• 😖 German employees and media criticized Walmart's employee engagement practices, such as synchronized exercises and group chants.
• 🚫 Walmart's strict ethics code and anti-union stance clashed with German labor laws and cultural expectations, leading to legal challenges and union opposition.
• 📉 Walmart's German stores had a profit margin of only 1% compared to 6-8% in Britain, and they held just a 3% market share.
• 💡 The failure in Germany taught Walmart a valuable lesson about the importance of adapting to local cultures and business environments.

Q & A

When did Walmart first enter the German market?

Walmart opened its first store in Germany in 1997.

Why did Walmart decide to leave Germany after nine years?

Walmart left Germany in 2006 after losing one billion dollars due to a combination of factors including high competition from local discount retailers, restrictive market regulations, and cultural differences.

What were the main competitors Walmart faced in the German market?

Walmart faced stiff competition from successful native discount retailers like Aldi and Lidl in Germany.

How did German laws affect Walmart's pricing strategy?

By German law, smaller stores like Aldi and Lidl could offer lower prices than big box stores like Walmart, which affected Walmart's ability to compete on price.

What accusations did Walmart face regarding its pricing in Germany?

Walmart faced accusations of using short-term predatory pricing to try and put local shopkeepers out of business, leading to regulators ordering them to raise the price of basic goods.

What cultural practices did Walmart implement that were perceived negatively in Germany?

Walmart's practices such as synchronized calisthenics, group chants, and cashiers flashing smiles were perceived as fake, flirty, and creepy by German customers and employees.

How did Walmart's employee ethics code impact its operations in Germany?

Walmart's restrictive ethics code, which included rules against sexual intimacy and flirting among co-workers, was eventually struck down by a German court in 2005.

What was the perception of Walmart's stance on unions in Germany?

Walmart was perceived as anti-union in Germany, where companies and unions typically have close relationships, leading to strained relations and opposition from German unions.

How did labor costs in Germany affect Walmart's profitability?

Full-time staff in Germany demanded a 19 percent premium compared to UK workers, which increased Walmart's operational costs and contributed to their declining sales.

What was the market share of Walmart in Germany before they left?

Before leaving Germany, Walmart made up just three percent of the market, significantly lower than Germany's top 10 chains which made up 30 percent of the market.

What was the final outcome of Walmart's operations in Germany?

Walmart withdrew from Germany in 2006, selling 85 of its stores to local rival Metro, after employing 11,000 people and generating two billion dollars in 2005, which was only four percent of Walmart's international operations.

Outlines

00:00

🛒 Walmart's Failed Expansion into Germany

In 1997, Walmart ventured into Germany by acquiring two retail chains, Wertkauf and Interspar, with a total of 95 stores. Despite being the largest private employer globally, Walmart faced significant challenges in Germany, including restrictive shopping hours, regulated zoning, and high unemployment. The German retail market was dominated by discount retailers Aldi and Lidl, which offered lower prices due to German laws favoring smaller stores. Walmart's pricing strategy backfired, with accusations of predatory pricing leading to regulatory intervention. Cultural differences also played a role in their failure, as their customer service practices, such as synchronized exercises and group chants, were perceived as inauthentic and creepy by German standards. Additionally, Walmart's strict employee ethics code and anti-union stance clashed with German labor practices, leading to legal challenges and poor relations with unions. These factors, combined with a profit margin of only one percent compared to the 6-8 percent in Britain, resulted in Walmart's exit from Germany in 2006, selling 85 stores to local rival Metro.

05:02

📉 Walmart's Withdrawal and Lessons Learned

Walmart's exit from Germany in 2006 was a strategic decision due to the company's inability to achieve the desired scale and results in the German market. Despite employing 11,000 people and generating two billion dollars in 2005, which was only four percent of Walmart's international operations, the operational costs were high due to higher full-time staff demands compared to the UK. The company's dedication to its company culture, which did not align with German business practices and consumer expectations, ultimately led to its failure. The key takeaway from this experience is the importance of adapting to local cultures and business environments. The video concludes by inviting viewers to suggest other companies or failures for future analysis and encourages engagement through likes, shares, subscriptions, and notifications.

Keywords

💡Walmart

Walmart is a multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. In the context of the video, it represents the main subject of the narrative, detailing its failed expansion into the German market. The video discusses how Walmart's business practices and cultural norms did not align with those of the German market, leading to its eventual withdrawal.

💡Germany

Germany is a Western European country known for its strong economy and established retail market. The video highlights Germany as the setting for Walmart's unsuccessful retail venture. It emphasizes the challenges Walmart faced, such as restrictive shopping hours, high unemployment, and strong local competition, which are typical characteristics of the German retail environment.

💡Retail Market

The retail market refers to the industry involved in the selling of goods and services to the public. In the video, the retail market in Germany is depicted as hostile for new entrants like Walmart, with slow growth rates and a preference for smaller, discount retailers. This context is crucial for understanding Walmart's struggle to compete with established players like Aldi and Lidl.

💡Aldi and Lidl

Aldi and Lidl are German discount supermarket chains that offer low prices and a limited range of products. The video positions these retailers as formidable competitors to Walmart in Germany. Their business models, which include lower prices and smaller store formats, were more aligned with German consumer preferences and regulations, giving them a competitive edge.

💡Predatory Pricing

Predatory pricing is a pricing strategy where a company sets prices below the cost of production to drive competitors out of business. The video accuses Walmart of using this tactic in Germany, which led to regulatory intervention forcing Walmart to raise the prices of essential items. This strategy backfired as it initially damaged Walmart's reputation and later positioned its prices unfavorably against competitors.

💡Cultural Fit

Cultural fit refers to the compatibility of a company's practices and values with those of the local culture and society. The video discusses how Walmart's Southern hospitality-based practices were perceived as inauthentic and inappropriate in the German context. This misalignment with German cultural norms contributed to Walmart's inability to connect with local customers and employees.

💡Ethics Code

An ethics code is a set of principles that guide a company's conduct, often including rules for employee behavior. In the video, Walmart's ethics code, which included strict measures like prohibiting sexual intimacy between co-workers and requiring employees to report rule violations, was met with resistance in Germany. A German court eventually struck down this code, highlighting the cultural clash between Walmart's policies and German workplace norms.

💡Unions

Unions are organizations that represent the collective interests of workers and negotiate employment contracts. The video notes that Walmart's anti-union stance and its unfamiliarity with the close relationship between German companies and unions led to poor relations. This conflict with unions and the lack of a comfortable working relationship contributed to Walmart's operational challenges in Germany.

💡Profit Margin

Profit margin is a measure of a company's profitability, calculated as the ratio of net income to revenue. The video contrasts Walmart's profit margin in Germany, which was only one percent, with that of its British operations, which was 6-8 percent. This indicates the financial struggles Walmart faced in the German market compared to other successful international ventures.

💡Market Share

Market share refers to the percentage of the market's total sales or volume that a company captures. The video points out that while Germany's top 10 retail chains made up 30 percent of the market, Walmart only accounted for three percent. This low market share signifies Walmart's limited impact and the difficulty it had in gaining a significant foothold in the German retail sector.

💡Operational Costs

Operational costs are the expenses a company incurs to run its business operations. The video mentions that higher labor costs in Germany, driven by full-time staff demanding a 19 percent premium compared to UK workers, increased Walmart's operational costs. This, combined with declining sales, contributed to the financial challenges that led to Walmart's exit from Germany.

Highlights

Walmart opened its first store in Germany in 1997, marking its entry into Europe's largest retail market.

Walmart's international expansion has been largely successful, with almost 12,000 stores in 27 countries.

In Germany, Walmart faced a hostile market with restrictive shopping hours, regulated zoning, and high unemployment.

German retail market growth rates averaged just 0.3 percent per year in the '90s.

Walmart entered a market with strong native discount retailers like Aldi and Lidl.

German law allowed smaller stores to offer lower prices than big box stores like Walmart.

Walmart faced accusations of using predatory pricing to drive out local competition.

Regulators ordered Walmart to raise the price of staples like milk, flour, and butter.

Walmart's prices were too high compared to the competition, like Aldi, which had bare-bone stores.

The discount retail sector in Germany was about 40 percent of the supermarket business.

Walmart's friendly practices based on Southern hospitality were perceived as fake and at odds with German culture.

German media reported on Walmart's unusual employee practices, such as synchronized calisthenics and group chants.

Walmart's requirement for cashiers to flash smiles was seen as flirty and creepy by German customers.

Walmart's restrictive measures on employees, including an ethics code, were not well received in Germany.

A German court struck down Walmart's ethics code in 2005.

Walmart's anti-union stance clashed with the close connection between companies and unions in Germany.

Walmart's German stores had a profit margin of one percent, compared to 6-8 percent in Britain.

Walmart made up just three percent of the German market, while the top 10 chains made up 30 percent.

Walmart's operational costs increased as sales declined and full-time staff demanded higher premiums than UK workers.

Walmart withdrew from Germany in 2006, selling 85 of its stores to local rival Metro.

Walmart's international operations in Germany represented just four percent of its total.

Walmart's dedication to their company culture was a factor in their failure in Germany.

The lesson from Walmart's experience in Germany is that local practices and cultures should be respected.

Transcripts

[MUSIC] In 1997, Walmart opened its first store in Germany.

They had officially entered the largest retail market in Europe.

But nine years later they sold their stores,

packed their bags and left the country.

They had lost one billion dollars.

So how did the largest private employer in the world fail so badly?

[MUSIC].

By 1988 Walmart had become the most profitable retailer in the US.

Their success spurred the company to start looking abroad at the international market,

and the expansion has been largely successful.

Walmart now has almost 12,000 stores in 27 countries.

In Britain, they now own the second largest supermarket chain in the country ASDA.

They're the largest private employer in Mexico,

and the third largest in Canada.

But that success is not universal.

In 1997, Walmart purchased two German retail chains,

Wertkauf and Interspar, totaling 95 stores.

It was a huge risk.

Germany in the late '90s was a hostile market.

Restrictive shopping hours, regulated zoning,

and high unemployment kept other companies

away according to analysts at Kurt Salmon Associates Europe.

Retail market growth rates averaged just 0.3 percent per year in the '90s.

It was also entering a market full of

successful native discount retailers like Aldi and Lidl which were stiff competition.

By German law, these smaller stores could offer

lower prices than big box stores like Walmart.

Soon after arriving in Germany,

Walmart faced accusations that it was using

short term predatory pricing to try and put local shopkeepers out of business.

Regulators had to order Walmart to raise

the price of basics like milk, flour, and butter.

After that their prices were too high in comparison to

the competition like Aldi which ran a small bare bone stores.

The discount retail sector was a lot larger in Germany than in other countries.

It was about 40 percent of the supermarket business,

which meant that groceries and daily goods tended to

cost around 15 percent less than the European average.

On top of these financial obstacles,

Walmart faced a different kind of problem, a cultural problem.

The friendly Walmart practices based on

Southern hospitality were perceived by many to be fake and at odds with German culture.

German media reported that Walmart required its employees to start their shifts by

engaging in synchronized calisthenics and group chants of Walmart, Walmart, Walmart.

This was intended to build loyalty and morale.

Walmart also required its cashiers to flash smiles at patrons,

which a lot of customers thought was flirty and creepy.

That's also how they felt about Walmart greeters, pretty creepy.

People found these things strange.

Germans just don't behave that way.

Hans-Martin Poschmann, the secretary of the Verdi Union which

represented 5,000 Walmart employees told the New York Times.

Walmart also imposed restrictive measures on their employees,

which they called an ethics code.

Walmart required its employees to report if co-workers broke any rules,

and if they didn't comply they could be fired.

Walmart also prohibited sexual intimacy and flirting

between co-workers according to The Financial Times Deutschland.

A German court eventually struck down this ethics code in 2005.

By German standards, Walmart is also anti-union.

They didn't understand that in Germany,

companies and unions are closely connected.

They thought we were communists,

Poschmann told The Times.

It sounds like employees associates, they listen too.

And without going through union politicians.

Of course not.

All unions will get is taking a cut out of my pay.

Unions strongly opposed the working culture in Walmart.

Walmart and German unions never established comfortable relations.

All of these obstacles combined lead to declining sales.

Walmart's German stores had a profit margin of

one percent compared to their British stores which had a margin of 6-8 percent.

Germany's top 10 chains made up 30 percent of the market.

But Walmart made up just three percent of the market.

Full time staff in Germany demanded a 19 percent premium compared to

UK workers on average which drove up Walmart's operational costs as their sales declined.

So Walmart withdrew from the country in 2006,

offloading 85 of its stores to its local rival, Metro.

They had employed 11,000 people and generated a two billion dollars in 2005,

but that represented just four percent of Walmart's international operations.

It has become increasingly clear that in Germany's business environment,

it would be difficult for us to obtain the scale and results we desire,

Michael Duke, Vice Chairman of Walmart Stores told The Times.

Walmart's dedication to their company culture ended up dooming them in Germany.

The lesson, the locals are always right.

[MUSIC] Let us know in

the comments what companies or company failures you want us to look at next.

Like this video.

Share it with your friends, subscribe,

and don't forget to ring the bell for post notifications.

Thank you. [MUSIC].