CASE STUDYWorld’s Biggest retailer Wal-Mart closes up shop in Germany

WALMART Wal-Mart Stores, Inc. is an American public corporation that runs a chain of large, discount department stores. It is the world's largest public corporation by revenue and is founded by Sam Walton in 1962. It is the largest private employer in the world and the fourth largest utility or commercial employer. Wal-Mart is the largest grocery retailer in the United States, with an estimated 20% of the retail grocery and consumables business, as well as the largest toy seller in the U.S. It also owns and operates the North American Company, Sam's Club.

GROWTH OF WALMART1962 – Wal-Mart beginsSam and his wife Helen put up 95 percent of the money for the first Wal-Mart store in Rogers, Ark.

1972 – Wal-Mart goes public

Stocks offered in New York Stock Exchange & the company grew to 276 stores in 11 states by the end of the decade.

1980s – Wal-Mart comes of age

1st Supercenter, featuring 36 departments of merchandise. Employment increased tenfold & Sales grew from $1 billion in to $26 billion.

The 21st century One of the most successful retailers in the world having 7,390 stores in 14 markets & more than 2 million associates, serving more than 176 million customers.

SUCCESS OF WALMART IN WORLD

• It promised "everyday low prices“. • Not too dependent on any one supplier.

• 85 percent of all the merchandise sold by Wal-Mart was shipped by its distribution system.

• Engaged all the stakeholders in identifying the problem.

• Vision was to keep prices as low as possible. Even if his margins weren't as fat as competitors, he figured he could make up for that in volume.

WHERE IT DIDN’T WORK?• A reporter from south korea once said “It failed to read what South Korean

housewives want when they go shopping”.

• Walmart were not aggressive enough in expanding their networks in South Korea.

• Walmart did not concentrated on products which were popular in supermarkets of South Korea.

LEADING RETAILERS IN GERMANY

3      Metro AG Cash & Carry Warehouse Club 

5      Schwarz Unternehmens Discount Store 

9      Aldi GmbH & Company oHG Discount Store 

11    Rewe-Zentral AG Supermarket 

19    Edeka Zentrale AG & Company KG Supermarket 

58    Tengelmann Warenhandelgesellschaft KG Home Improvement 

70    Otto (GmbH & Co KG) Mail Order 

71    Arcandor AG Department Stores/Teleshopping 

SUCCESS OF RETAIL STORES IN GERMANY

• Amazon.com -  Originating in US, it is the number one retailer and internet retailer in Germany. Sales are high worldwide due to the convenience of online shopping, variety of products it provides and their low prices.

•  Aldi -  It is a discount supermarket originating in Germany. Almost all of their products are under their own label, making them more affordable as well.

• Tchibo - It is one of Germany’s best coffee retailers. Tchibo doesn’t just sell coffee—each week they rotate through new products, including clothing, outdoor equipment and household items.

CONT..• REWE Group -  It is another successful supermarket chain in Germany.

Focusing on quality and affordable prices.

• Lidl - Originating in Germany , Lidl is a discount supermarket similar to that of Aldi. They keep minimal staff on board so they can save money and therefore are able to offer incredibly low prices.

INITIAL STATE OF WALMART IN GERMANY

• Lower prices offer an upper hand to Walmart.

• Walmart studied the market behaviour and the future opportunities available in Germany.

 • Walmart introduced itself by taking over 21 stores in the wertkauf

hypermarket chain of Germany in 1998.

CONT..• 4,900 Wertkauf associates along with its strong reputation helped

Walmart to make a strong foothold.

• These stores were located primarily in southern Germany around Frankfurt.

• After a year Wal-Mart made a second acquisition in Germany by purchasing 74 Interspar hypermarkets.

•  The annual sales for the 74 stores were estimated to be DM 2.6 billion.

CULTURAL BARRIERS• Interpersonal relationships among employees were discouraged.

• Employees were told to inform on their colleagues, against their ethical code.

• The cashiers and salesman smiling at customers, bags being carried by the sales staff, did not go down well with the German people.

CONT..

• Plastic bags being used, against the idea of conservation of environment prevalent.

• Employees were made to exercise, before shift, chanting ‘Walmart, Walmart’, which was seen as tiresome.

• The management did not take any interest in learning the language and culture which led to post merger problems among employees.

FINANCIAL BARRIERS• Walmart’s deal with Spar for 74 hypermarkets was widely judged ill advised.

• Walmart did not stand to its promise of ‘everyday low prices’ while Aldi, its biggest competitor did.

• With the ensuing negative publicity, Walmart has already been tried and fined for breaching several important German laws.

• Walmart acquired Spar rundown stores but did not upgrade them.

POOR MANAGEMENT• Opened all stores in suburbs –customers were very reluctant to

drive that far.

• Walmart had put all premium products at eye level while discounted goods at lower levels.

• Proper marketing of goods were not done due to which customers were unaware of the latest offers.

• The management put a blind eye to the suggestions put by Wertkauf employees thereby forcing them to leave the company.

AFTER EFFECTS OF WAL-MART WITHDRAWING FROM GERMANY

• Walmart had no choice, than to retreat.

• Wal-Mart, the world’s largest retailer, announced its withdrawal from the country at a cost of about $1billion.

• Wal-Mart also had to admit that its one-size-fits-all business model failed in Germany.

CONT..• Walmart had to sell its 85 stores to Metro.

• In 2006, the retreat from Germany was Wal-Mart’s second international capitulation that year, after it sold its South Korean stores in May.

POSSIBLE SOLUTIONS• Study of customers culture and behavior.

• German way of managing the employees.

• Amendments in the companies business philosophy.

• Staff warm up sessions.

CONT..• Lowering the restrictions on employees regarding their

interpersonal relations.

• Improving the quality of stores.

• Shaking hands with German officials for better demand planning.

CONCLUSION“A nightmarish end is better than a nightmare that

never ends”• Wal-Mart has traditionally been able to set the standard in the retailing

industry, especially in the US. However, there are certain advantages that may not be fully transferable to other countries. And Wal-Mart’s venture into Germany is no exception to this fact.

• It assumed that its country-dependent advantages would be able to transfer over.

• As a result, the company’s German stores faced shrinking margins and thus low profitability.

QUESTION S ????