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U.S.

retail giant Wal-Mart failed to get a foothold on the German market - first and
foremost because management didn't take into account German consumer
habits.
German retailers could have been forgiven for panicking when Wal-Mart first
arrived in Germany. They probably felt like ants about to be trodden on by an
angry giant. But nine years on, the giant turned on its heel and disappeared.
"TextilWirtschaft," Europe's leading trade publications for textiles and clothing,
described the fiasco as "Wal-Mart's Waterloo" in a reference to Napoleon's bitter
defeat against Prussia and Britain in 1815.
But what on earth made the giant capitulate? When Wal-Mart decided to expand
in 1996, its managers saw Germany as a promising market. Europe's largest
market is home to 82 million - far more than in England, France and Italy which
each have a population of 60 million. Germany enjoys a healthy pro capita
income, so consumer spending is robust. The country has good transport
infrastructure, which is good when stocks need to be replenished. Given these
excellent conditions, Wal-Mart must have thought success was guaranteed.
It wasn't to be. Its German venture ended disastrously, with the retreat costing
the company $1 billion.
Just why did Wal-Mart Germany end so badly in Germany, just like before in
South Korea? The answer is simple but banal, and can be encapsulated by a line
once sung by David Bowie: "This is not America."
Management's mistake was to implement a successful U.S. business formula in
Germany without paying any attention to local idiosyncrasies.
"The problem was the company's business philosophy, which had always worked
so well," wrote Frankfurt's Brsenzeitung in what pretty much amounted to an
obituary. "It's people-centered - but that doesn't actually work when the people
aren't American."
The problems added up. The company gave the job of masterminding Wal-Mart
Germany to an American who didn't speak a word of German. This should surely
have been indispensable to finding out what the German salespersons would

need to know about local shopping habits.


The second problem was that Wal-Mart initially bought up a chain of 21 stores,
then another 74, which included sites previous owners had failed to make
profitable.
The third problem was bad press. The media reported that shoppers were turned
off by Wal-Mart staff hired to greet them at the door and bag their groceries. This
sort of thing was and still is unusual practice in Germany, so it was done away
with. The company also scrapped the staff warm-up sessions scheduled at the
start of every day, on the grounds that German employees found them ridiculous.
The authorities also kept a close eye on Wal-Mart. Anti-trust lawyers banned its
practice of luring consumers with price-dumping, while Germany's stringent laws
governing opening hours meant stores couldn't stay open too long. German labor
law prevented the easy-come, easy-go hiring and firing common in the U.S., and
the unions and the public alike were outraged by what Germans saw as an
absurd ban on flirting in the workplace. All in all, Wal-Mart operated what the
newspaper Handelsblatt described as a "bizarre company culture."
Another fatal flaw was that Germany's retail market is already saturated with
discounters such as Aldi and Lidl, meaning that any new arrival inevitably finds
itself in the midst of a cutthroat price war. Germany has the cheapest groceries in
Europe. Moreover, real incomes have barely grown in recent years, which has
dampened consumer spending. Retailers are vying for customers by cutting back
profit margins. In the foods sector, the yield returns in Germany are less than
2 percent, often even only at 1.5 percent. Against this backdrop, presenting
German consumers with unfamiliar U.S. brands was doomed to failure.
With just 95 outlets, Wal-Mart also remained too small. Originally, it had wanted
to build 50 superstores as quickly as possible, but while Germany has one-third
of the population of the U.S., it doesn't have one-third of its surface area. It is
only about as big as Oregon - and consequently, every square foot is either
developed, or about to be. German planning law therefore has a lot of obstacles
when someone wants to construct stores on the Wal-Mart scale. So instead of
increasing its number of stores, Wal-Mart actually had to close a few down some of which were taken over by Wal-Mart's rivals once its leases ran out.

But the full extent of Germany's strategic retaliation against Wal-Mart only
became clear when the local competition - primarily the Metro Group - snatched
a number of chains up for sale from under Wal-Mart's nose. The bottom line: the
American company had to abandon its expansion plans.
Paradoxically, the U.S. giant ended up terminally dwarfed in Germany. Experts
estimated that a turnover of ?8 billion ($10 billion) would have been needed to
reduce each store's logistics costs to a sensible size, but Wal-Mart barely
managed to scrape together a turnover of ?2 billion ($2.5 billion), a result
expected to get even worse. One consequence was less competitive prices than
those of their rivals.
These weren't management's only mistakes. Germany is a country that loves
stability, even on the executive floor. Chaotic leadership and frequent personnel
changes make a frivolous impression and suggest company problems.
"American management methods are often primitive," said Aldi's former CEO
Dieter Brandes in the weekly magazine Stern. "It's all about budgets, not
customers. When the figures look bad, no one looks for the roots of the problem;
they just replace the CEO."
And soon enough, Wal-Mart did indeed replace its CEO in Germany - with a Brit.
Unfortunately, cultural differences between Britain and Germany are even greater
than those between the U.S. and Germany. Based as he was in England, he too
failed to grasp what makes German consumers tick, and after a few months at
the helm, he too had to go. The German who took over had plenty of experience
with kiosks and gas stations, but not with superstores.
It may be some comfort to Wal-Mart to know it's not the only foreign retail chain
that has failed in Germany. A similar fate befell Intermarch, Castorama and
Prnatal from France, Marks & Spencer from England, and Oviesse from Italy.
Even the Metro Group, which bought all of Germany's 85 Wal-Marts, is unhappy
with the Real chain which the stores will be merged with. Real also chalked up
losses in 2005.
Wal-Mart's German failure could be summed up by a German proverb -

translated, it means: "A nightmarish end is better than a nightmare that doesn't
end."