FAILURE OF WALMART IN GERMANY 1

FAILURE OF WALMART IN GERMANY

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Analysis

Walmart’s Global Strategy

Walmart has always maintained the philosophy of competitive pricing, which results from the

efficiencies of distribution. Apart from the U.S, Walmart has ventured into 27 other countries,

Germany being one of them (Walmart, 2017). However, its business strategy failed to succeed in

Germany due to inadequate consideration and analysis of German markets. The company

penetrated the market through the acquisition of 74 Spar Handel chains and 21 Wertkauf

hypermarkets. By 2006, the company had lost approximately $1 billion (Hunt, Watts, and

Bryant, 2018). It was evident that Walmart’s strategic plan of globalized standardization in

subsidiaries that were wholly-owned was unsuitable, especially due to misunderstanding the

culture in German markets. As a result, the company faced unexpected challenges in

administration.

Psychic Distance

Before entering German markets, Walmart had successfully penetrated Mexico (joint venture

and localized strategy) and Canada (acquisition and global standardization strategy) (Mun and

Yazdanifard, 2012). However, the company had not conducted research on German culture,

which would not favor the famous philosophy of ‘Everyday Low Price’ (EDLP). Germans

correlate quality with pricing; therefore, Walmart's products seemed to be of low quality. As a

result, Walmart could not differentiate itself from other retailers. In addition, the company had

implemented American styles of management and failed to recognize the differences in social

norms between the two countries. For example, Germans are used to paying in cash; therefore,

credit card payment would not succeed for Walmart. Most Germans also shop with their own

bags, and Walmart's efforts of offering free bags were not highly welcomed (Shurrab, 2014, p.
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6). Walmart also faced a lawsuit for failure to release financial statements that would allow union

workers to negotiate better prices. Therefore, Walmart had another challenge in establishing

good relationships with employees and customers.

Germany’s FDI Policies

The government of Germany imposes strict policies to protect local businesses. In addition to the

unappealing prices offered by Walmart, some retailers could still match their prices (Saini,

2019). The socialistic views in Germany also meant that the government could intervene through

price flooring regulations. This was vital information that Walmart needed to consider before

entering Germany. Another strict regulation that increased Walmart's challenges in Germany was

restrictive working hours. Businesses are required to close by 6:30 pm on weekdays and 8 pm on

Saturdays. They are not allowed to open on Sundays unless they offered certain necessities, like

pharmaceuticals (Jackson, 2017).

Acquisitions

By the time Walmart entered German markets, the food and retail market had already matured,

and customers had developed preferences in local stores. Germans have a preference for gourmet

grocers as opposed to hypermarkets (Jackson, 2017). This created difficulties in attracting new

customers, especially given that the company's philosophy and pricing strategy did not appeal to

Germans. Metro Group and Rewe Group were the most successful food retailers and were

among the leading ten food retailers that controlled about 30% of the food market. This made the

market highly competitive for Walmart, a challenge that would result in its failure (Govindarajan

and Gupta, 1999). The acquired stores (Interspar and Wertkauf) were also dispersed

geographically and operated in poor areas. As a result, Walmart could not achieve the desired
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customer base and market share. The two stores owned about 3% of the total market share,

which led to massive losses for the company (Jui, 2011).

Scale of Entry

Walmart chose the wrong strategy when entering Germany. The company relied on its low

pricing strategy and its earlier success in Canada to develop the entry strategy in Germany

without considering the significant differences between the two markets. Canada was more

similar to the U.S, while Germany was very different because low pricing did not appeal to

consumers (Christopherson, 2007, pp.451-469). The company needed to develop a better

understanding of the market and choose the most appropriate strategy and entry mode to suit

German consumers. Poor entry and strategic implementation led to Walmart's failure, and

eventually, the company left Germany in 2006 and sold its 85 stores to a local competitor, Metro

AG (Jackson, 2017).

Recommendations

A localized strategy would work for Walmart in Germany by selling German-tailored goods that

would appeal to consumers. This strategy would work effectively through a joint venture because

the company would have time and the guidance of local partnerships required to understand

German markets fully. A joint venture would also promote access to new markets, and the risks

and costs would be shared as well. This way, the company would spend less while taking

advantage of the already established distribution networks. It would also help the company

develop a better organizational culture by accessing specialized staff who understood consumers

and the culture of German unions. Understanding German culture would be the most key aspect

of gaining a strong customer base (Pearson, 2018). German consumers were not enthusiastic
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about Walmart's high-service model that involved greeting customers at the door and offering to

help while inside the store. Most shoppers found this annoying (Fessmann and Fessmann, 2019).

Walmart could have developed better relationships with its employees, as well. Low pay and

unconventional activities reduced employees’ morale and overall productivity. A better

organizational culture would also improve Walmart’s relations with German unions and avoid

legal issues that resulted.

Conclusion

This paper demonstrates the expansion and eventual failure of Walmart in Germany. It was

largely due to inappropriate entry mode and strategic plan. The company adopted poor

positioning and organizational culture without considering an alternative entry strategy. The goal

was to use low pricing, but the company did not understand the German market and went on to

implement American management styles that were not welcomed by German consumers. The

organizational culture led to problems with consumers, employees, and German unions, leading

to a perceived bad image and lawsuits. The company was unable to acquire a substantial market

share, resulting in losses, eventually leading to its exit in 2006.

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Reference List

Christopherson, S., 2007. Barriers to ‘US style’lean retailing: the case of Wal-Mart's failure in

Germany. Journal of Economic Geography, 7(4), pp.451-469.

Fessmann, J. and Fessmann, A., 2019. Don't force Germans to smile: Crisis communications

lessons from Walmart's failed expansion into Europe.

Govindarajan, V. and Gupta, A., 1999. Taking Wal-Mart Global: Lessons From Retailing's

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Hunt, I., Watts, A. and Bryant, S.K., 2018. Walmart’s international expansion: Successes and

miscalculations. Journal of Business Strategy.

Jackson, B., 2017. Global Market Expansion: Why Walmart Succeeded In The America's And

Failed In Germany. [online] Brittaniaten.wixsite.com. Available at:

<https://brittaniaten.wixsite.com/brittanyjackson/single-post/2017/12/19/Wal-marts-Expansion-

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Jui, P., 2011. Walmart’s Downfall in Germany: A Case Study. J. Int. Manag (posted by 16 May,

2011).

Mun, L.Y. and Yazdanifard, R., 2012. Walmart success in Mexico, Canada and China: global

expansion, strategies, entry modes, threats and opportunities.

Pearson, B., 2018. German Lessons: What Walmart Could Have Learned From Lidl, And Vice

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<https://www.forbes.com/sites/bryanpearson/2018/02/05/german-lessons-what-walmart- could-

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Saini, L., 2019. Why Walmart Failed In Germany. [online] Medium. Available at:

<https://medium.com/better-marketing/why-walmart-failed-in-germany-

3fdcc6469b89#:~:text=First%20of%20all%2C%20Walmart%20tried,competitors%20present

%20in%20the%20market.> [Accessed 4 December 2020].

Shurrab, H., 2014. Wal-Mart’s German Misadventure. Mä lalarden University Sweden, p.6.

Walmart 2017, Our History, Wal-Mart Stores, Incorporated, viewed 14 October 2017, accessed

via https://corporate.walmart.com/our-story/our-history