Wal-Mart

in Europe
Wal-Mart: Background

• Founded by Sam Walton in 1962 in Bentonville,

USA
• 1970s marked the beginning of significant growth-
opening of the first Wal-Mart distribution centre
• 1980s- transformed from regional to national
discount retailer-aggressive diversification
• Late 1990s Wal-Mart became the largest private
employer in the world
• Entered German market in 1997,followed by UK
-acquiring ASDA in 1999
• Present:8,986 retail units under 55 different
banners in 15 countries
 Culture
• Followed 3 key principles:
 respect the individual
 provide superior customer service
 strive for excellence
• Sundown rule
 In Sam Walton’s words - “never put off till tomorrow
what you can do today”
 company’s dedication to customer service
 products should be available to the customer whenever
they want
• Ten Foot rule
 Sam Walton encouraged associates to take this pledge
with him "I promise that whenever I come within 10 feet
of a customer, I will look him in the eye, greet him, and
ask if I can help him.“
 Staffs offered assistance to customers within the radius
Strategies adopted

• Everyday Low Price Guarantee, inventory

control, efficient distribution strategy
• Aggressive bargaining with suppliers
• Unique culture
• Stores located within a day’s drive from
distribution centre
• Adopted Radio Frequency Identification
Technology (RFIT) - able to track inventory as
it moved through distribution centers to store
• Efficient supply chain management
• Overall cost leadership
Consequences
• US economy experienced boost in
productivity (late 1990’s)
• Increased employment
• Growth in labor productivity
• Technological innovations
• Raised the standard of living of average
Americans
Criticisms faced by Wal-Mart
• Low salaries to its employees
• Legal suits regarding hiring practices
 failing to pay overtime
 underpaying hourly workers
 sexual discrimination
 non-compliance with the Americans with
Disabilities Act
 Underpaying immigrant workers
 ‘locking in’ overnight workers
• Strike by the unions for better health benefits
(2003)
Globalization of Retail
• Early 1990s - rapid global expansion in retail sector
• Expansion became crucial for Wal-Mart
• Players in international retailing in Europe:
 Woolworths, USA ( Canada+ UK+ Germany)
 Sears Roebuck, USA (Cuba+ Mexico)
 Metro group, Germany
 Royal Ahold, Dutch
 K-mart, USA (Czech Republic+ Slovakia)
 Costco, USA (UK+ Mexico+ Korea +Japan)

Refer Exhibit 10
Wal- Mart into Europe

Britain:
• Entered in 1999 by acquiring U.K ASDA retail
chain
• 8.4% market share at the time of acquisition
• 3 supercentres and 247 stores
• Introduced Wal-Mart IT systems, investment
resources, buying power, low prices
• Price margin increased 13% over competitors
• Introduced low-cost George apparel line
Wal-Mart in Germany
• Entered by acquiring Wertkauf chain (24
stores) + Interspar chain (74 stores) in 1998
• Established players: Metro Group, Rewe
Group
• Strategy:
 Price leadership (by low cost)
 Centralized distribution
 High quality customer service
 Inventory control system
• Consequences: Price war
1) Wal-Mart not successful in Germany

• Stringent regulatory Environmental law

• Zoning Regulations
 Prohibited the construction of stores with more
than 800 sq.mt sales area
 Large-store development was hampered
 Objective: to protect traditional retailers
• Pricing policy
• Strict labor laws
• Store hours
• Customer service culture
• Suppliers
• Competitors
Porter’s 5 forces analysis
Bargaining Power of Supplier

• Very high
• Poor suppliers network
• German suppliers were slow to adjust to Wal-
Mart system- centralized distribution centre
• Strong connection with already established
players
• Low switching cost since abundance of retail
companies
Bargaining power of Customers

• Very high
• German customers not accustomed to
friendly atmosphere
• American culture imposed on them
• Presence of strong German competitors
• Switching cost low
Competitive Rivalry
• Huge competition from Metro, Aldi, Lidl,
Rewe
• Established in European market in many years
• Loyal customer base
• Strong suppliers and distribution network
• Hard-discounters
• Same strategies as Wal-Mart “low cost”
• Low threat of new entrants
  New firms would face task of beating the
prices of wholesale giants
 Cost of entry is high
 resources, competencies and competitive
capabilities are needed to enter the market
• High threat of potential substitutes
2) Benefits for Germany:
• Employment opportunities
• Technological innovations

• Efforts to motivate employees

• Hire temporary workers or shifts
• 3) Mistakes:
• German market had head-on competition
• Imposing American business approach
• Overlooked the local needs

• Wal-Mart can use Germany as base for

expansion in Europe
• Can use trade harmonization to develop
suppliers relationship in European market
• Need to create goodwill
• Adapt to European standards of business
THANK YOU