Why Walmart Failed In Germany

May 22, 2019

Walmart is a huge business and is key part of many Americans' lives. But when it tried to go global it didn't have the same success. Cheddar examines the failure of Walmart in Germany.

FULL TRANSCRIPT

FEMALE_1: In 1997, Walmart opened its first store in Germany.

FEMALE_1: They had officially entered

FEMALE_1: the largest retail market in Europe.

FEMALE_2: But nine years later,

FEMALE_2: they sold their stores,

FEMALE_2: packed their bags, and left the country.

FEMALE_2: They had lost one billion dollars.

FEMALE_2: So how did the largest private employer in

FEMALE_2: the world fail so badly?

FEMALE_2: [MUSIC]

FEMALE_1: By 1988, Walmart had become

FEMALE_1: the most profitable retailer in the US.

FEMALE_1: Their success spurred the company to start

FEMALE_1: looking abroad at the international market,

FEMALE_1: and the expansion has been largely successful.

FEMALE_1: Walmart now has almost 12,000 stores in 27 countries.

FEMALE_2: In Britain, they now own

FEMALE_2: the second largest supermarket chain in the country Asda.

FEMALE_2: They're the largest private employer in Mexico,

FEMALE_2: and the third largest in Canada.

FEMALE_2: But that success is not universal.

FEMALE_1: In 1997, Walmart purchased

FEMALE_1: two German retail chains Wertkauf and

FEMALE_1: Interspar totaling 95 stores.

FEMALE_2: It was a huge risk.

FEMALE_2: Germany in the late 90's was a hostile market.

FEMALE_1: Restrictive shopping hours, regulated zoning,

FEMALE_1: and high unemployment kept other companies away,

FEMALE_1: according to analysts at Kurt Salmon Associates Europe.

FEMALE_1: Retail market growth rates averaged

FEMALE_1: just 0.3 percent per year in the 90's.

FEMALE_2: It was also entering a market full of

FEMALE_2: successful native discount retailers,

FEMALE_2: like Aldi and Lidl,

FEMALE_2: which were a stiff competition.

FEMALE_2: By German law, these smaller stores could offer

FEMALE_2: lower prices than big box stores like Walmart.

FEMALE_1: Soon after arriving in Germany,

FEMALE_1: Walmart faced accusations that it was using

FEMALE_1: short term predatory pricing

FEMALE_1: to try and put local shopkeepers out of business.

FEMALE_1: Regulators had to order Walmart to raise

FEMALE_1: the price of basics like milk, flour, and butter.

FEMALE_2: After that their prices were too

FEMALE_2: high in comparison to the competition,

FEMALE_2: like Aldi, which ran small BareBones stores.

FEMALE_1: The discount retail sector was a lot

FEMALE_1: larger in Germany than in other countries.

FEMALE_1: It was about 40 percent of the supermarket business,

FEMALE_1: which meant that groceries and daily goods tended to

FEMALE_1: cost around 15 percent less than the European average.

FEMALE_2: On top of these financial obstacles,

FEMALE_2: Walmart faced a different kind of

FEMALE_2: problem, a cultural problem.

FEMALE_2: The friendly Walmart practices

FEMALE_2: based on Southern hospitality,

FEMALE_2: were perceived by many to be

FEMALE_2: fake and at odds with German culture.

FEMALE_1: German media reported that Walmart required it's

FEMALE_1: employees to start their shifts

FEMALE_1: by engaging in synchronized calisthenics,

FEMALE_1: and group chants of Walmart, Walmart, Walmart.

FEMALE_1: This was intended to build loyalty and morale.

FEMALE_1: Walmart also required its cashiers

FEMALE_1: to flash smiles at patrons,

FEMALE_1: which a lot of customers thought was flirty and creepy.

FEMALE_2: That's also how they felt about

FEMALE_2: Walmart graders, pretty creepy.

FEMALE_1: People found these things strange.

FEMALE_1: Germans just don't behave that way [MUSIC].

Speaker 1: [MUSIC] Hans-Martin Poschmann, The

Speaker 1: Secretary of The Ver.de Union,

Speaker 1: which represented 5000 Walmart employees,

Speaker 1: told the New York Times.

Speaker 2: Walmart also imposed

Speaker 2: restrictive measures on their employees,

Speaker 2: which they called an ethics code.

Speaker 1: Walmart required its employees to

Speaker 1: report if co-workers broke any rules.

Speaker 1: And if they didn't comply,

Speaker 1: they could be fired.

Speaker 1: Walmart also prohibited sexual intimacy

Speaker 1: and flirting between co-workers,

Speaker 1: according to The Financial Times Deutschland.

Speaker 2: A German court eventually struck

Speaker 2: down this ethics code in 2005.

Speaker 2: By German standards, Walmart is also anti-union.

Speaker 1: They didn't understand that in Germany,

Speaker 1: companies and unions are closely connected.

Speaker 1: They thought we were communists.

Speaker 1: Poschmann told The Times.

Speaker 3: It sounds like employees associates they listen to.

Speaker 4: And without going through union politicians.

Speaker 5: Of course not.

Speaker 4: All unions will get is dick and a cut out of my pay.

Speaker 1: Unions strongly oppose the working culture in Walmart.

Speaker 2: Walmart and German unions

Speaker 2: never established comfortable relations.

Speaker 2: All of these obstacles combined led to declining sales.

Speaker 1: Walmart's German stores had

Speaker 1: a profit margin of one percent,

Speaker 1: compared to their British stores which had

Speaker 1: a margin of six to eight percent.

Speaker 1: Germany's top 10 chains made up 30 percent of the market,

Speaker 1: but Walmart made up just three percent of the market.

Speaker 1: Full time staff in Germany demanded

Speaker 1: a 19 percent premium compared to UK workers on average,

Speaker 1: which drove up Walmart's operational costs,

Speaker 1: as their sales declined.

Speaker 2: So Walmart withdrew from the country in 2006,

Speaker 2: offloading 85 of its stores to its local rival Metro.

Speaker 1: They had employed 11,000 people,

Speaker 1: and generated two billion dollars in 2005.

Speaker 1: But that represented just four percent

Speaker 1: of Walmart's international operations.

Speaker 1: It has become increasingly

Speaker 1: clear that in Germany's business environment

Speaker 1: it would be difficult for us to

Speaker 1: obtain the scale and results we desire.

Speaker 1: Michael Duke, Vice Chairman of

Speaker 1: Walmart Stores, told The Times.

Speaker 2: Walmart's dedication to their company culture

Speaker 2: ended up dooming them in Germany.

Speaker 2: The lesson, the locals are always right.

Speaker 2: [MUSIC]