Why Walmart Failed Miserably in Germany
This video will examine why Walmart was a huge failure in Germany.
Walmart entered the German market in 1997 with an aggressive series of investments and big hopes of expanding its global presence. The company bought two existing German retail chains to gain an overnight presence in the country. But after struggling for nearly a decade, Walmart announced its exit from the German market in 2006 and sold its 85 stores at a $1 billion dollar loss. So, what went wrong for the massive retailer in Germany?
There are a lot of reasons for why Walmart ended up failing in Germany, but the number one factor in all of them is that Walmart failed to adapt its business strategy to the unique aspects of the German market and culture. Walmart thought that it could take the same approach in Germany as it did in the US and the results were disastrous.
As an example of this failure to adapt, when Walmart entered the German market it began attempting to use its tried and true business tactic of offering the lowest prices in order to undercut the competition and gain market share. But Walmart had severely underestimated its competition when it began to take this approach. The discount retail market is full of stiff competition in Germany because there were many strong, established brands like Aldi and Lidl that Germans were already familiar with. These businesses had already built customer loyalty and entrenched themselves in the German market which made it incredibly difficult for Wal-Mart to come in as an outsider and take market share from these successful businesses. And when Walmart tried to undercut these businesses on prices, they fought back and lowered prices themselves.
This ended up creating a pricing war which the German government was not happy about. Germany's government accused Walmart of inciting a price war in which it illegally sold products below their wholesale costs. This led the German government to intervene in order to prevent Walmart and other big chains from using tactics like these that would drive smaller stores out of business. And the german government would force Walmart to raise many of its prices. This effectively ruined Walmart’s strategy of pricing their competition out and forced them to compete for market share using other factors.
Another major reason Walmart failed in Germany is that it insisted on imposing its corporate culture and practices in Germany and these practices did not translate well to Germany. A large part of this mistake came from the fact that Walmart initially hired American executives to manage its German business instead of hiring German executives who would have had a better understanding of the market and what German customers wanted.
Walmart’s employee policies surrounding customer service also were weird and off-putting to German customers. For example, the so-called “10-foot Rule” is one of Walmart’s approaches to customer service.
But the problem is this is not what Germans wanted Walmart employees to do to at all. In fact, they thought this behavior was extremely strange and off-putting. So when Walmart was requiring its German Sales clerks to smile at customers, this was actually making many customers very uncomfortable because it’s not normal in German culture to smile at strangers.
Walmart also has a tradition where it has its employees start the workday with a Walmart cheer. Having employees cheer like this could easily be considered weird by many people in the United States, but this type of company practice was even weirder in German culture which is more formal. Walmart eventually stopped doing this in Germany because it did not translate well, but the damage to their reputation had already been done.
So after nearly a decade of Walmart making missteps like this and failing to gain market share in Germany, Walmart finally surrendered in 2006 and sold its 85 stores at a loss to one of its German retail competitor’s named Metro. Walmart said in its statement announcing the sale that “As we focus our efforts on where we can have the greatest impact on our growth and return on investment strategies, it has become increasingly clear that in Germany’s business environment it would be difficult for us to obtain the scale and results we desire,” said Duke. “This sale positions us to increase our focus on the markets where we can achieve our objectives.”
Walmart’s failure in Germany is a textbook example about the importance of adapting to different business environments. Just because a business strategy is incredibly successful in one market does not mean that it will work in the next. In fact, that same strategy could turn into a financial disaster with huge losses when applied in a new market which is a lesson that Walmart learned the hard way in Germany.
If you enjoyed this video, make sure to watch my video on why Aldi is dominating the United States grocery market: • ALDI: The German Grocery Store Taking...
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