One of the biggest retail chain businesses accepted its failure in Germany, so do you wonder why Walmart failed in Germany? Read the article to learn about the reasons due to which the retail corporation could not function properly.
According to Statista, there are currently 10,623 retail stores worldwide as of 31 January 2023. There are 380 distribution facilities in the world through which the company operates. Yet, with all the resources and accessibility, it failed in Germany.
The brand has admitted failing in Germany, losing approximately $680 million once they tried to integrate American-style trading in Germany.
Here Is Why Walmart Failed In Germany!
A 9 years journey to failure shows that Walmart is less invincible than people and the corporation thought! The scale and the results that Walmart wanted to see in Germany were non-achievable. Hence, the company pulled out of the German market.
Being a successful American multinational retail corporation, Walmart has a chain of hypermarkets, grocery stores, and department stores in the USA. Yet, it offloaded the German outlets of Walmart, 85 in total, to a local rival company called Metro.
It is quite surprising that a successful business such as Walmart needed help to grapple with the business environment of Germany. I would discuss and evaluate the reasons to which the company failed.
I would also discuss what the company could have done to become successful in Germany and Europe as a whole identity.
Walmart – The Discount Giant
James “Bud” and Sam Walton are brothers who founded Walmart in 1962, and the headquarters are established in Bentonville, Arkansas, in the USA. The brand currently works across 24 countries in the world.
Walmart is the world’s largest retailer and operates around the globe through various retail formats. The company aims to integrate discounts in products and services, thus grabbing eyeballs with its mass merchandising operations.
A multinational American company, Walmart runs supermarkets, warehouses, and discount department stores. Just in the USA, the company functions in 50 states serving members and customers. The company has expanded internationally in the following countries:
- United Kingdom
- Central America
- Puerto Rico
The brand functions worldwide with a chain of supermarkets, groceries, and department stores. They provide a wide selection of products at a low price and offer discounts.
Reasons For Failure In Germany
There are various reasons why Walmart failed in Germany, and I will be highlighting them concerning the impact on the company. But before that, let’s discuss Walmart’s entry points and operations in Germany. It will help us get a better perception of the business.
Entry Point And Operations In Germany
It was in December 1997 that Walmart entered the German market by acquiring 21 stores from the Wertkauf chain with an estimated $1.04 billion. In another year, the company earned 74 hypermarkets from another brand Spar Handels AG belonging to the French Intermarche Group.
After all the acquisitions, Walmart became the fourth biggest operator of hypermarkets in the country. Yet, they did not see any major surge in success and growth because of a stagnant German retail market. The brand became negligible!
There was hardly any profit except in non-food assortment, and the brand was forced to close two outlets due to increasing losses. The flagship super center format of Walmart could only be incorporated in 3 stores completely, yet, there were problems.
The company then had to lay 1000 staff in a few years. Later, in 2006, the company announced that they were pulling out of Germany due to its pre-tax losses of approximately $1 billion.
Reasons Of Failure
The German consumers were expecting lower prices and friendly staff. However, the German Walmart needed to implement effective strategies to create a loyal customer base in Germany.
Instead, they were trying to undermine the local businesses. It also proves why there is no Walmart in Europe! Walmart was more focused on its ways of considering others’ perceptions!
1. Cultural Insensitivity Towards German Culture
Cultural inefficiency is one of the biggest reasons why Walmart failed in Germany. The brand tried to impose American supervision on operations such as local culture, local employee unions, and buying habits of customers.
In Germany, the shopping time is shorter as the shops close by 5 pm on weekdays, while on weekends there is no shopping practice. Walmart, based on the cultural practices in America, has been designed for long periods of shopping.
The Germans did not have the habit of roaming around the stores; instead, they just took what they wanted and left. The German population also did not like being assisted, yet the friendly Walmart staff tried to help, creating further irritation.
Instead of incorporating the cultural practices and preferences of the German population, Walmart tried to impose American cultural traditions and choices regarding shopping.
2. Violations of Law And Unfair Trade Practices
The American brand practiced “unfair trade” through penetration pricing, selling some products below the cost price to gain the upper hand on local distributors and businesses.
Selling products below cost is prohibited in Germany, yet Walmart violated this law. The German government had to step in!
The brand also should have disclosed its financial statements yearly, which is compulsory according to German law. The company also did not follow the Obligatory Deposit Regulations law, where they were supposed to provide a deposit refund system on cans, metal beverages, and others.
3. Unconventional Activities For Employees
Shouting “Walmart! Walmart! Walmart!” and light jumping and exercise was something that German employees found embarrassing. The brand might consider it exciting as a shift; however, it was a huge transformation for the Germans.
There were significantly weird rules, such as employees not becoming romantically involved, which could be difficult, especially when working 40 hours a week.
Another rule was that employees would be fired if they did not report other employees doing something against the policies. All these policies and activities made it difficult for the employees to become loyal to Walmart.
4. Walmart Did Not Get Along With German Unions
Micromanaging employees was not taken positively by the German unions! Walmart did not accept the relationship between businesses in Germany and employee unions.
Instead, they appeared as heartless employers trying to control employees and consumers. There was no consideration towards overall satisfaction and happiness for the staff members.
What They Could Have Done Right?
The significant strategy that Walmart could have implemented is to evaluate Germany’s culture, economy, social and political aspects. Even though the brand still needs to consider the economic attractiveness and central European location, it must consider the national values, deep-rooted retail practices, and operations across Western Europe.
Walmart should have implemented Hofstede’s Culture dimensions which could have helped the brand to understand the native employees and their participation in the growth and engagement with Walmart.
Being a global business, you might wonder why Walmart failed in Germany. Walmart should have understood its cultural significance and role in developing a business in a different country.
As a global business, they should have remembered the local market and how it should be treated concerning domestic strategies and local consuming culture and behavior.
Comment down below about what you think happened with American retail business giants and how as Americans, they forgot to become considerate of the work culture and significance of others!