Wal-Mart's German Misadventure

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EXCERPTS

Wal-Mart had two types of divisions - Retail divisions and Specialty divisions. Retail divisions were further classified into - Wal-Mart Stores, Sam's Clubs, Neighborhood Market, International and walmart.com (Refer Table I). The specialty division was divided into - Tire & Lube Express, Wal-Mart Optical, Wal-Mart Pharmacy, Wal-Mart Vacations and Wal-Mart's Used Fixture Auctions (Refer Table II)...

In early 1990s, Wal-Mart announced that it would go global. It wanted to look for international markets for the following reasons:


» Wal-Mart was facing stiff competition from K-mart and Target, which adopted aggressive expansion strategies and started eating into Wal-Mart's market share.

» Wal-Mart also realized that the US population represented only 4% of the world's population and confining itself to the US market would mean missing the opportunity to tap potentially vast market elsewhere...

Most American companies entering Europe started with the UK due to the similarities between the US and the UK in culture, language and legal environment. Wal-Mart, however, decided to enter Germany first. Analysts were critical of this decision as the German retailing industry was experiencing slow growth rates and retailers were indulging in price wars which eroded margins badly. Additionally, Germany had high labour costs, high real estate prices and a very inflexible business environment (Refer Exhibit I)...

Wal-Mart expanded its presence into Germany through acquisitions. It acquired the 21-hypermarket stores of Wertkauf in 1997. The Wertkauf stores offered both food and general merchandise to the customers. Wal-Mart sources said that Wertkauf stores would provide the necessary footage in the German market. However, as Wertkauf covered only southwestern Germany, it failed to provide the required market penetration to Wal-Mart in Germany. In 1998, Wal-Mart acquired Interspar's 74 hypermarket stores to raise the total number of Wal-Mart stores in Germany to 95. With the acquisition of Interspar's stores, Wal-Mart became the fourth largest hypermarket retailer in Germany.

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