Wal-Mart's German Misadventure
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Case Details:
Case Code : BSTR082
Case Length : 13 Pages
Period : 1990 - 2003
Organization : Wal-Mart
Pub Date : 2004
Teaching Note : Available
Countries : Germany
Retail ing
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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EXCERPTS Contd...
Problems in Operating Environment
Soon after acquiring the stores, Wal-Mart hurried through with their renovation and put its brandname on them to make sure its EDLP message went across. But it was unable to cash in on its EDLP selling point, chiefly because of the strong competition from German retailers (Refer Exhibit II). Whenever Wal-Mart lowered its prices on commodities, German retailers such as Aldi, Lidl, Rewe and Edeka also lowered their prices to keep their customers, so Wal-Mart found it difficult to get a foothold...
Problems in External Environment
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Wal-Mart faced several problems on the legal front as well. It was accused of breaching various German laws. The company was accused of having violated Section (IV) (2) of 'Act Against Restraints of Competition' - (Gesetz gegen Wettbewerbsbeschrankungen or GWB) and Section 335a of the 'Commercial Act' (Handelsgesetzbuch or HGB). Section (IV) (2) of GWB forbids companies 'with superior market power in relation to small and medium-sized competitors' from lowering their prices and engaging in price wars with small companies.
Such large companies were allowed to lower prices only after providing justification for the lower prices...
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Cultural Mismatch
Apart from the operational and regulatory problems, Wal-Mart also faced cultural problems in Germany. It found it difficult to integrate the two companies (Wertkauf and Interspar), which it had acquired. The companies had completely different work cultures; while Interspar had decentralized operations with independent regional units, Wertkauf was highly centralized with the head office making all decisions. Addtionally, Wal-Mart found it difficult to integrate the two companies' cultures with its own...
Future Prospects
Even after five years of entering the German market, Wal-Mart had not made a significant impact in the German retail industry.
Wal-Mart reported losses over all the four years upto 2002 in its German operations (Refer Table V). It was reported that between 1999-2002 Wal-Mart's sales declined by 5% on average. Increasing costs also pushed up losses for the company.
Wal-Mart sources indicated that personnel costs accounted for around 17% of sales; these high costs prompted Wal-Mart to freeze new recruitment...
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Exhibits
Exhibit I: A Note on the Retailing Industry in Germany
Exhibit II: Profiles of German Retailers
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