Research Report Wal Mart In Germany
Wal-mart is one of the largest retailers with ambitions plans to increase their international sales. Europe, which is a significant part of the international market, was the key element to affect the international sales of Wal-mart. As the leader and barometer of EU, Germany market plays an important role to decide the whole EU market performance. This report will use qualitative research to collect data, assesses the management issue and explains why Wal-mart failed in Germany market.
Wal-mart is not only the largest retailers in the world; it is also one of the biggest global cooperation. According to the Wal-mart annual report in 2007, the net sales is 344.992 million dollar and total assets is 151,193 dollar (figure 1). In the Morgan Stanley’s retailing industry report, they forecast that Wal-mart revenue in 2010 would approach $ 700 billion (actually, they did not get this amount, the 2010 net sales of Wal-mart is 406,405 million dollar). To meet this forecasted growth, international market must be developed. In 1997, Wal-mart takeover 21 Wertkauf hypermarkets and entered into Germany, in 1998, It acquisitioned 74 hypermarkets, thus. Wal-mart became one of the most significant retailers in Germany. However, on 28th July, 2006, the leadership of Wal-mart declared that Wal-mart would sell all 85 department stores to Metro AG and withdraw from Germany. It means that the Wal-mart met some management issues in German market and these problems destroyed its ambitions plan. The subject of the report is to review and evaluate what Wal-mart done in Germany, and summarizes the failed experiences.
This report adopted qualitative research to collect data, which include secondary data, personal interview, and expert opinions.
According to the research, Wal-mart Germany seemed made three key mistakes.
I to appoint a boss for Wal-mart Germany who cannot spoke German (culture gap in management)
II The leadership use American experience operate their company in Germany (did not understand their customer)
III Too confident to overlooked the advantages of local retailer (Aldi and Kaufland)
For instance, According to KPMG statistics, Aldi items were lower than the average supermarket price by 20% to 30%. Three frozen pizza cost $ 2.24, at Wal-Mart at least cost $ 3; a bottle of good Carbon Chennai wine cost $ 2.36, in the Wal-Mart need $ 3; a brand of windbreaker sold in $ 10 , the same brand sold in Wal-Mart is $ 15.99. Moreover, Jürgen Elfers, who was an analyst at Commerzbank Securities, thought the biggest mistake of Wal-mart is ignore [email protected], Wal-Mart want to purchase its existing stores to replace build their own supermarkets, it means Wal-mart required opening or buying another 400 hypermarkets. Also the structure of Wal-mart Germany is elephantine, it include two headquarters and three logistics centres, consequently all these things piled up costs without achieving economies of scale, perhaps it is another reason to explain why the price of Aldi is cheaper than Wal-marts’
SWOT and PEST Analysis
About the internal environment, Wal-Mart possesses the leader position; advanced logistic system; batch of purchase model and strong power of excellent human resources to bear down the competitors. However, in the German market, the painful lesson tells Wal-Mart that it should learns propriety in the terms of expanding quickly and the classes of sale. As for the external environment, Wal-Mart can use new strategy and new market model to acquire many new markets (like eastern European and Chinese markets), while, the threats of Wal-Mart are also from many competitors and unfamiliar local culture problem. Therefore, Wal-Mart has to learn how to conclude the failure, how to connect the strengths and opportunities together to resist the weaknesses and threats. According PEST to analysis macro-environment, although political situation is stable and many technologies are used into business to increase working efficiency, the economic factor is not positive due to effect of global economic crisis. At the same time, as for the Five Forces analysis, the report refers to the power of German consumers and the power of German competitors as follow. The German customers have strong power for purchasing because they own many shopping environment option such as Aldi and Plus. On the other hand, about the power of competitors, one of the Wal-Mart’s competitors Aldi does very well lies on opening the stores near the consumer group and ensuring the high quality and low price (http://www.aldi.co.uk/uk/html/company/all_about_aldi.htm).Wal-Mart used so many strategies to achieve and maintain cost-leadership position, which includes new warehouse system, low price everyday and effective use of store. It cut their cost to keep low price in order to satisfy the German customers.
According the situation analysis, it shows that Wal-mart has their own advantages in Germany market, but the fact is they did not play up strengths and avoid weaknesses; instead, they fall in the intense price competition with local retailer, in the past, Wal-mart was conditioned to use “heavy dumping”strategy to beat their opponent but in Germany, it is exactly as one wishes or hopes for Aldi and Kaufland. On the one hand, Wal-mart Germany must spend millions dollar a day to maintain their existing stores, they also need purchase amount of cash to keep their developing plan. On the other hand, competitor of Wal-mart like Aldi is tried their best to reduce the cost, for example, compare with Wal-mart “supper shopping centre”, which owns almost 150,000 products, one classical Aldi store just own about 700 products, but all these 700 products are unique, it only can be found in Aldi stores. The huge gap decide Aldi can save a huge amount of logistic costs and give them more bargaining advantages when they face their suppliers. Besides, Aldi also own the advantage in venue costs and labour cost. KPMG said that Aldi” labour costs is only account for 6% of operating income, ordinary supermarket staff costs generally account for 12% to 16% of total revenue. Consequently, All these things demonstrated that Wal-mart’s “heavy dumping” strategy is failed in Germany.
More importantly, Wal-mart did not understand their customers; they just moved their American experiences to Germany. German like shopping near their home, they usually prefer small stores because they think small means cheap and easy to find the product which they wish buy. But Wal-mart built many supper shopping centres, it usually in the suburb; it is not suite German’s consume behaviour, also due to the long distance to go to the Wal-mart supermarket, people must drive the car, but German is a nation that has strong awareness to protect the environment, so many people choose shopping in their community. German shoppers like to hunt for bargains on their own, without smiling Shopping Guide at their back. Other shock for Wal-Mart were Germany’s short shopping hours, include almost Sunday, people would not go shopping,
Besides these, Wal-mart met the culture gap in managing their staff. Wal-mart required their staff must full of energy and smile to their client first, but their German employee thought that is quite strange; Wal-mart asked their articled clerk must attend the morning group exercises, but the staff thought it was stupid; Wal-mart encourage their employee to inform on others who violated the rules of Wal-mart; actually, it is fit the American law, but in Germany, it is totally illegal, people even would relating to Nazi era. As consequence, when the local media report this scandal, almost every German angered, some people even threaten to sue Wal-mart. Although it was ended by a formal apology, it also seriously harmed to the Germans psychological. Wal-mart was slide to the abyss of failure once again.