Wal-Mart International Failure

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WIESBADEN, Germany, July 31 — Three days after Wal-Mart Stores announced that it would pull out of Germany, Roland Kögel was wandering through the aisles of a somewhat threadbare Wal-Mart in a strip mall in this western German city. Multimedia {draw:a} Related Retail Chains Scramble to Enter Indian Market (August 2, 2006) ) {draw:a} Chung Sung-Jun/Getty Images In South Korea, Wal-Mart had only 16 stores — a small presence that contributed to its decision in May to sell out to a Korean discount chain. {text:bookmark-start} {text:bookmark-end} “Why are they giving up now?” he asked. “They have good prices and a good variety of products.” Yet Mr. Kögel, 54, confessed that he never bought groceries at Wal-Mart. Food is cheaper at German discount chains. He also does not visit this store often, because it is on the edge of town and he does not own a car. His one purchase for the day was tucked under his arm: a neck pillow. Shoppers like Roland Kögel help explain why Wal-Mart raised the white flag in Germany, the site of the company’s first foray into Europe. After nearly a decade of trying, Wal-Mart never cracked the country — failing to become the all-in-one shopping destination for Germans that it is for so many millions of Americans. Wal-Mart’s problems are not limited to Germany. The retail giant has struggled in countries like South Korea and Japan as it discovered that its formula for success — low prices, zealous inventory control and a large array of merchandise — did not translate to markets with their own discount chains and shoppers with different habits. Over all, Wal-Mart is still expanding outside the United States, particularly in markets where it entered by acquiring a strong retailer. Still, given Wal-Mart’s formidable record at home, the company’s recent setbacks have exposed a rare vulnerability overseas. Some of Wal-Mart’s problems stem from hubris, a uniquely powerful American enterprise trying to impose its values around the world. At Wal-Mart’s headquarters in Bentonville, Ark., however, the message from these missteps is now registering loud and clear. In particular, Wal-Mart’s experience in Germany, where it lost hundreds of millions of dollars since 1998, has become a sort of template for how not to expand into a country. “It is a good, important lesson, a turning point,” an international spokeswoman for Wal-Mart, Beth Keck, said. “Germany was a good example of that naïvete.” She added, “We literally bought the two chains and said, ‘Hey, we are in Germany, isn’t this great?’ ” Among other things, she said, Wal-Mart now cares less whether its foreign stores carry the name derived from its founder, Sam Walton, as the German Wal-Marts do. Seventy percent of Wal-Mart’s international sales come from outlets with names like Asda in Britain, Seiyu in Japan or Bompreço in Brazil. Wal-Mart is also trying to integrate acquisitions with more sensitivity — a process that involves issues like deciding whether to consolidate multiple foreign headquarters and how aggressively to impose Wal-Mart’s corporate culture on non-American employees. In Germany, Wal-Mart stopped requiring sales clerks to smile at customers — a practice that some male shoppers interpreted as flirting — and scrapped the morning Wal-Mart chant by staff members. “People found these things strange; Germans just don’t behave that way,” said Hans-Martin Poschmann, the secretary of the Verdi union, which represents 5,000 Wal-Mart employees here. Wal-Mart’s changes came too late for Germany, but they could help it crack other markets, like China, where it already has 60 stores and 30,000 employees. Far from being chastened by its setbacks, Wal-Mart is forging ahead with an aggressive program of foreign acquisitions. In a single week last fall, Wal-Mart completed the purchase of the Sonae chain in Brazil, bought a controlling stake in Seiyu of Japan, and became a partner in the Carcho chain in Central America. The deals added 545...
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