A Critical Analysis on Wal-Mart's Failure in Germany.

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  • Topic: Wal-Mart, Retailing, Discount store
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  • Published : September 19, 2010
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A Report of

A STUDY ON

A CRITICAL ANALYSIS ON WAL-MART’S FAILURE IN GERMANY.

Submitted to the
Teesside University

For fulfillment of the Assignment on
Cross-Culture Management

By
MIDHUN JOSE
Student Number: J9185582

Abstract

Wal-Mart, the biggest retailer in the world, started its globalization with nine countries in Asia, Europe and South America. With its attempt to penetrate hypermarket culture in every country which it enters, many severe problems come into picture. In 1997 Wal-Mart continued its strategy of globalization, and acquired two German retail chains for $1.6 billion. After eight unprofitable years, Wal-Mart backed out of Germany in July 2006 and sold the entire retails outlets to Metro AG.After dominating the US market for quite a long time, Wal-Mart expanded its market to Germany in 1997. In 1997 Wal-Mart continued its strategy of globalization, and acquired two German retail chains for $1.6 billion. After eight unprofitable years, Wal-Mart backed out of Germany in July 2006 and sold the entire retails outlets to Metro AG.The Essay examines why Wall-mart was a big failure in its international operations in Germany on a Cross-culture perspective. Inadaptability and ignorance of local culture can become a big problem in global business, even for a Corporate giant like Wal-Mart with proven success formulas. Being number one in the United States does not always guarantee for being number one elsewhere in the world. It is very important to understand the pulse of the local market and culture of the clients exactly and should make strategies accordingly and exactly that is where Wal-Mart went wrong in Germany.

COMPANY PROFILE

Wal-Mart Stores, Inc. is the largest retailer in the world, the world’s second-largest company and the nation’s largest nongovernmental employer. Wal-Mart Stores, Inc. operates retail stores in various retailing formats in all 50 states in the United States. The Company's mass merchandising operations serve its customers primarily through the operation of three segments. The Wal-Mart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States. The Company's subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers. Wal-Mart serves customers and members more than 200 million times per week at more than 8,416 retail units under 53 different banners in 15 countries. With fiscal year 2010 sales of $405 billion, Wal-Mart employs more than 2.1 million associates worldwide. Nearly 75% of its stores are in the United States (“Wal-Mart International Operations”, 2004), but Wal-Mart is expanding internationally. The Group is engaged in the operations of retail stores located in all 50 states of the United States, Argentina, Brazil, Canada, Japan, Puerto Rico and the United Kingdom, Central America, Chile, Mexico,India and China Wal-Mart’s entry and operation in Germany

Wal-Mart’s initial entry into German market was through the acquisitions of renowned 21 store Wertkauf chain for an estimated $1.04 billion in December 1997.It was followed one year later by the acquisition of In-terspar’s 74 hypermarkets from Spar Handels AG, the German unit of the French Intermarché Group , for €560 million. Thus Wal-Mart immediately became the country’s fourth biggest operator of hypermarkets. However, with a turnover of around €2.9 billion, and a stagnating market share of just 1.1 per cent, the US giant still was a negligible one in the German retail market. Even worse, with estimated accumulated losses of more than € 1 billion, it is literally drowning in red ink although, according to Wal-Mart Germany’s CEO, Kay Hafner, its non food assortment, which accounts for around 50 per cent of its revenues, is profitable.. Instead of expanding its network of stores by 50 units by...
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