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Why Did Walmart Fail in Germany?

Why Did Walmart Fail in Germany?

When we need to buy food, household items, and other necessities we normally go to supermarkets to shop and most of us know that Walmart is one of the most popular retail supermarkets in the U.S. But is there a Walmart in Germany? Why did Walmart Fail in Germany?

What is Walmart?

Walmart is a multinational American company that runs chains of large discount department stores, supermarkets, and warehouse stores.

The company is the world’s largest public corporation by revenue, according to the 2008 Fortune Global 500. They are well known throughout America for their “Every Day Low Prices” slogan and deep discounting prices on a wide range of goods.

The Front of a Walmart Store

As one of the most successful retailers in the United States, with stores in every state, it might come as a surprise that Walmart has not been successful when expanding internationally.

The company’s first international foray was into Mexico in 1991, and since then Walmart has continued its global expansion by entering new markets including Argentina, Brazil, Canada, China, Chile, Costa Rica, El Salvador, Guatemala, India, Japan, and South Korea.

What kind of products does Walmart sell?

Walmart sells a variety of products, but they are most well-known for their low prices on groceries and household items.

How Walmart failed in Germany

In 1997, the first German Walmart opened its doors to great anticipation by buying a German retail chain Wertkauf.

Unfortunately, instead of embracing the new store locals found themselves thrown into a price war against this American behemoth where their wallets were taking a beating.

The German consumers thought they would be greeted by low prices and friendly employees, but instead found themselves paying more than at local stores.

In 2006, Walmart failed in Germany and was forced to withdraw from the country.

There are no verified certain reasons why Walmart failed in the German market. But some obvious factors like culture, prices, brands, and organizational practices can be considered.

What is Wertkauf why did Walmart acquire it?

Shopping Carts in Wertkauf
Thomas Boigenreif, CC BY-SA 3.0, via Wikimedia Commons

Weinkauf is a German retail chain founded in 1957. It specialized in food, clothing, and general merchandise. When Walmart acquired it in 1997, Wertkauf had 377 stores and employed about 14,000 people.

German Market: German Store Prices vs Wal mart stores

Unlike other countries, retailing is a mature market in Germany. The country has an estimated 15,000 stores including supermarkets and discounters like Aldi.

These stores are also known to be customer-centered as they provide services like same-day delivery (Aldi), free home delivery (Rewe), or home installation (Lidl). In addition, the range of products offered is much narrower than in the United States and there are far fewer private labels.

Most Germans also have a strong preference for local brands.

When Walmart entered the German market, it was expected to replicate its U.S. model of selling goods at low prices.

However, due to the mature nature of the German market, prices in stores were relatively low and a price war erupted.

In response, Walmart was forced to reduce its margins significantly in order to maintain prices at a point where they could be competitive.

This meant that the prices Walmart offered were not sustainable for their business model and could be viewed as almost giveaway individual items or bulk buying options.

In addition, Walmart is not the only discount retailer in Germany. Other large German retailers like Kaufland and Lidl also offer low prices and a wide range of products.

This increased competition led to Walmart losing market share to its rivals.

Culture

Groceries in Plastic Grocery Bags

Walmart’s shopping bags are plastic and do not go back on the shelf after one use. They also accumulate in landfills and create a visual eyesore on the streets.

Understandably, this practice is unacceptable to German consumers and shoppers as they reuse their bags of items purchased daily several times before throwing them away.

See Related: Things Not to Do In Germany: Cultural Do’s & Don’ts to Know

Germans are environmentally-conscious and conscious about the visual appeal of their local area. This goes back to the nature of Germany’s industrialization and urbanization, which led to a strong emphasis on maintaining a clean environment and appealing cities.

Germans also do not necessarily prefer low prices over quality goods or services. The German economy is known for having one of the highest quality of life in the world and its citizens are willing to pay more for a product if they know it is of good quality.

German customers also are not used to smiling and/or talking to employees in the store, which is a common practice at Walmart stores in the U.S.

Organizational Practices

Organization  on a Meeting

Walmart’s organizational practices, which have been successful in the United States, have not always translated well when introduced in new markets. For example, Walmart does not allow employees to have union representation. This policy led to protests by German employees when the company entered the country.

Salary and wages also played a role in Walmart’s failure in Germany. German employees are used to working long hours for higher minimum wages and do not expect to receive bonuses or commissions.

In contrast, Walmart bases employee wages on how much they sell and offers incentives like bonus pay and commissions. This did not sit well with German employees who were used to receiving a fixed salary.

Moreover, Walmart’s board of directors does not impose limits on the amount of money that can be spent on individual projects.

For example, when opening new stores in Germany, Walmart was accused of spending too much money and using wasteful practices to cut costs.

This was seen as irresponsible by German citizens and contributed to Walmart’s bad reputation in the country.

In addition, Walmart is known for its “fast-food” approach to store management, which relies on standardized procedures and scripts for employees to follow. This type of management can be seen as inflexible and unresponsive to the needs of local customers.

It is likely that Walmart failed in Germany because of its inability to adapt to the different market conditions.

By focusing on price, they put themselves in a position where they were unable to compete with other stores on factors like service or convenience. This led to retaliation by German consumers who opposed the sustainability of Walmart’s business model and customer-unfriendly practices.

See Related: Best German Food to Try | Traditional Types of Food

Item Brands

Supermarket Vegetable Aisle

Most German prefer to buy local brands instead of big-name, international brands. This is partly due to the fact that Germans are very environmentally conscious and prefer to buy products made in their own country.

It is also a result of the strong emphasis on quality in German culture.

Walmart’s strategy of selling mostly American brands did not resonate well with German consumers. Additionally, Walmart’s own private labels were not well-known or popular in Germany. This was likely due to the fact that Germans are used to buying local brands, which offer a sense of familiarity and trust.

Walmart’s failure in Germany can be attributed to a variety of factors, including the company’s inability to adapt to the different market conditions, a lack of competitive pricing in the face of new competitors, and its controversial business practices. In addition, Walmart’s focus on American brands was not popular with consumers who prefer to buy products from local German companies.

See Related: 12 Best German Gifts | Gifts from Germany

The Difference Between the German Government and US Governments

Only a very low amount of money is paid to workers by this Walmart firm. Wal-Mart has endorsed these exploitation systems, calling them “capitalism.” Germans have created the Capitalism system, but they’ve criticized Wal-Mart and its operating method for its shortcomings.

Conclusion: Why Did Walmart Fail in Germany?

In conclusion, Walmart failed in Germany due to a variety of factors including an inability to adapt to German retail market conditions and a lack of competitive prices against German stores.

Somehow Walmart underestimated the local competition. Additional factors that contributed are the environmental cultural differences and the different organizational rules and corporate culture for Walmart employees.

Plus most German customers prefer to buy in small local retail stores.

FAQ

When did Walmart fail in Germany?

In 2006, Walmart announced it was withdrawing from the German market.

Are there any popular American retail companies in Germany?

Yes, Starbucks, Nike, and Mcdonald’s have a large market share in Germany.

Were any other reasons besides the ones mentioned given for Walmart’s failure?

Yes, labor issues, organizational rules, and practices, German market conditions / consumer preferences.

Did Walmart sell German products?

No, Walmart primarily sold American products in Germany and found that the German consumers were not interested.

What is the difference between organizational rules and practices in the US and Germany?

In the US, Walmart is known for its “fast-food” approach to store management, which relies on standardized procedures and scripts for employees to follow. This type of management can be seen as inflexible and unresponsive to the needs of local customers. In Germany, they are very concerned with following the rules in hiring / firing employees. There is a high percentage of unionized workforces in Germany, where workers have more rights than in Walmart’s US workforce.

Did Walmart sell at low prices in Germany?

No, Walmart’s prices were not as competitive as those of other German stores. This was likely because Germans are used to buying local brands, which offer a sense of familiarity and trust. Additionally, Walmart’s private labels were not well-known or popular in Germany.

What kind of shopping bags or packaging does the German law require for retail stores?

There is no specific law in Germany that requires retail stores to use a certain type of shopping bag or packaging. However, many stores choose to use biodegradable bags made from natural materials like cotton and paper. These bags typically have the store’s logo printed on them.

Why do Germans prefer local brands?

Germans prefer to buy locally sourced brands because they feel that local companies offer a sense of familiarity and trust. While German grocery stores typically sell many American brands, the majority of these products are manufactured within Germany’s borders.

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