Assessment Case

Wal-Mart in Germany

Germany accounts for around 15% of Europe’s $2 trillion a year retail market. At a GDP of $2.25 trillion and a population of about 80 million people, Germany is by far the biggest retail market in Europe. However, the market is highly competitive with razor thin profit margins and a low growth rate. While consumers spent about 40% of their disposable income in retail stores 10 years ago, this number went down to only 30% in 2003. In January 1998, Wal-Mart acquired 21 Wertkauf hypermarkets in Germany. Later that same year, the company acquired 74 units of the Interspar hypermarket chain.

Wal-Mart has since invested in the remodeling of these stores and today operates 92 Supercenters in Germany. Wal-Mart Germany employs more than 14,000 associates across the country. Wal-Mart’s attempt to apply the proven U.S. success formula to the German market turned out to be problematic. The company’s operating loss is estimated to be Euro 100 million ($ 125 Million) per year.Germany’s restrictive shopping hour regulations (at a maximum stores can be open for 80 hours/week, Sunday and holiday openings are not permitted at all) prevent Wal-Mart from offering its customers the convenience and shopping comfort associated with 24/7 operations.

The typical greeter was often perceived by German customers as an underpaid worker who does not add any value but costs money to be paid through higher prices. Also, German consumers are a lot less service oriented than their American counterparts. A recent survey revealed that price and value is more important than service and quality to 63% of Germans versus 18% of Americans. With 60,000 different products, Wal-Mart offers a substantially better selection than its competitors in the low price segment of the market. Its biggest competitor in this segment, Aldi Group, only offers 600 different products. Aldi, which operates 3741 stores in Germany, combines ultra low prices (and margins) with high product quality, a very narrow assortment of about 600 products, and a no-frills self-service shopping environment that translates in the highest labor productivity of the industry.

Please answer the following four questions:

1.How does a global strategy differ from a multinational strategy? What are the potential advantages and disadvantages of a global versus multinational strategy? Which strategy did Wal-Mart follow?

2.What factors accounted for Wal-Mart’s failure in Germany?

3.If you were Wal-Mart, what would you have done differently to address the factors identified in #2 above?

4.In addition to the information provided in the case, what broad categories should a company consider when operating in more than one country? What specific dimensions would you analyze within each of these?