Wal-Mart Case Study

Wal-Mart’s German Expansion
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Wal-Mart’s
German Expansion
Case Study

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There comes a point when further expansion and innovation is necessary for a
business to remain relevant and progressive in its industry. As once articulated by Abraham
Maslow, creator of Maslow’s Hierarchy of Needs, “You will either step forward into growth
or you will step back into safety.” Established in 1991, Wal-Mart’s international division had
its sights set on rapid expansion to strengthen its hold on the retail industry. In its first
international partnership with Cifra S.A. in Mexico, Wal-Mart’s venture began with 2 stores
and grew to 131 locations by 1997. By 2003, Wal-Mart’s Mexican division had a total of 597
stores, which included discount stores, supercenters, and Sam’s Clubs.1 The successes that
the Mexican market offered to Wal-Mart's international division, as it became a powerhouse
leader in retail, provided the corporation with the confidence to keep moving forward in new
overseas ventures. Wal-Mart set out to establish its presence in a new international market
every year, from Puerto Rico in 1992 to Japan in 2002. The corporation implemented the
ideals exemplified in its mission statement, “We save people money so they can live better,”
into these new international branches.(“Wal-Mart Corporate: Our Story”) In order to follow
this motto, Wal-Mart’s focus in these countries revolved around successful practices and core
competencies including its “Every Day Low Price” strategy, strong inventory control, and
interactive personnel to form a positive shopping experience for every customer. With this
strong vision of brand image, Wal-Mart conducted smooth transitions into the retail
industries of Mexico, Brazil, and Canada. The acquisition of existing prosperous retail chains
in these countries were a cornerstone of Wal-Mart’s worldwide expansion. These numerous
valiant efforts across the globe were destined to lead to a failure for Wal-Mart if it did not
administer precise precautions and research into the targeted markets. In 1997, Wal-Mart
made the decision to expand into the German retail market with the acquisition of two retail
chains, Wertkauf and Interspar. Unlike Wal-Mart’s previous international expansions, it
1
Information w ithin this paragraph is found in Trumbull and Gay.

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faced many difficulties when attempting to gain dominance in Germany. As a successful
international corporation, Wal-Mart’s lack of strategic preparation ultimately cost it the
German market. Without an in-depth understanding of German culture and inappropriate
implementation of American standards, the corporate practices of this retail giant proved
unsuccessful.
The company had initiated mass international growth within a brief time period,
which ultimately lead to the lack of an effective, in depth analysis of its procurements
throughout Germany. Wal-Mart overlooked several attributes that were detrimental to
achieving the same prosperity displayed in previous endeavors. This is exemplified by Wal-
Mart’s acquisition of struggling, lower tier retailers to establish presence in Germany.
Wertkauf and Interspar were acquired for a total of $1.6 billion. Although Wertkauf was a
profitable company, Interspar was financially unprofitable and together the companies only
held 3% of the retail market in Germany (Trumbull and Gay, 5). The Interspar stores created
a further burden for Wal-Mart, as its stores were in poor repair and placed in destitute inner-
city locations. Remodeling was necessary after acquisition to create a better store image, and
for these stores to meet the quality brand name held by Wal-Mart. These two troubled and
unprofitable companies did not serve as desirable launching points for Wal-Mart’s business
efforts to take over the German market.
Prior to Wal-Mart’s acquisition of the retailer Wertkauf in 1997, there were many
different factors impacting the health of the German market. Although the German market
was thought to be one of the more desirable and successful markets, in reality it was going
through a troublesome economic period. The most notable cause of the ailing market was the
German reunification in 1990. The merging of East and West Germany led to several
economic problems, specifically the economic growth rate and unemployment. During the
mid-1990s the economy produced a less attractive growth rate of 1.5% of GDP, in

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comparison to the estimated 3.6% growth rate in the 1970s and 1980s, (Ahearn, 2). In
addition to the downturn in growth rate, an increasing unemployment rate led to further
difficulties in the market. According to Raymond J. Ahearn and Paul Belkin,
“Unemployment has ratcheted upward since 1970, from virtually full employment to a
situation where in some years 10% of the population is out of work and another 4% can’t find
work but are in government programs” (2). From 1997 to 2000 the German economy did not
see a positive growth in employment, with an average growth rate of -0.525% from 1997 to
2000. The consumer retail market was not performing at an optimal level and, in turn, family
incomes and lifestyles were impacted. In 1996 the average employee income in the retail
sector was $24,050 for full time floor staff and $37,050 for full time management, while in
2001 these figures decreased to $19,880 and $30,970, respectively. This amounted to a
decline of 17.33% for floor staff and 16.41% for management within a six year span
(Trumbull and Gay).2 The economic importance of these market factors were overlooked by
Wal-Mart with regards to how they would affect the expansion at hand.
Upon entrance into the German market, Wal-Mart had a strong financial footing
within the US as well as its international sectors. During fiscal year 1996, the company
showed a 13% increase in sales, 2.1% of which were attributed to international stores. With
strong control of inventory levels and efficient management, Wal-Mart was able to show a
stronger inventory turnover which attributed to the jump in sales. During 1997, the turnover
ratio for Wal-Mart reached 5.16. For any retail market, low inventory levels also depend on
strong relationships with suppliers and loyal customers to allow products to quickly move in
and promptly be resold. Wal-Mart’s intention to expand further internationally was based on
the ability for operating cash flows to fund expansion. During the fiscal year of 1997, Wal-
Mart acquired $5.9 billion in cash flow from operations, a $3.5 billion increase from 1996.
2
Much of the information in this paragraph is derived fromExhibit 11 of Trumbull and Gay

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With this increased availability of cash flow, Wal-Mart estimated capital expenditures of
1998 could reach close to $3 billion (Wal-Mart), with the excess used to pay off short term
debts. Operating under a current ratio of 1.6 and a debt to equity ratio of 1.22%, Wal-mart
maintained stable liquidity to pay off short term finances. Wal-mart was also operating with
return on equity of 19.2% and a return on assets of 7.9%. It appeared that Wal-Mart had the
financial ability to continue operations and further and expansion.3
In Germany, Wal-Mart was faced with strong competitors Aldi and Metro AG.
Though Aldi stores were generally smaller than Wal-Mart’s, Aldi’s 4000 markets held close
to 19% share of the market, closely followed by Metro AG as another leading competitor
(Wal-Mart: Struggling in Germany). Metro AG had strengthened its market share with the
acquisition of the European operations of the Makro Group in 1998. With this acquisition
Metro AG gained a 60% share in 86 C&C stores in the UK, the Netherlands,Belgium, Spain,
Portugal, Greece, Poland, the Czech Republic and Morocco, as well as the 40% stake held by
Makro in the operations of Metro Holding AG in Denmark, Austria, France, Italy, Hungary
and Turkey (Metro AG, 21). During the time of Wal-Mart’s entrance, food retail markets
were only yielding returns of 2% (How Well Does Wal-Mart Travel). This size of return
created a stiff competition level to gain and maintain customers. Most retailers, including
Aldi and Metro, cut back profit margin levels close to .09% in order to remain competitive in
the market. This created a significant change for Wal-Mart, as it was used to annual profit
margins close to 3% or $0.03 of profit (per sale dollar) (Wal-Mart Annual Report). Many
stores in the German market were family owned and run with less focus on customer service
and shareholder return, which allowed them to keep prices competitively low causing
difficulty for Wal-Mart.
3
Financial Information w ithin these paragraphs found in Wal-Mart's AnnualReport for 1997.

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Due to the fact that industry averages were lower than what Wal-Mart was
accustomed to, it was important for Wal-Mart to hire knowledgeable managers to ease its
entrance into Germany. When hiring, especially in an international setting, it is important to
remember that the foundation a company lays is the key to its success. An expansion as large
scale as Wal-Mart into Germany required a strong foundation guided by leadership and
management. Wal-Mart made a detrimental decision regarding management when the
company appointed Ronald Tiarks as head of the German sector. Once a Wal-Mart Senior
Vice President in Arkansas, Tiarks oversaw 200 US Supercenters and spoke only
rudimentary German. With little background in the German retail market, let alone the
German language, Tiarks managed the division in an extremely inefficient way.
Any merge into a foreign country requires the expanding company to overcome
language barriers in order to communicate with customers it now seeks to serve. One of
Ronald Tiarks’ first orders of business involved changing the official company language of
Wal-Mart from German to English. This made his job substantially easier, but confused the
previous managers, employees, and customers by disrupting their usual workplace dynamic.
The decision became a major problem for the three long-standing managers of WertKauf
with whom Ron Tiarks was required to collaborate, as they struggled to adjust. Tiarks
essentially rid himself of these three managers, Richard Reinshagen, Torsten Alfes and Thilo
Keitel, in favor of American managers. Reinshagen, Alfes, and Keitel were veterans in the
German market and could have eased Wal-Mart’s entrance into Germany with their insight,
had Ron Tiarks not pushed them away. His decision to hire American managers only
reaffirmed the American Wal-Mart philosophy and ideology, instead of attempting to adapt
Wal-Mart to fit the German consumer’s needs. Not only did the change in official language
anger Wertkauf’s previous managers, but also its German employees. This change,
“…negatively influenced the morals of the German employees, not because of their bad

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English, but because they felt like outsiders” (Shurrab, 3). German employees quickly
became demotivated because they had no say in the way they interacted with their customers.
These employees lacked the motivation to carry out their job with the enthusiasm that they
once had when they felt comfortable in their work environment.
While German employees had trouble adapting to the new official language, Wal-
Mart struggled with German labor unions. With no legal minimum wage, it became
customary in the German culture that unions and companies work closely together to create
pleasant and fair working conditions. Under the management of Ron Tiarks, the American-
based company was unwilling to continue this relationship. The labor organizations in
Germany proved to be much different than that of the United States and other countries that
Wal-Mart had previously expanded into. Typically a non-union employer, Wal-Mart quickly
became entrapped in a lawsuit with labor unions because it failed to research these
organizations influence in the German retail market. Jack Ewing stated that, “German
companies are used to dealing with workers' councils, which are easy to organize under
German law. Some even say the co-determination system improves communication with
employees” (Ewing). Wal-Mart entered Germany without the knowledge of the powerful co-
determination system and management continually failed to adhere to labor organization
rules, landing the retailer in dispute. Ver.di, a relatively large labor union of around 2,000,000
members, made up 25% of Wal-Mart’s German workforce. Previously, Wal-Mart rejected
labor unions in a direct effort to keep wages and labor costs down. Ver.di filed a lawsuit
against the company for not releasing year-end figures, which were crucial to Ver.di’s
attempts to negotiate wages for its workers. Also, Ver.di complained that Wal-Mart did not
sufficiently notify the union of store closings (Ewing). When this lawsuit and fine failed to
alter the management of Wal-Mart’s workforce, it was a clear sign to Germans that Wal-Mart
had no intentions of creating a healthy relationship within its workforce. Continued resistance

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by Wal-Mart to join HDE, Germany’s retail employers association, and agree upon the
negotiated salary only confirmed to employees, potential customers, and German citizens that
Wal-Mart was an outsider in the German market. Although Tiarks and his management team
eventually conceded to a higher salary than that of HDE, the apparent lack of interest in
integrating with German labor organizations created a public image distasteful to both
employees and customers. As many Wertkauf employees were already frustrated with the
change of language, Wal-Mart’s failure to comply with labor unions put it over the edge. The
result was almost disastrous; many German Wertkauf employees resigned, leaving Wal-Mart,
and Ron Tiarks, with little support from the German market.
Tiarks previously explained that Wal-Mart, “decided to enter Germany because it is a
large and stable market with high average income,” exemplifying his ignorance towards
German retail competition and local growth (Dawson). Tiarks’ only strength was found in his
commitment to achieving his goal, which was to “introduce the Wal-Mart philosophy to
Germany” (Dawson). By drastically cutting prices only to have them matched, and even
undercut, by competition, and never concerning himself with the legal and institutional
framework of the German market, Tiarks stuck to the American standards. In Mexico, Wal-
Mart’s success with management ultimately helped it achieve market success. Sam Walton,
Wal-Mart’s founder, originally worked alongside Jeronimo Arango, one of Cifra S.A.’s
founders, to expand into Mexico with knowledge of the market. Tufic Salem, an analyst at
Credit Suisse First Boston in Mexico City explained that, “the management stayed and (the
managers) knew the market very well,” citing that the taking of Cifra, “gave them a critical
mass to build from” (Landler and Barbaro). Had Wal-Mart reviewed its previous expansion
into Mexico, it may have hired the German leads differently.
Wal-Mart’s success in the US is based around the ability to avoid the bullwhip effect
through long term relations with suppliers, operating efficiency, and its commitment to Every

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Day Low Prices. With the Wertkauf and Interspar stores positioned in undesirable locations
on the outskirts of the city, one being nearby several sex shops, remodeling was unavoidable
in order to bring the acquired stores to the Wal-Mart brand image (Landler and Barbaro).
However, stores were overly remodeled beyond the standard that most Germans expected of
retail stores and, in turn, Wal-Mart incurred an excessive $200 million loss (How Well Does
Wal-Mart Travel). Wal-Mart had to spend an exorbitant amount of capital repairing and
implementing new scanning systems into the stores. In order to supply the German stores,
Wal-Mart decided on a centralized distribution center strategy, with only two warehouses to
supply all of its stores. This strategy was drastically different than the one that it followed in
the United States, which ensured that every retail store is within a day’s drive from a
distribution center. This lack of infrastructure with regards to distribution center locations led
to trouble when Wal-Mart attempted to set up supplier relationships. Unfortunately for Wal-
Mart, the lack of relationships with German suppliers, along with its small percentage of
control over the market, meant that it would not achieve the same bargain deals as
competitors were receiving. This lead to overall higher prices than the competition, and less
customer draw to move inventory.
Wal-Mart also sought to have its suppliers deliver products to the warehouses first,
and then Wal-Mart drivers would distribute products to the stores. However, this was
significantly different than the other German retail chains and led to a lack of communication
between Wal-Mart and its suppliers in Germany. Many of the German suppliers would
deliver goods to the individual stores instead of the distribution center. Orders were
continuously lost or late, leading to an out-of-supply rate of up to 20%, compared to the
industry average of 7%.Since Wal-Mart was constantly having difficulties with the suppliers,
it would be difficult to counteract the bullwhip effect. Wal-Mart typically orders in large
quantities, but because the company was having trouble with product turnover, it was forced

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to sit on large quantities of inventory. Wal-Mart eventually addressed some of its distribution
inefficiencies in August 2001, when it hired Alli Distributors to handle the dry food division.
This allowed the struggling retail giant to focus more on non-food product distribution.
In addition to conflict with suppliers, Wal-Mart failed to take into account Germany’s
strict zoning regulation system. This system only allowed Wal-Mart to open two new stores
within the first four years, while it was unsuccessful in trying to enlarge its existing stores.
The 1977 law that enacted strict planning and zoning regulations to protect traditional
retailers prohibited the construction of stores greater than 800 meters squared to exceed
designated retail areas (Trumbull and Gay, 6). This meant that large store development was
restricted to the town or city center, with the objective of having the retail sector close to the
consumer and working areas of the city. Opening a large retail store outside the urban area
was possible only through multiple steps, and it could take several years for a new building to
get approved. First, the city or town would have to create a “building use plan” that would
present a development concept. This concept would take into account environmental effects
and ensure that no private legal conflicts would exist, such as competing directly with local
stores. This plan would then need to be approved by both the local town or city council and
then the regional planning boards. The German government created these zoning regulations
to ensure that large retail businesses did not pull customers outside of the cities and towns
because this would leave old buildings and monuments vacant.
In another attempt to protect the historic and small business industry in the German
economy, the government implemented strict preventative measures against price setting.
Wal-Mart faced initial obstacles when its ability to create ‘Every Day Low Prices’ was
counteracted by the German Rebate Law. This law prohibited retailers from cutting prices
below 5% of competitors. Selling products below cost had been disputed in Germany for
years. In 1998, a new amendment to Germany’s Cartel Law made selling below cost illegal

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except with justification. This was put in place in order to prevent large companies from
putting small retailers out of business. In June of 2000, Wal-Mart and several of its German
competitors, such as Aldi and Lidl, were found guilty of breaking this new law in a pricing
scandal for selling goods such as milk, sugar, and vegetable oil below cost. After several
appeals, Germany’s highest court ruled that Wal-Mart’s pricing strategy undermined the
competition and violated German antitrust laws. German officials feared that the country’s
three largest food retailers would create a price war that, “...would decimate independent
shops, ultimately leaving consumers with fewer options and higher prices” (Mitchell). This
not only prompted a reevaluation of Wal-Mart’s pricing strategy, but also negatively
impacted Wal-Mart’s reputation and finances.
In addition to pricing restrictions, Wal-Mart also faced German regulations regarding
store hours. German stores were typically open only 64.5 hours a week, making them the
shortest opening hours in all of Europe. The Store Closing Law was designed to protect the
German workers from being manipulated into working excessive hours, and to protect the
traditional retailers from the larger chains that were able to keep stores open longer and offer
lower prices. A study that was conducted between 1996 and 1999 found that 64% of German
consumers did not desire longer store hours. Slowly, store hours were being liberalized, with
the most recent change in June 2003 which extended Saturday store hours until 8pm. Wal-
Mart consistently pushed for longer store hours, however, many of the labor union contracts
limited employees to working no later than 6:30 pm. According to one German Wal-Mart
employee, management would threaten to “close down certain stores if the staff did not agree
to working longer hours than their contracts foresaw and did not permit video surveillance of
their work”(Schaefer). Although there was no demand for it, Wal-Mart pushed for longer
store hours that did not match the German culture, and its competitors recognized this
misalignment. Wal-Mart’s ethics code was also very questionable which “required employees

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to spy on fellow workers (and report any misconduct), but prohibited any sexual intimacy
among employees.” The ethics code was eventually struck down by a German court in 2005
(Ewing). Wal-Mart’s constant attempts to force longer labor hours not only increased the cost
to do business, but also created unhappy employees and tampered with the positive brand
identity of Wal-Mart.
The Wal-Mart Corporation changed the face of retail, trailblazing a new customer
experience that set it apart from its competitors. The retail giant focused on the ideals of
helping customers and communities save money and live better, and it in turn takes this
vision into consideration in all corporate marketing actions. Customer needs and
expectations, however, were greatly overlooked when deciding how to approach customer
service in the German market. As a lower context culture, Germans required less interactivity
between employees and customers, and were used to a more unfriendly retail environment.
When Wal-Mart introduced its friendly, forthcoming service, Germans were taken back by it.
Customers became skeptical of the service they were receiving after being welcomed by a
traditional Wal-Mart greeter. At checkout, customers also faced practices they were not
accustomed to such as employees providing bags and bagging groceries at no additional
charge. Many customers were perturbed that strangers touched the goods they had purchased,
and placed them in unrecyclable plastic bags that their environmentally-friendly culture did
not support. Cashiers were often overly enthusiastic and their use of excessive smiles were
frequently misinterpreted as advancements towards customers.. Wal-Mart struggled to
maintain German customers were not accustomed to the size and standards of supercenters
and, in turn, assumed stores of this appearance and level of service must coincide with higher
prices. This consumer perception did not align with Wal-Mart’s actual pricing strategy.
Customer loyalty encompassed a large part of the German culture. When desired
products were not found in a local butcher shop or specialized store, customers often headed

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for a supermarket which they were familiar with. Rather than selling tradition German brands
customers recognized, Wal-Mart instead sold American products consumers were not
accustomed to. The vast range of American products were not tested in the new market to see
if they were as popular as in the US. German’s preferred more fresh items, such as meat from
a butcher, and instead were only offered pre-packaged beef. German consumers continued to
focus on supporting domestic retailers instead of altering their shopping experience to
accommodate American Wal-Mart standards.
While customer loyalty was a giant implementation hurdle for Wal-Mart to overcome,
the cultural differences between retail in the United States and retail in Germany proved to be
even more problematic. By promoting the Wal-Mart name, the company was unable to gain
credibility and reliability under already established stores. Customers who might have once
preferred their local Wertkauf store were at once thrown through a loop when the Wal-Mart
name appeared. If Wal-Mart had understood the concept of German customer loyalty, it
would have gradually acclimated customers to its strategies and procedures. With strong
competitors Aldi, Lidl and Metro taking up a large percentage of the German market, Wal-
Mart was left scrounging for customers. Wal-Mart’s attempts to positively differentiate its
stores from the domestic competition were not seen in the desired light that the business had
hoped, as consumers gravitated towards their reliable German retailers. Sam Walton stated
that, “The goal as a company is to have customer service that is not just the best but
legendary” (Walter). This aggressive marketing strategy was positively viewed in the United
States but was simply not applicable in the prominent and proud culture of Germany.
In retrospect, there are many actions that Wal-Mart should have taken in preparation
for its entrance into Germany. Due to the fact that the corporation was expanding
internationally so quickly led to the overlooking of many important cultural norms that Wal-
Mart did not adapt to as we described above. Before moving into Germany, the company

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should have consulted and/or partnered with German businessmen who had extensive
experience and knowledge about this unique retail market. It would have been in Wal-Mart’s
best interest to research the different adjustments that it would have to make to its business
plan due to culture. Extensive studies of how businesses had previously attempted to enter the
German market, both successfully and unsuccessfully, would have benefited Wal-Mart’s
entrance strategy. There is unlimited information that can be learned by simply looking to the
past, and trying to decipher the mistakes of others in similar situations to one’s own intention.
For one example, Woolworth’s, the largest supermarket/grocery store chain in Australia,
extended its operations into Germany in 1926, and by the 1950’s it had become a household
name worldwide. By simply taking the time to research Woolworth’s methods and opening
communication with businessmen that aided in this international expansion, Wal-Mart could
have gained valuable insight.
There are several marketing strategies that could have led to a smoother transition into
the German market. One possible tactic that could have benefited Wal-Mart, is the positive
promotion of company strengths on several public mediums. Many German consumers were
unaware of what the Wal-Mart brand encompassed, new locations should have created better
brand awareness in the eyes of these new prospective customers. The company has many
strengths that its direct competitors lack that could have established Wal-Mart as a more
desirable brand. Through a simple Wal-Mart education day, the company could have stirred
up buzz about the new supercenters and allowed customers to see why the brand was so
desired elsewhere in the world. During this time, its German rivals did not have credit card
payment options, free bags for goods purchased, improved store interiors, or friendly
customer service. The promotion of each of these elements could have set Wal-Mart apart
and generate new Wal-Mart customers. Another marketing tactic Wal-Mart could have
employed was the use of endorsements and sponsorships. Hiring a German celebrity to

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represent the corporation and generate brand equity by saying phrases such as, “I love
shopping at Wal-Mart,” could have stirred up greater consumer interest in exploring the Wal-
Mart shopping experience. Sponsoring local festivals, events, etc. would have generated
favorable attention for the corporation and displayed its name in a positive light. These
marketing suggestions could have broadened Wal-Mart’s competitive advantage and
increased brand credibility and image.
The Wal-Mart store sizes and design were also not parallel with what was accepted in
German culture. In other international ventures, Wal-Mart established a greater amount of
discount stores rather than the large Supercenters. For example, in the UK Wal-Mart opened
248 discount stores and only ten supercenters, but in Germany zero discount stores were
opened and instead 94 supercenters were opened. The European market was not accustomed
to the supercenters and was not aligned with customer needs or demand. Wal-Mart’s
supercenters were sized between 109,000 - 200,000 sq. ft, and in comparison its discount
stores were only 40,000 - 125,000 sq. ft. Incorporating smaller stores may have created a
more quaint environment welcoming German consumers into the Wal-Mart stores.
Upon Wal-Mart’s entrance into Germany, field experiments through test marketing
could have been another useful tactic in minimizing efforts to adapt to cultural norms. As
stated by the Institute of Customer Services, “The results from a test marketing program can
provide useful information regarding ‘go or no-go’ market decisions. Imagine a no-go market
product is launched to the mass market without a test and if it fails, the cost to the business
will be huge” (“Test Marketing”). Wal-Mart launched many of its popular American products
to the German market and subsequently saw low inventory turnover compared to that of the
US. Using test marketing, a test group of consumers would have been exposed to certain
American products, so that Wal-Mart could observe how this test group reacted to them.
American products viewed more favorably when compared to popular German products

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could have been kept, while unfavorable products could have been replaced by familiar
German products. Gradual adjustment to American products within German Wal-Mart stores
would have allowed customers to try to new products, while keeping the familiarity of
household German items.
Wal-Mart made the initial mistake of ordering large quantities of American products
for its stores, and encountered trouble selling many of these items. These large order
quantities induced the start of the bullwhip effect, which made a negative impact on Wal-
Mart’s suppliers. Demand for products were mistakenly reported to companies as stronger
than they were in reality. When pulling out of the market in 2006, Wal-Mart Germany’s CEO
David Wild commented on its market research by stating, “We made mistakes. Many of our
(product) buyers in Germany were Americans. Some real goof-ups occurred as a result. Like,
did you know that American pillowcases are a different size than German ones are?” Wal-
Mart ended up leaving Germany with a tremendous amount of pillowcases that it was not
able to sell to the German market. Later, Wild said, “If you want to be successful in a foreign
market, you have to know what your customers want. That's the most important lesson. It
does no good to force a business model onto another country's market just because it works
well somewhere else” (Schaefer). If Wal-Mart did proper market research into the German
market, it would have improved its relationship with suppliers. Wal-Mart’s lack of
communication and inconvenient distribution structure created a negative attitude with the
German suppliers, resulting in higher overall prices consumers would have to pay at the Wal-
Mart stores.
The acquisition of profitable and reputable companies also could have given Wal-
Mart an advantage when moving into the German market. Though Wertkauf did not have a
significant market share, the company was still profitable and held a steady brand image
within the market. Maintaining this brand image and continuing operations under the

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Wertkauf name may have provided Wal-Mart with more leverage in maintaining and
acquiring new customers. Customers would be more willing to shop at a name they recognize
and trust then shop at a foreign retailer. With the knowledge from Germany, Wal-Mart
succeeded with its entrance into the United Kingdom in 1999 by acquiring a leading retailer
and continuing to operate under the ASDA name. “Considered the leader of the UK
superstore segment, ASDA was already thriving in the UK, with an 8.4% market share at the
time of acquisition. By FYE 2000, under new Wal-Mart Management, ASDA accounted for
35-40% of Wal-Mart’s international sales proving this strategy’s success” (Trumbull and
Gay, 5). The strategy of keeping the original name on the front of the stores was widely
accepted by the market in the UK. Consumers viewed the changes as positive company
improvements rather than a total company takeover and a retail stranger in its place. Wal-
Mart helped the chain to concentrate on offering low prices to customers and implemented
other successful Wal-Mart practices into the brand including greeters at entrances and a
company cheer preceding the procurement. This helped to improve ASDA’s solid stance in
the retail market. “Prior to the deal, ASDA presented its goods for 7% (on average) less than
its competitors; since Wal-Mart’s acquisition, its price margin over competitors increased to
13%, helping to advance ASDA’s total market share from 8.4% to 10.5%” (Voyle).
In addition, Wal-Mart may have fared better in the German market if it entered with a
joint venture as it had previously done in Mexico with Cifra S.A.. One of Wal-Mart’s major
competitors, Costco, sought to maintain operating control and majority ownership of its
international stores by creating joint ventures with local partners that understood the local
retail climate, which proved to be successful. Although these varying options of entrance
would have warranted more cooperation and funding, they may have provided a more
profitable turnout for Wal-Mart Germany as a whole.

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The timing of any corporation’s entrance into a global market can either make or
break its performance. Wal-Mart could have foregone detrimental losses and a tarnished
reputation had it performed further market research into time relative economic factors before
entering Germany. During the time of the company’s expansion, profit margins in Germany
hovered around a consistently low 1-2%. With Wal-Mart’s reliance on rollback prices, and
Germany’s pre-existing giant discount stores, the company could have foreseen trouble due
to its already higher costs. Other time sensitive data included Germany’s -2.69 change in
labor productivity growth within distributive trades, as well as a -1.16 change in the total
market economy prior to Wal-Mart’s entrance (Trumbull and Gay). This negative change in
productivity was a strong indicator of the resiliency Wal-Mart would face in this prospective
market. In the mature retail sector of Germany, Wal-Mart would have needed to take market
share away from an existing player, which is always an extremely difficult task. Metro AG
was a leader in the German market and its operating profits were consistently increasing
before 1996. At this time, Metro AG was a well-entrenched competitor ready to retaliate
against new entrants like Wal-Mart, but the American company proceeded anyway
(Govindarajan and Gupta).
Wal-Mart made a vital strategic decision with its withdrawal from the German market
in 2006. Between 1997 and 2006, the German retail market only experienced 5 years of
positive annual retail growth. With a struggling economy, the market left little room for new
entrance to capitalize on market shares. Within the first 5 years of Wal-Mart’s presence in
Germany, Germany’s retail sector incurred negative growth percentages in the number of
retail stores, even though population per retail unit was growing (Trumbull and Gay). During
this time, Wal-Mart’s margin of safety, expressed through its current ratio, also dropped from
1.6 to .9, leaving the company with little liquidity leverage (Annual Report). Unable to gain a
strong enough market share, Wal-Mart would have only incurred further losses by remaining

19
in the market. Instead Wal-Mart made the positive decision to withdraw from Germany
incurring a 1 billion dollar loss and selling the companies 85 stores to its competitor Metro
AG.
Though Wal-Mart’s expansion into Germany was unsuccessful, the practices
implemented in Germany proved to be learning criteria for Wal-Marts future expansion
ventures. Wal-Mart’s expansions into other regions such as the UK proved more victorious
due to the lessons learned from the futile attempts of Wal-Mart Germany. Other companies,
as well, now look at this failed endeavor as a cautionary framework for the importance of
strategic preparation and research into the prospective market as key components of success
in global expansion.

20
Works Cited
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Economic Relations. Rep. no. R40961. Congressional Research Service, 27 Jan.
2014. Web. Oct.-Nov. 2014.
Dawson, Mike. "Why Wal-Mart Failed in Germany." Lebensmittel Zeitung. DVF Media
Group, 20 Aug. 2009. Web. 28 Oct. 2014.
Ewing, Jack. "Wal-Mart: Struggling in Germany." Businessweek. Bloomberg L.P., 10
Apr. 2005. Web. 28 Oct. 2014.
Gerhard, Ulrike, and Barbara Hahn. "Wal-Mart and Aldi: Two Retail Giants in
Germany - Springer." Wal-Mart and Aldi: Two Retail Giants in Germany -
Springer. GEOJournal, 13 Nov. 2014. Web. 13 Nov. 2014.
Govindarajan, Vijay, and Anil K. Gupta. "Taking Wal-Mart Global: Lessons From
Retailing's Giant." Strategy+business 1999. Strategy+business. PWC Strategy&
Inc., 19 June 2002. Web. 5 Nov. 2014.
"How Big Can It Grow?" The Economist. The Economist Newspaper, 17 Apr. 2004.
Web. 13 Nov. 2014.
"How Well Does Wal-Mart Travel?" Bloomberg Business Week. Bloomberg, 02 Sept.
2001. Web. 13 Nov. 2014.
"In Germany, Wal-Mart Is Struggling." The Seattle Times. Seattle Times Company, 29
Oct. 2000. Web. 12 Oct. 2014.
Knorr, Andreas, and Andreas Arndt. Why Did Wal-Mart Fail in Germany. Institute for
World Economics and International Management. Universität Bremen, June
2003. Web. 28 Oct. 2014.

21
Landler, Mark. "Wal-Mart Gives up Germany- Business- International Herald
Tribune." The New York Times. New York Times, 28 July 2006. Web. 10 Oct. 2014.
Landler, Mark, and Michael Barbaro. "Wal-Mart Finds That Its Formula Doesn’t Fit
Every Culture." The New York Times. The New York Times, 01 Aug. 2006.
Web. 23 Oct. 2014.
Macaray, David. "Why Did Walmart Leave Germany?" The Huffington Post.
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Mitchell, Stacy. "German High Court Convicts Wal-Mart of Predatory Pricing." Institute for
Local SelfReliance. N.p., 1 Feb. 2003. Web. 13 Nov. 2014.
Schaefer, Louisa. "World's Biggest Retailer Wal-Mart Closes Up Shop in Germany."
Deutsche Welle. N.p., 28 July 2006. Web. 22 Oct. 2014.
Shurrab, Hafez. Wal-Mart's German Misadventure. Mälardalen University, Aug. 2014.
Web. 28 Oct. 2014.
"Test Marketing." MyICS. Institute of Consumer Studies, 11 June 2012. Web. 5 Nov.
2014.
Tidey, Dominic. "What Wal-Mart has Taught us about Expansion into Europe." British
American Trade and Investment Magazine. The EuRApean, Apr.
2012. Web. 10 Oct. 2014.
Trumbull, J. Gunnar, and Louisa Gay. "Wal-Mart in Europe." Harvard Business
School Case 704-027, Apr. 2004. (Revised July 2004.)
Voyle, Susanna. "Mixed Fortunes in Britain and Germany," Financial Times, London, 7
Jan. 2003.
"Walmart Annual Reports." Walmart Annual Reports. Wal-Mart, n.d. Web. Oct-Nov.
2014.
"Walmart Corporate: Our Story." Walmart Corporate: Our Story. Wal-Mart Stores,

22
Inc., 2014. Web. Oct.-Nov. 2014.
"Wal-Mart's Newest Accent Is German." Bloomberg Business Week. Ed. Douglas
Harbrecht. Bloomberg, 18 Dec. 1997. Web. Oct-Nov. 2014.
Walter, Ekaterina. "40 Eye-Opening Customer Service Quotes." Forbes. Forbes
Magazine, 4 Mar. 2014. Web. 13 Nov. 2014.

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