How come the discount giant couldn?t expand its money-making machine?
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Walmart is a money-making machine (in a good way). From east to west, the American retail chain has around 11,200 outlets in 27 countries.
I might be exaggerating, but Walmart is a household name in almost every country in this world, and most people have heard of it at least once.
In 1997, Walmart decided to head for Germany and bought two German retail chains ? Wertkauf, for ?750 million ? and Interspar, for a whopping (Deutsche Mark) DM 1.3 billion.
But Walmart?s global fame and aggressive entry into foreign markets didn?t work out well in Deutschland. In 2006, after losing around $1 billion, Walmart had to leave Germany.
Let?s understand why this happened.
1. Walmart Messed Up the Pricing
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If you don?t have a marketing degree, let me just quickly explain the 4 Ps of marketing ? Product, Place, Promotion, and Price. Consider these the four pillars of any retail business. A company needs to intelligently strategize all of the 4 Ps in order to succeed.
I don?t know about the other 3 Ps, but Walmart definitely made a questionable decision with ?Price?. In pricing, there?s this thing called ?penetration pricing?, which involves offering products for cheap to penetrate a new market and win fresh customers by helping them save money.
That?s exactly what Walmart did. They dropped their prices lower than the local German stores. Well, the German business owners didn?t like Walmart?s predatory pricing tactic, and the American giant was ordered to raise their prices by Germany?s high court.
Walmart realized that the German market won?t accept their domination and that they were prepared to fight it out in court if Walmart tried to aggress upon them again.
2. Walmart Failed to Understand the German Culture
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For some reason, a few American businesses have this false belief that every western country has the same culture as theirs ? but it?s simply not true. This is also one of the reasons why Starbucks failed in Australia.
In America, it?s not uncommon for retail assistants to get all chatty and friendly with the customers. Walmart decided to train its German employees to do the same. The cashiers were told to smile at customers during checkout. Oh boy, did that backfire?
Smiling at random strangers and acting like you know them isn?t really German. I mean, it might happen every once in a while, but it?s certainly not an integral part of the German culture.
Hans-Martin Poschmann, a renowned union secretary, said: ?People found these things strange; Germans just don?t behave that way.?
Walmart?s German customers found this behaviour very ?non-German? and unauthentic. You don?t pretend to be a German customer?s friend if you?re not really their friend ? that?s not how Germans operated during that era, at least.
3. Employees Were Made to Do Unconventional Activities
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A regular day at a Walmart outlet in Germany started with light exercise and an almost cultish type of chant. Yes, the employees were made to chant ?Walmart! Walmart! Walmart!? while doing light jumping and calisthenics.
Maybe the reason behind this was to get them all excited about their shift and make them feel like a part of the Walmart family. But the employees likely found this to be somewhat embarrassing.
Also, the employees were not allowed to date or be romantically involved with each other. Well, the chances of not developing feelings for someone who you work with 40 hours a week are pretty low. Maybe this was intended to save employees from office politics. But this restriction by Walmart was simply over the top.
To make things more unfriendly, Walmart made it mandatory for its employees to report if any coworker broke a rule. If they failed to report, they could be fired. Imagine saying: ?I think Ben and Greta are sleeping with each other? to your manager (or getting fired if you fail to report it).
Once again, a German court had to step in and remind Walmart that they were in Germany. In 2005, an industrial court ordered Walmart to discontinue these practices at work.
4. The American Company Didn?t Get Along With German Unions
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Again, Walmart failed to empathize with the locals and marched to its own drumbeat. The German unions didn?t like Walmart?s organizational culture. They were like oil and water and never really got along.
?They didn?t understand that in Germany, companies and unions are closely connected. They thought we were communists,? said Hans-Martin Poschmann.
Walmart was kind of micromanaging its employees ? including keeping an eye on who?s dating who. This, along with some other practices, probably made Walmart look like a heartless employer who only cared about profits and not its employees? job satisfaction and overall happiness. A big no-no in the eyes of the unions, of course.
5. All These Factors Led to Massive Losses
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The resentment was growing. First of all, Walmart tried to bankrupt local German businesses by predatory pricing tactics. Secondly, they had these unusual rules and regulations for their employees.
Remember, there were both local and foreign competitors present in the market. While the competitors enjoyed a massive share of the market, Walmart only controlled around 3% of it. Also, Walmart?s profit margin in Germany was a measly 1?2%.
So instead of waiting and wasting time, Walmart decided to leave Germany in 2006 and passed on its 85 outlets to a local competitor, Metro.
Free market capitalism dictates the majority of markets around the world. Almost anyone, from almost anywhere, can start a business and make money almost anywhere in the world.
But this doesn?t mean that a business can go to foreign countries and antagonize the locals. As Niccol Machiavelli said, ?The best fortress is to be found in the love of the people, for although you may have fortresses, they will not save you if you are hated by the people.?
Moral of the story: No matter how much money you have or how successful your business is in your home country, never underestimate the power of the locals. Be on good terms with them, and genuinely try to make their lives better.