Why Walmart Failed In Germany
English —
Unit 42
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| 0s | [MUSIC] In 1997, Walmart opened its first store in Germany. |
| 4s | They had officially entered the largest retail market in Europe. |
| 9s | But nine years later they sold their stores, |
| 12s | packed their bags and left the country. |
| 14s | They had lost one billion dollars. |
| 17s | So how did the largest private employer in the world fail so badly? |
| 22s | [MUSIC]. |
| 28s | By 1988 Walmart had become the most profitable retailer in the US. |
| 33s | Their success spurred the company to start looking abroad at the international market, |
| 39s | and the expansion has been largely successful. |
| 44s | Walmart now has almost 12,000 stores in 27 countries. |
| 50s | In Britain, they now own the second largest supermarket chain in the country ASDA. |
| 56s | They're the largest private employer in Mexico, |
| 58s | and the third largest in Canada. |
| 60s | But that success is not universal. |
| 63s | In 1997, Walmart purchased two German retail chains, |
| 68s | Wertkauf and Interspar, totaling 95 stores. |
| 73s | It was a huge risk. |
| 76s | Germany in the late '90s was a hostile market. |
| 80s | Restrictive shopping hours, regulated zoning, |
| 83s | and high unemployment kept other companies |
| 86s | away according to analysts at Kurt Salmon Associates Europe. |
| 90s | Retail market growth rates averaged just 0.3 percent per year in the '90s. |
| 97s | It was also entering a market full of |
| 100s | successful native discount retailers like Aldi and Lidl which were stiff competition. |
| 107s | By German law, these smaller stores could offer |
| 110s | lower prices than big box stores like Walmart. |
| 114s | Soon after arriving in Germany, |
| 116s | Walmart faced accusations that it was using |
| 119s | short term predatory pricing to try and put local shopkeepers out of business. |
| 125s | Regulators had to order Walmart to raise |
| 128s | the price of basics like milk, flour, and butter. |
| 132s | After that their prices were too high in comparison to |
| 136s | the competition like Aldi which ran a small bare bone stores. |
| 141s | The discount retail sector was a lot larger in Germany than in other countries. |
| 146s | It was about 40 percent of the supermarket business, |
| 150s | which meant that groceries and daily goods tended to |
| 154s | cost around 15 percent less than the European average. |
| 158s | On top of these financial obstacles, |
| 161s | Walmart faced a different kind of problem, a cultural problem. |
| 166s | The friendly Walmart practices based on |
| 169s | Southern hospitality were perceived by many to be fake and at odds with German culture. |
| 176s | German media reported that Walmart required its employees to start their shifts by |
| 181s | engaging in synchronized calisthenics and group chants of Walmart, Walmart, Walmart. |
| 188s | This was intended to build loyalty and morale. |
| 191s | Walmart also required its cashiers to flash smiles at patrons, |
| 195s | which a lot of customers thought was flirty and creepy. |
| 199s | That's also how they felt about Walmart greeters, pretty creepy. |
| 204s | People found these things strange. |
| 207s | Germans just don't behave that way. |
| 210s | Hans-Martin Poschmann, the secretary of the Verdi Union which |
| 214s | represented 5,000 Walmart employees told the New York Times. |
| 218s | Walmart also imposed restrictive measures on their employees, |
| 222s | which they called an ethics code. |
| 225s | Walmart required its employees to report if co-workers broke any rules, |
| 230s | and if they didn't comply they could be fired. |
| 233s | Walmart also prohibited sexual intimacy and flirting |
| 237s | between co-workers according to The Financial Times Deutschland. |
| 241s | A German court eventually struck down this ethics code in 2005. |
| 247s | By German standards, Walmart is also anti-union. |
| 251s | They didn't understand that in Germany, |
| 254s | companies and unions are closely connected. |
| 257s | They thought we were communists, |
| 259s | Poschmann told The Times. |
| 261s | It sounds like employees associates, they listen too. |
| 264s | And without going through union politicians. |
| 267s | Of course not. |
| 268s | All unions will get is taking a cut out of my pay. |
| 271s | Unions strongly opposed the working culture in Walmart. |
| 274s | Walmart and German unions never established comfortable relations. |
| 279s | All of these obstacles combined lead to declining sales. |
| 283s | Walmart's German stores had a profit margin of |
| 287s | one percent compared to their British stores which had a margin of 6-8 percent. |
| 293s | Germany's top 10 chains made up 30 percent of the market. |
| 297s | But Walmart made up just three percent of the market. |
| 301s | Full time staff in Germany demanded a 19 percent premium compared to |
| 307s | UK workers on average which drove up Walmart's operational costs as their sales declined. |
| 313s | So Walmart withdrew from the country in 2006, |
| 317s | offloading 85 of its stores to its local rival, Metro. |
| 322s | They had employed 11,000 people and generated a two billion dollars in 2005, |
| 329s | but that represented just four percent of Walmart's international operations. |
| 335s | It has become increasingly clear that in Germany's business environment, |
| 339s | it would be difficult for us to obtain the scale and results we desire, |
| 344s | Michael Duke, Vice Chairman of Walmart Stores told The Times. |
| 349s | Walmart's dedication to their company culture ended up dooming them in Germany. |
| 354s | The lesson, the locals are always right. |
| 358s | [MUSIC] Let us know in |
| 362s | the comments what companies or company failures you want us to look at next. |
| 367s | Like this video. |
| 368s | Share it with your friends, subscribe, |
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| 374s | Thank you. [MUSIC]. |