Monday, July 31, 2006

Wal-Mart retreats again Being #1 in the world gives you big advantages, but it does not save you from billion dollar missteps. That’s the price Wal-Mart has paid for its eight-year German misadventure. The #1 retailer announced it would sell its 85 German Wal-Mart stores to Metro GA, the #1 German retail chain. The US company bought and transformed the German chain Wertkauf in 1998. Metro’s buyout will give it a total of 670 Real Hypermarkets in the German market and over 2,400 stores in 29 countries. Wal-Mart will write off around a billion dollars pre-tax. That sale comes on the heels of Wal-Mart’s retreat from South Korean operations, where it was also unable to gain mastery over the local market. Its UK chain, named Asda, is doing better, but seems to losing market share. Explanations for the German failure are many. First, had real, smart competition (especially Aldi) who knew how to discount as well as , if not better than, Wal-Mart. Second, some of Wal-Mart’s US practices did not make sense in Germany, especially the forlorn attempt to turn German workers into smiling store greeters. Third, it couldn’t deal with the strong German unions, something it keeps clear of, by dint of energetic counter-measures, its US operations. For Wal-Mart, the issues are serious. Wal-Mart now gains 20% of its revenue and plans on opening over 30% of its new stores outside the US, in such locations as the UK, Japan, China, Mexico, and South America. Wal-Mart’s biggest rivals world-wide, the UK’s Tesco and France’s Carrefour, both also have global ambitions. Both have been similarly stung in recent years in specific countries. In 2005, Carrefour sold its Czech and Slovakian stores to Tesco. At the same time, Tesco sold its Taiwanese operations to Carrefour. Also in 2005, Carrefour sold its Mexican and Japanese operations. In 2006, Carrefour sold its own South Korean stores. But international operations are still critical for these companies, and for Metro. Tesco is moving into the US. something few foreign retailers have succeeded at. For example, Carrefour tried in the US only to retreat in 1993. 5:52:27 PM

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