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Founded in 1962, Walmart has grown to be among the largest retail chains in the world with operations constituting about 4750 stores globally. It deals in the sale of consumer goods, jewelry, electronics, shoes, garments, and foodstuff among many others. The company is synonymous with the low price strategy that not only differentiated it from competition but also attracted and built loyalty in the market. So successful is the company that in the year 2003, it managed to record $244 billion in revenues alone.
Like many other successful companies, Walmart ventured out into the international market to increase its market share and global presence. Many had expected that with the success it had witnessed in the USA market, it was going to be very easy to conquer the others owing to the high competition in the home retail sector. In fact, it seemed as if it was destined for success with its operations in Mexico as well as the UK posting profits within short periods of its entry. But this is as far as the good news goes as its operations in Indonesia and Germany proved difficult that the company had to pull out of the former. Germany which had been projected to yield better results to the company on the contrary did not offer high growth even after several years of operations. Many had expected that the low levels of both customer service and stores modernity in the existing operator, as well as the high number of consumers, would have contributed to its success but these factors in fact led to its stagnation in the market. In the next section, we will look at how these factors among others contributed to its slow market penetration and growth in the German situation.
Factors in the German market
The factors that led to Walmart’s poor performance in the German market can broadly be categorized into two; regulatory and market factors.
Various regulations in the German market were not consistent with its strategies. The zoning rule required operators seeking to set up new outlets to first seek permission from the authorities. This process took so long in addition to the stringent conditions that aimed at protecting traditional operators by stipulating a radius within which no new outlet was to be opened especially in regions outside urban centers. There was also a price-setting that required retailers not to sell at 5% below the commodity price. With Walmart’s low price strategy, it often ran into problems by flouting this rule and in some cases had to adjust its prices upwards.
Labor relations were also the area where it experienced difficulties. On the contrary to the US situation, the labor unions in Germany are quite strong and Walmart had to cede into their demands of establishing a unionized staff which it does not do back home (Kolben, 297). Therefore, the minimization of labor costs proved quite difficult especially with the collective bargaining that was in place. Finally, the retail hours were also limited although Germany later revised the policy after pressure from the EU to 8 PM up from 6 PM during weekdays and 2 PM during weekends. The policy had been put in place to allow employees more time with their families that could have otherwise suffered due to extended working hours.
Having entered the market in 1997, it was projected that the company would have expanded greatly in four years but this was not to be. The retail sector soon experienced a downturn with growth levels averaging 0.3% as opposed to other EU markets that grew steadily. The consumers were also not used to the employee friendliness and customer service that Walmart was introducing into the market. They were skeptical about the whole issue and thought it would cost more as the German shopping culture is not oriented towards service to customers. Furthermore, Walmart as a brand and goods that it stocked were mainly American which did not relate well with the locals that could have preferred brands and goods they were more familiar with.
Walmart also lacked the strong relationships with suppliers needed to obtain goods at a relatively lower cost as well as provide crucial information that could have helped in the running of a business. The distribution was also centralized and this posed difficulties to store deliveries leading to numerous errors. But perhaps the major challenge came from the domestic competitors that apart from consumer loyalty that they had also set out to match Walmart prices in regions where it was their direct competitor. These competitors had wide market knowledge and knew exactly how to maneuver within the market as opposed to Walmart that had just made an entry.
Having discussed the situation in the German market, we now look at the ways in which the company ought to have conducted its operations to guarantee its success.
Local brand name
First, the brand name might have contributed to its miseries in a market that deeply values products and anything else domestic. Several multinationals such as Marks & Spencer among others have had to pull out of the German market citing a low volume of sales and revenues in the market even after years of operations. With the German situation in mind, one is left to wonder why the company did not utilize the same strategy as in the UK where it only acquired the operations of ASDA but relied on the brand to run its operations. The UK venture was successful with roughly an 8% profit margin as compared to the 1% in Germany. Having acquired Wertkauf and Interspar to gain entry into the German market, the company should have settled on one of the brand names as they were already established. Even if this was difficult it could have come up with a new name say by merging two brand names which would still have been domestic thus higher chances of success.
The local shopping culture in Germany is also different from that in the US. Whereas excellent customer service is needed to attract American consumers, the Germans are surprised by such strategies and would prefer handling their own goods. However, the company can be applauded for having introduced the option for customer service much later even though it was late. An effective marketer could have conducted intensive market analyses and identified the culture and other perceptions of the consumers to avoid making such mistakes. Walmart needs to customize its operations not only the service part but in their entirety to resonate with the prevailing conditions in the German market thus higher chances of success (Christopherson, 460). It should allow unionization of employees, adopt domestic brands, and decentralized distribution system among many others.
Acquisition and expansion strategies
Walmart also needs to acquire more retail chains. The company’s management is on record for having dismissed such advice maintaining that its current outlets are enough to increase profitability. But this is not true as the competitors are busy matching its low price strategy in markets where they are direct competitors. The profits which they make from other segments that Walmart has not yet entered are then utilized to subsidize these particular markets and it is no wonder why the company has yet to post any significant profits or even growth. The decision to acquire more retail chains will increase both its reach in the wider national market and competition to the traditional retailers. Furthermore, they will no longer have the advantage of subsidizing their operations with proceeds from different markets giving Walmart an upper hand with its low price strategy. The increase in operation will also mean that it will enjoy economies of large scale operations, therefore, reducing operational costs and increasing profitability.
As companies seek to venture into the highly competitive international market, they should ensure that they are well equipped with the relevant information to enable them to compete effectively. Walmart entered the German market with the same strategies that it utilized in the US but failed to acquire significant market shares leave alone profitability. Had it opted to customize its strategies to suit the prevailing conditions in Germany, chances are high that it could have been successful just as was the case in another foreign market. Therefore, organizations need to be familiar with their target international market before venturing into them.
Christopherson, Susan. “Barriers to ‘US Style’ Lean Retailing: The Case of Walmart’s Failure in Germany.” Journal of Economic Geography 7.4 (2007): 451-469. EconLit with Full Text. EBSCO.
Kolben, Kevin. “Walmart Is Coming, but It’s Not All Bad: Walmart and Labor Rights in Its International Subsidiaries.” UCLA Journal of International Law & Foreign Affairs 12.2 (2007): 275-332. Academic Search Complete. EBSCO.
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