Why Walmart Failed In Germany

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 6 minute read

Walmart is one of the world’s largest corporations, with a presence in more than 25 countries. As a result, in 1997, when they attempted to expand into Germany, they immediately discovered that their business model did not work there.

Nine years later, in 2006, Walmart closed all of its German stores and exited the country. So, given Walmart’s global dominance, why haven’t their German operations taken off?

We’ll go over the nine main reasons why Walmart and Germany couldn’t get along in the following parts. The lessons learned from these blunders will be discussed briefly, as will how they may have been avoided and what they mean for future businesses.

What Could Have Been Done to Prevent Walmart Germany’s Failure?

1. German law prohibits Walmart from undercutting the prices of local businesses.

Walmart was accused by the German government of undercutting local supermarket chains by selling goods below cost.

A “below-cost technique” describes this approach. It’s common for new businesses to decrease their prices to gain a customer base, then raise them a little bit once they’ve established a customer base and eliminated local competitors. Of course, when the competition leaves town, prices usually go back up.

German law prohibits the destruction of local chains by techniques like below-cost pricing. Germany’s supreme court ordered Walmart to raise its prices above the cost of production.

2. Walmart and German Unions did not mix well together.

In the United States, Walmart is known for its low salaries and anti-union practices. Before being authorized to work on the sales floor, employees are even required to watch anti-union propaganda videos. However, in Germany, unions are deeply ingrained in society and have widespread support from the government, the public, and even private sector employers.

German workers are used to bargaining with their unions over their wages. As a result, there was dissatisfaction on both sides. Worker protests began when Walmart declined to participate in regional wage negotiations in Germany.

Walmart was caught aback because it was used to hiring people from other nations with distinct cultural norms who simply took their pay as it was. This tarnished their image in the neighborhood and may have had an effect on their sales.

One of these German unions’ secretaries once famously observed, “They didn’t understand that in Germany, companies and unions are intimately tied. It was as if they believed we were communists.

3. Walmart undervalued the competition.

As a general rule, Walmart is seen as a cheap, one-stop shop in the United States where customers can find anything they need. Germans place as much importance on the quality of their items as they do on the pricing. They weren’t about to give up their favorite little grocery businesses.

Even after discovering that Germany’s 14 popular hypermarket chains were resilient, Walmart was unable to change its strategy.

4. German retail chains were already struggling.

Because retail chains were developing at an alarmingly slow rate at the time, Walmart’s entry into Germany was problematic. In fact, retail chain growth in Germany was only.3 percent per year when Walmart arrived. As a result, Walmart’s sustainable growth in the country suffered an instant setback.

5. Walmart Employees Were Unhappy With Their Working Conditions

Employees at Walmart weren’t simply outraged about their wages and lack of worker rights. It was also some “team-building” practices that many Germans were apprehensive about.

We began our workdays at Walmart with some simple exercises and a few inspirational chants. Germans are astonished when their coworkers take part in activities that are completely out of character in the United States.

Check out my piece on whether or not Walmart is wicked to discover more about the company’s treatment of employees.

6. Walmart employees felt the company had encroached on their personal lives.

With the staff feeling uncomfortable, this goes hand in hand. Walmart’s German employees believed that the company’s dating policy was excessively intrusive into their personal life.

Employees in the same department are prohibited from having romantic relationships in many nations, including the United States. However, this is not the norm in Germany. It’s actually frowned upon and viewed as a major intrusion into a person’s private life by many people.

Because of this approach, Germans who worked for Walmart already had a bad opinion of the corporation due to their sense that they had been cheated out of fair wages.

7. Walmart did not take into account cultural differences in the context of shopping.

As a matter of course in the United States, consumers prefer to shop at one store and get everything they need at a discounted price. Walmart’s success in the United States is partly due to this.

Shopping habits are different in Germany and the economy is structured in a way that places more importance on smaller discount chains. For example, Germans prefer to shop at smaller chains rather than Walmart because of these cultural differences.

  • The convenience of walking to a store is important to many Germans.
  • When I arrived in Germany, I found the concept of “service with a smile” to be strange and uncomfortable.
  • Law in Germany allows smaller discount businesses to sell goods at cheaper prices than larger retail chains.
  • Many Germans were offended by Walmart’s corporate culture, which they viewed as antithetical to their own. The little chains, on the other hand, were in keeping with their religious convictions.

8. Walmart’s Services Were Not Enough Focused

Food, clothing, entertainment, auto parts, and gardening supplies are just a few of the many items available at Walmart. This didn’t go down well with the German consumer, who prefers to buy at more specialized, smaller establishments.

Economically, it was a failure as well. As a result of tax incentives and cheaper wages, Walmart is able to sell a wide variety of goods at a low price in the US.

All of these issues were brought to their attention, as we’ve seen before. A niche in food or household items would have been possible had they tried to narrow their emphasis.

9. Walmart was unable to adapt to Germany’s economic conditions.

When you put it all together, you can see why Walmart was unable to acquire traction in Germany in the first place. As a result of the new economic system, they were unable and unwilling to adjust.

Walmart could have done more at every point to give themselves a better chance. It’s possible that if they had concentrated more on their products, understood the culture and embraced workers’ unions, they may have made it in this country.

The most important lesson to be learned from this historic failure is this one. If you want to enter a specific market, you must undertake extensive study, adjust your policy to the culture, and be open to change if it means your business will succeed.

Bottom Line

Walmart could have avoided bankruptcy if they had done more research on German economics and consumer preferences. Either that, or they would have discovered it wasn’t a good fit without spending a lot of money on it.

Walmart, on the other hand, stayed with what was shown to work in places like the United States and China. If this failure has taught us anything, it is that understanding the people you serve is more important than having all the resources money can buy. Allow us to restate that. Your customers may not exist if you don’t know them.

In addition to our guide on Walmart’s efforts to enter the Australian market, you can find out more about Walmart expanding to other locations.

Be sure to check out our entries on Walmart statistics, the reasons Walmart is dirty, the most stolen Walmart goods, and Walmart’s low prices if you’d want to learn more.

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