Why Walmart Failed Miserably in Germany

This video will examine why Walmart was a huge failure in Germany.

​​Walmart entered the German market in 1997 with an aggressive series of investments and big hopes of expanding its global presence. The company bought two existing German retail chains to gain an overnight presence in the country. But after struggling for nearly a decade, Walmart announced its exit from the German market in 2006 and sold its 85 stores at a $1 billion dollar loss. So, what went wrong for the massive retailer in Germany?

There are a lot of reasons for why Walmart ended up failing in Germany, but the number one factor in all of them is that Walmart failed to adapt its business strategy to the unique aspects of the German market and culture. Walmart thought that it could take the same approach in Germany as it did in the US and the results were disastrous.

As an example of this failure to adapt, when Walmart entered the German market it began attempting to use its tried and true business tactic of offering the lowest prices in order to undercut the competition and gain market share. But Walmart had severely underestimated its competition when it began to take this approach. The discount retail market is full of stiff competition in Germany because there were many strong, established brands like Aldi and Lidl that Germans were already familiar with. These businesses had already built customer loyalty and entrenched themselves in the German market which made it incredibly difficult for Wal-Mart to come in as an outsider and take market share from these successful businesses. And when Walmart tried to undercut these businesses on prices, they fought back and lowered prices themselves.

This ended up creating a pricing war which the German government was not happy about. Germany's government accused Walmart of inciting a price war in which it illegally sold products below their wholesale costs. This led the German government to intervene in order to prevent Walmart and other big chains from using tactics like these that would drive smaller stores out of business. And the german government would force Walmart to raise many of its prices. This effectively ruined Walmart’s strategy of pricing their competition out and forced them to compete for market share using other factors.

Another major reason Walmart failed in Germany is that it insisted on imposing its corporate culture and practices in Germany and these practices did not translate well to Germany. A large part of this mistake came from the fact that Walmart initially hired American executives to manage its German business instead of hiring German executives who would have had a better understanding of the market and what German customers wanted.

Walmart’s employee policies surrounding customer service also were weird and off-putting to German customers. For example, the so-called “10-foot Rule” is one of Walmart’s approaches to customer service.

But the problem is this is not what Germans wanted Walmart employees to do to at all. In fact, they thought this behavior was extremely strange and off-putting. So when Walmart was requiring its German Sales clerks to smile at customers, this was actually making many customers very uncomfortable because it’s not normal in German culture to smile at strangers.

Walmart also has a tradition where it has its employees start the workday with a Walmart cheer. Having employees cheer like this could easily be considered weird by many people in the United States, but this type of company practice was even weirder in German culture which is more formal. Walmart eventually stopped doing this in Germany because it did not translate well, but the damage to their reputation had already been done. As the secretary of a German union put it, “People found these things strange; Germans just don’t behave that way,”

So after nearly a decade of Walmart making missteps like this and failing to gain market share in Germany, Walmart finally surrendered in 2006 and sold its 85 stores at a loss to one of its German retail competitor’s named Metro. Walmart said in its statement announcing the sale that “As we focus our efforts on where we can have the greatest impact on our growth and return on investment strategies, it has become increasingly clear that in Germany’s business environment it would be difficult for us to obtain the scale and results we desire,” said Duke. “This sale positions us to increase our focus on the markets where we can achieve our objectives.”

Walmart’s failure in Germany is a textbook example about the importance of adapting to different business environments. Just because a business strategy is incredibly successful in one market does not mean that it will work in the next. In fact, that same strategy could turn into a financial disaster with huge losses when applied in a new market which is a lesson that Walmart learned the hard way in Germany.

[Aci_yt]

Ah yes, let's make workers CHANT for their employer and report colleagues to a superior in GERMANY of all places.

[Julia-lkjn]

Germans don't mind smiling at people, including strangers. I think it's more the "being smiled at by somebody because that person is paid to smile at me" that rubs us completely the wrong way.

I think the instinctive German reaction to walking into a shop and having somebody go "hello, nice to see you, thank you for shopping at WhatEver" is to think _"don't you have any actual work to do? Go open a check-out or something"_ .

[butlazgazempropan-butank]

The fact that the first thing walmart did after coming to germany is breaking the law says a lot about it

[schnelma]

As a German, I can say that you described the cultural reasons very well

[paskariu]

I'm German and you captured it perfectly. I recall reading a pdf document that went a little more into detail about the lawsuits etc. a few years ago and to my memory, you mentioned the most important details.

Walmart did so little market research it'll never stop being funny to me
+ we famously don't do small talk or smile at people
+ you do NOT fuck with unions
+ they didn't even look at what the laws are the heck did they expect?

[enomiellanidrac]

5:51 "In Germany Labour Union are more ingrained in the country's culture"

Translation, in Germany employees have rights and will actually defend them.

[SonOfBaraki]

Wallmart : *smile*
Germans: So you've chosen death

[jackmclane]

I actually liked to go to the local walmart in Germany for the freak show.
That 10 foot rule sparks a "Get off me, creep!" reaction in Germany. 😅

[hertelantje]

I‘m here after Ryan reacted to this video.

Well explained.

[SerafineSilverstream]

We Germans do smile at each other, but we find it VERY obtrusive and pushy if we're smiled at and approached for no reason by someone who is paid to sell stuff to us. The general rule is if we're looking for some niche product or something that could be sorted into multiple categories WE WILL ASK YOU. If we can't find BASIC things, either your market layout or your signs SUCK and we probably won't coome again. I think the biggest damage Wallmart did though, was their attempt to ban workplace relationships (which are a VERY common thing here) and the resulting legal fight and media coverage. This really painted them as a hostile invader that tried to extend its corporate culture into people's private lives. Stuff like that ABSOLUTELY does not fly in Germany and can quickly tank your reputation to Mariana trench levels.

[TheOrignalTRockz]

What Walmart tried in Germany, especially with their way of treating employees, was so ridiculously ignorant of German laws, it makes Germans crack up till today. Walmart apparently really thought they could just do whatever the heck they wanted. Also their outrageously ugly clothing nobody wanted or understood - Germans of course like low prices, but quality comes first - always.

Walmart was just the perfect example of US arrogance when it comes to other countries and cultures.

Walmart could‘ve learned a lot, but instead they just chose to lose money instead of improving, adapting and adjusting.
Really sad behavior.

[JPKloess]

I had no idea Walmart even tried to expand into Germany; interesting stuff.

[PascalGienger]

In my opinion (I experienced this while being in Mannheim), the ethics code was the game breaker. Everything else was seen as "oh yeah, they're Americans, they will adapt" - but this ethics code burned it all down. It is an absolute no go to write anything in a work contract which touches private life - not for a sales associate. The employer just must never put his nose and restrictions into private life. Who you love, marry, date - all this is 100% outside of any employment contract in Germany. It went so far that two Walmart employees kissed each other after that stupid "motivation start" at the beginning of the work shift and then waited for Walmart to terminate to bring them before work/employee court in Germany :) With the known result.

[klausbrazil]

Walmart also failed in Brazil. Also here in Brazil Walmart simply did not mind about local culture.

[tillneumann]

I worked in the legal department of the German branch of a multinational consumer goods corporation when Walmart set foot in Germany. I remember somehow vividly (though I cannot find evidence on the Web these days) that according to a report in the trade journal Lebensmittel-Zeitung, Walmart also tried to transplant much of their own logistics system, with pallet sizes all their own (most likely in inches), while practically all of Europe was (and is) working with Europallets (exchangeable pool pallets sized 120 x 80 cm), and which basically all semitrailers are designed to accommodate up to the optimal number, but not some proprietary format. If this was as I remember the report, Walmart must have been bleeding unnecessary money with every single delivery because the trucks used were partly empty.

[FloofersFX]

This is really telling of the differences of business practices between the EU and US as well.
Great video!

[okaro]

I hate stores where they push to help. I would never visit such a place if there were any alternatives, especially in a grocery store where I generally know what to get.

[VIrtanenish]

Rudimentary labor law: *exists*
Walmart: "why is this market so hostile :("

[compuholic]

I was a teenager when Walmart started up in Germany. I still remember when I first went shopping there: It was a weird experience. I cannot remember the smiling employees. But I do remember two things that were not mentioned in the video: An employee greeting you at the door and people packing your items into bags are also concepts that are really weird in Germany.

I was walking into the store and there was this girl welcoming me to Walmart. I was briefly confused like "what do you want from me?". And then there were the packers: People who were about the same age as me, probably also still in school and again I was briefly confused: "Why are you touching my stuff? I just bought this."

[qazatqazah]

Very interesting, good video.
All this video misses is a ton of views.