Wal-Mart pulls out of Germany, sells to Metro

REUTERS.com ^ | Thu Jul 27, 2006 | Reuters

[wolf78]

FRANKFURT, July 28 (Reuters) - Wal-Mart Stores Inc. (WMT.N: Quote, Profile, Research), the world's biggest retailer, is selling its underperforming German stores to the country's leading retail chain Metro (MEOG.DE: Quote, Profile, Research), a major retreat that will cost it about $1 billion.

Wal-Mart, which operates 85 hypermarkets across Germany, said on Friday it would incur the roughly $1 billion pretax loss on the deal in the second quarter of its fiscal 2007 year.

Wal-Mart entered Germany in 1997 but has been unable to capture market share, hurt by cut-throat competition from rivals such as Metro or discounters like Aldi. Wal-Mart has closed several of its German stores over recent years.

It generated sales in Germany of around 2 billion euros

($2.55 billion) last year.

"Metro is taking over the stores free of debt," a source close to the deal told Reuters. "At the end, Metro is being paid to take them off of Wal-Mart's hands."

"Wal-Mart just couldn't make it any more," the source added. "They had to get out."

[wolf78]

You simply can't mess with ALDI on its home turf. In Germany "discount shopping" means no frills at all. If you've ever witnessed the efficiency of a ALDI cashier, you really begin to wonder why Germany lost WWII ;-).

THE ALDI PHILOSOPHY

[Hong Kong Expat]

Wal-Mart is having Problems in China as well, while Carrefour is doing gangbusters.

I'm guessing that the effort to give our big companies tax breaks makes them weaker to compete against the rest of the world.

[DB]

Never heard of them.

[Dane]

ALDI's here in the states does have it's own niche and market, although I haven't gone to one in a long time, since Wak-Mart and other supermarket chains seem to be offering superior products at comparable prices, plus I hate their shopping carts that you have to pay a quarter deposit to use. It's not the quarter deposit it's that their carts always seem to get stuck

The funny thing that I have observed about ALDI's is tajat they seem to piggyback on Wal-Mart's real estate development. Wherever you find a Wal-Mart, there is an ALDI's.

[lula]

Europeans shop on a daily basis for meals. Their refrigerators are the size of a dishwasher. Most stores are closed on Sundays. That leaves for the most part of the working force to shop on Saturdays and stores are extremely busy.

The phenomena of Wal-Mart clashed with custom here. There are other Wal-Mart like discount stores called Real, but are pricey because of name brands. I love Aldi, Penny Mart, and Lidl they even beat the Armed Forces Commissary most of the time.

And oh yes they don't bag your purchases you bring baskets for small purchases or load everything back into your cart and into your own bags in your trunk. Very different and very environmentally conscious, you won't see those nasty plastic bags strewn all over the highways like in the states. They even have bins in the stores so you can undo excess packaging and leave the trash behind.

[Paulus]

I got to the Aldi's here in Switzerland. It is the place where I can find the most "Made in USA" food products.

[Sprite518]

I heard that in China there are no copyright laws. For instance, you can McDonald's, and right across the street McDave's. Same menu just different name, and that is perfectly ok in China.

The Chinese are just copying everything we have, and selling it at a lower price. They just walk into a Walmart, see what we have, and basically copy it.

Perhaps China will not be the gold pot that they thought it would be?

[Dane]

I got to the Aldi's here in Switzerland. It is the place where I can find the most "Made in USA" food products.

Here in the US, about 90% of the food ALDI's sells is their own in house brand, which while somewhat cheaper, is much lower in quality, than other US brands, and as I said Wal-Mart and other supermarket chains have basically comparable prices with much higher quality brands.

[elli1]

I had not heard of them either, until they started expanding into Wisconsin 5-6 years ago. Now, there are quite of few stores here in the state. Company website says that they operate over 700 stores, mostly from Kansas to the east coast.

[Gamecock]

I have been in Germany for two years. Have yet to set foot in a Wal-Mart. I much prefer the smaller stores.

[Paulus]

I would agree. However, in my situation it is mostly canned red beans, pinto beans, and other items that can be kept in storage a very long time.

[hoosierham]

You don't PAY a quarter to use the cart,unless you simply don't retrieve your quarter upon returning the cart to the cart area.

I once picked up a quick 75 cents by rolling three carts abandoned in the parking lot by other shoppers.It means Aldi doesn't need a cart person and much less likely to have a cart vs. car paint scratch.

Some of their house brand items are low taste.Most are good,though.You can save a lot of money and still eat well.

The Aldi cashiers here used to have to memorize the prices until a few years ago they put in scanning cash registers. I never found the cashiers wrong,though. It helps to have an excellent memory for numbers;I think too many people are too lazy or untaught in the use of memory.

[wolf78]

And oh yes they don't bag your purchases you bring baskets for small purchases or load everything back into your cart and into your own bags in your trunk. Very different and very environmentally conscious, you won't see those nasty plastic bags strewn all over the highways like in the states. They even have bins in the stores so you can undo excess packaging and leave the trash behind.

Not only that, it's also a psychological question (yes, studies have been performed on that topic). If an American gets his purchases bagged, he or she considers this service. A German (at least when he's shopping for groceries) fears that somebody wants to steal or soil his groceries in the same situation. The German mindset is: I bought it so don't you dare touch it!

Wal Mart actually tried American-style service for a few weeks (talking to customers, assisting them and the like), Germans went NUTS! They considered the Wal Mart shopping experience to be obtrusive and annoying. After a few weeks Wal Mart adapted to the market, but as it seems not successfully enough.

[snowsislander]

I think that Wal-Mart will have to do the same thing with their Seiyu stores in Japan.

From the wires today:

...

The Japanese subsidiary of American retailing giant Wal- Mart Stores Inc. (WMT) predicted a net loss of Y54.0 billion against its previous forecast loss of Y54.5 billion for the first-half ended June. It cited improved sales growth as the main driver behind the revision.

For the full year ending December, Seiyu forecasts a group net loss of Y54.5 billion.

But Seiyu also said that it was expecting to make a consolidated operating loss for the first half of 2006 of Y1.3 billion after previously forecasting a Y1.5 billion profit.

Pretax profit is also forecast to worsen to a Y4.2 billion loss form its earlier prediction of a Y1.7 billion loss. The company blamed the downgraded forecasts on intensifying competition and lower-than-expected margins.

...

(Source: EasyBourse)

I don't think that Wal-Mart has judged that market correctly also. With respect to Japan, I believe that it is a simple misjudgement about Japanese shopping behavior in general.

[7thson]

I've heard of Metro. They use to have a store in Laurel, Maryland. It was my first experience with a big box store. Two stories of stuff. A few months after I was intoduced to the store, they sold out to someone else who eventually closed it down.

[Hong Kong Expat]

There are copyright laws, but it goes against the Chinese culture of open market-warfare. The retail market there would make any western tremble in fear.

The Chinese compete only on two points Luxury and Price. Western brands have a level of luxury so that puts them ahead of their Chinese counterparts. Except for Wal-Mart, it's success in the US is based on logistics and low prices. So they have to compete with the Chinese on their terms. And Wal-Mart has been making many classic mistakes of international marketing 101.

The Piracy is really a non-issue (except for DVD's), China is still a poor country so it's not like Nike, Louis Vitton, etc are actually losing sales to the copycats. Middle class for them is US$1,000 a month. And Nikes in Shanghai are the same price they are in Philly.

[Einigkeit_Recht_Freiheit]

I honestly think you are both a bit misguided. I have lived in the US and Germany and have shopped at WalMart in both.

Walmart's major problems arose from 2 factors. The first is that they couldn't get space for their giant stores in Germany. The price of land and zoning laws made it next to build the bigbox model (Germany has 1/5 of the US population with only 1/25 the land or 1/15 minus Alaska). Thus, the Walmart concept of everything in the same easy to maneuver place was lost. The stores they had weren't really distinguishable from others.

The second factor was German labour laws. Basically, they couldn't pay their employees the way they do in the US. The cost of health insurance along was probably more than the hourly wage that they pay their American workers.

As soon as I walked into WalMart for the first time in Germany, I knew it wouldn't work. It was a big mistake.

[wolf78]

Germany has 1/5 of the US population with only 1/25 the land or 1/15 minus Alaska.

Germany has approx. 28% (not 20%) of the US population (82.5 vs. 299 million) ;-).

[Einigkeit_Recht_Freiheit]

Yeah, but a bunch of them are Muslims so I only counted them as 1/5 of a person. ;0)

[StevieJ]

Wal Mart actually tried American-style service for a few weeks (talking to customers, assisting them and the like), Germans went NUTS!

I'm not surprised – Here in the UK the weekly trek to the megamarket is considered an exercise in abject misery and having some employee trying to tell you otherwise with forced cheerfulness is considered the highest level of bad manners. Please, let us continue trudging around in our zen-like trance of wrist-slitting despair.