With stores in 25 countries, Walmart is one of the biggest businesses in the world. Still, when they tried to expand into Germany in 1997, they quickly found that their business model wasn’t working there.
Fast-forward 9 years and Walmart pulled out and closed all of their German stores in 2006. So with all of their success worldwide, why did Walmart stores fail to take off in Germany?
In the following sections, we will break down the nine biggest reasons why Walmart and Germany just couldn’t get along. We’ll also briefly touch on how these mistakes could have been averted and what other businesses can take away from these discoveries.
9 Reasons Walmart Failed in Germany [An Avoidable Disaster]
1. German Law Wouldn’t Allow Walmart to Undercut Local Prices
The German government accused Walmart of attempting to undercut the local grocery chains for selling groceries below cost.
This tactic is known as a below-cost strategy. Essentially, companies initially penetrate the market with lower prices, then raise them slightly (or not so slightly) once they have a base of customers built up and they’ve driven out local competition. Of course, the prices also tend to go back up after the competition is run out of town.
German regulations prohibit strategies like below cost from destroying local chains. Ultimately, Germany’s high court ordered Walmart to raise its prices above cost.
2. Walmart and German Unions Were Incompatible
Walmart is notorious for playing low wages and suppressing unions in the United States. The stores even force employees to watch anti-union propaganda before they’re allowed on the sales floor. In Germany, however, unions are very much a part of the culture and have broad support amongst the government, the community, and even businesses.
The German workforce is accustomed to negotiating their pay with their union. This caused friction between the workers and the company. When Walmart refused to join Germany’s regional wage bargaining system, the worker’s union went on strike.
Accustomed to workers in other countries with different cultural traditions–who mainly just accepted the wages as they were–Walmart was taken aback. This also gave them a bad reputation in the community and likely affected their sales.
Hans-Martin Poschmann, a secretary of one of these German unions, famously once said, “They didn’t understand that in Germany, companies, and unions are closely connected. They thought we were communists.”
3. Walmart Underestimated Their Competition
In the United States, Walmart is primarily considered a low-cost, one-stop-shop for just about anything a person could need. In Germany, however, the people value the quality of products as much as they value the price. They weren’t about to abandon the small grocery chains they had always shopped at.
Walmart did not expect such resilience from the 14 hypermarket chains that were popular across Germany, and they failed to adapt even after they found out.
4. Retail Chains Were Already Doing Poorly in Germany
Part of the problem with Walmart’s transition into Germany is that retail chains were growing at an alarmingly low rate at the time. In fact, when Walmart came into Germany, the average growth rate for a retail chain was just .3% per year. This acted as an immediate disadvantage in Walmart’s journey towards sustainable growth in the country.
5. Employees Felt Uncomfortable With Walmart’s Practices
It wasn’t just the pay and lack of worker rights that upset Walmart employees. It was also some “team-building” practices that many Germans didn’t feel comfortable doing.
At Walmart, workdays started with light exercises and motivational chants. While in US culture, these activities can sometimes bring a team closer together, in Germany, they are entirely unexpected and only served to make the employees uncomfortable.
To learn more about Walmart’s practices against employees, you can view my post on whether or not Walmart is evil.
6. Employees Felt That Walmart Overreached Into Their Personal Lives
This goes hand in hand with the employees feeling uncomfortable. German employees felt that Walmart was reaching too far into their personal lives with dating policy.
In the United States and in many countries, it is taken as a given that employees that work in the same department cannot engage in romantic relationships. In Germany, however, this is not the standard. In fact, it is frowned upon and considered a huge overstep into a person’s life.
Already feeling like they had been cheated out of fair wages, German’s who worked at Walmart were further pushed into a negative view of the company because of this policy.
7. Walmart Failed to Take Into Account Cultural Differences Surrounding Shopping
In the United States, it is considered commonplace or almost by default that people like to drive out to one store and buy everything they need there at a reduced price. This is part of why Walmart has been so successful in the US.
In Germany, on the other hand, shoppers have different habits, and the way the economy is structured lends more significance to smaller discount chains. Below are just a few differences in culture, which caused fewer Germans to go to Walmart and more to go to smaller chains.
- Many Germans like to shop at places that are within walking distance.
- The idea of “service with a smile” is not as emphasized in Germany and came across as odd and uncomfortable.
- Smaller discount chains in Germany can sell goods at lower prices than big retail chains by law.
- Walmart enforced a corporate culture that ran counter to the values of many Germans. On the other hand, the small chains were in line with their beliefs.
8. Walmart Didn’t Focus Their Services Enough
Walmart sells just about anything a person would need; food, clothes, entertainment, car parts, gardening supplies, and more. Given the German population’s tendency to shop at smaller, more focused stores, this didn’t work on a cultural level.
It also didn’t work on an economic level. Part of the reason Walmart can sell so many goods at such a low price in the US is that they receive tax subsidies and pay workers a lower wage.
As we’ve seen previously, they were challenged on all of these issues. Still, had they tried a more focused approach, perhaps on groceries or home goods, they could have carved out a corner of the market.
9. Walmart Failed to Adapt to Germany’s Economy
When you put all this together, you get the primary reason why Walmart failed to gain any steam in Germany. They could not, and would not, adapt to the different economic system.
At every turn, there were things Walmart could have done that would have given them a better shot. If they had focused their products more, studied the culture, and accepted workers’ unions, they might just have succeeded.
This is really what we should be taking away from this historic failure. If you want to be part of a certain market, you must do a considerable amount of research ahead of time, tailor your policy to the culture and be open to change if it means your business will do better.
So, Really Why Did Walmart Fail in Germany?
If the folks at Walmart had been more proactive in studying Germany’s economic system and consumer habits, their stores might not have failed. That or they would have realized it wasn’t the right fit without dropping a lot of money on it.
Instead, Walmart stuck to what worked in other countries like the US and China. Allow us to reiterate that if there is anything we can take away from this failure, understanding the people you serve is more important than having all the resources money can buy. If you don’t know your customer, you may find that you don’t have one.
To learn more about Walmart branching to other locations, you can also see our guide on Walmarts efforts trying to get into the Australian market.
Additionally, if you are looking to learn more about Walmart, be sure to see our posts on Walmart statistics, why Walmart is so trashy, the most stolen products from Walmart, and why Walmart is so cheap.
