walmart failure in japan case study

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Failure to Differentiate Your Customers (Case Study: Walmart in Japan)

Thursday, july 22, 2021 author: business consultants, inc..

In 2018, Walmart’s global sales exceeded 500 billion U.S. dollars. Walmart brought in more than $500 billion in sales globally. Not surprisingly, three-quarters of those sales came from the U.S. While overseas — particularly in Japan — things are not going so well for the American retail giant.

Recent reports have shown that Walmart may be looking to exit Japan nearly 17 years after its initial entry into the Japanese market. This expansion is related to the 2002 acquisition of a minority stake in Japanese grocery store Seiyu, which became a wholly-owned subsidiary in 2008. Like Walmart, Seiyu uses the “Everyday Low Prices” mantra to market to their consumers. 2

Since then, until now, Wal-Mart has not performed well in Japan. Aeon, Japan's largest supermarket, controls 45 percent of the market. Walmart's Seiyu, on the other hand, has a 12% market share.

That may not sound bad, but to put it in perspective, let’s consider a popular American store that has expanded into Japan with great success — Costco. Costco has only 26 stores in Japan, but in 2017 they brought in just over $3 billion in revenue. Seiyu, on the other hand, has 331 locations and brought in $7.1 billion in revenue.

1 MediaBeacon Inc, Case Study - Companies That Failed Internationally From a Lack of Social Understanding, Dec 23rd, 2019, Accessed 1 June, 2021, https://www.mediabeacon.com/en/blog/case-study-social-understanding 2 Reuters, July 12, 2018, Accessed 1 June, 2021, https://www.reuters.com/article/idCAKBN1K137B-OCABS?edition-redirect=ca

For more about this topic, download our latest book "Get to Know Your Customers Day " for FREE:

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Product details

Wal-Mart in Japan

January 8, 2010

Case Abstract:

The focus of this case study is the hurdles faced by retailing giant Wal-Mart in the Japanese market. WalMart’s best practices in retailing like Every Day Low Prices (EDLP) and Rollback to the Japanese market through its joint venture with Seiyu…In December 2005, Wal-Mart acquired a controlling 50.9 percent stake in Seiyu. However, Wal-Mart has since found it difficult to save the company even after investing more than one billion dollars. The company is revamping stores in hopes of drawing new customers. After exiting from Germany and South Korea last year (because it could not adapt to local tastes), Wal-Mart wants to maintain its presence in Japan. Success in Japan is important to Wal-Mart because a strong presence in the world’s No. 2 retail market is a key driver to future business growth.

• Introduction – Wal-Mart in US Retail Market

Wal-Mart is the world’s largest retailer with $345 billion in sales for the fiscal year ending Jan. 31, 2007. Wal-Mart Stores, Inc. includes Wal-Mart Supercenters, discount stores, Neighborhood Markets and SAM’S Club warehouses. Wal-Mart employs 1.9 million associates worldwide ….

Case Study Contents

• Wal-Mart – Company Background
• Wal-Mart – Timeline
• Wal-Mart: Quick Facts
• Wal-Mart’s turnaround quest: Will Wal-Mart’s mass-market formula work in Japan?
• Wal-Mart increases stake in Japan’s Seiyu to 95%
• Localization Strategy – WalMart’s failure in Germany and South Korea
• Cost-Leadership Strategy- WalMart’s core philosophy – EDLP
• Cheap stuff at cheap prices – Japanese consumer mindset
• Is Wal-Mart the only one struggling in Japan?
• Will Seiyu get to U.S.-style EDLP in Japan?
• Store Formats
• Related Reading
• View sample pages of this case study

Case Study Keywords: Walmart, Wal-Mart Stores Inc., Japanese Retail Industry, Every Day Low Prices EDLP, Carrefour, Daeiei, Aeon Co., Sam’s Clubs, Consumer Behavior, Low cost strategies, Localization Strategies, Pricing Strategy, IT systems, Supply Chain and Logistics, supermarkets

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Wal-Mart Finds That Its Formula Doesn’t Fit Every Culture

By Mark Landler and Michael Barbaro

• Aug. 2, 2006

WIESBADEN, Germany, July 31 — Three days after Wal-Mart Stores announced that it would pull out of Germany, Roland Kögel was wandering through the aisles of a somewhat threadbare Wal-Mart in a strip mall in this western German city.

“Why are they giving up now?” he asked. “They have good prices and a good variety of products.”

Yet Mr. Kögel, 54, confessed that he never bought groceries at Wal-Mart. Food is cheaper at German discount chains. He also does not visit this store often, because it is on the edge of town and he does not own a car. His one purchase for the day was tucked under his arm: a neck pillow.

Shoppers like Roland Kögel help explain why Wal-Mart raised the white flag in Germany, the site of the company’s first foray into Europe.

After nearly a decade of trying, Wal-Mart never cracked the country — failing to become the all-in-one shopping destination for Germans that it is for so many millions of Americans. Wal-Mart’s problems are not limited to Germany. The retail giant has struggled in countries like South Korea and Japan as it discovered that its formula for success — low prices, zealous inventory control and a large array of merchandise — did not translate to markets with their own discount chains and shoppers with different habits.

Over all, Wal-Mart is still expanding outside the United States, particularly in markets where it entered by acquiring a strong retailer. Still, given Wal-Mart’s formidable record at home, the company’s recent setbacks have exposed a rare vulnerability overseas.

Some of Wal-Mart’s problems stem from hubris, a uniquely powerful American enterprise trying to impose its values around the world. At Wal-Mart’s headquarters in Bentonville, Ark., however, the message from these missteps is now registering loud and clear.

In particular, Wal-Mart’s experience in Germany, where it lost hundreds of millions of dollars since 1998, has become a sort of template for how not to expand into a country.

“It is a good, important lesson, a turning point,” an international spokeswoman for Wal-Mart, Beth Keck, said. “Germany was a good example of that naïvete.” She added, “We literally bought the two chains and said, ‘Hey, we are in Germany, isn’t this great?’ ”

Among other things, she said, Wal-Mart now cares less whether its foreign stores carry the name derived from its founder, Sam Walton, as the German Wal-Marts do. Seventy percent of Wal-Mart’s international sales come from outlets with names like Asda in Britain, Seiyu in Japan or Bompreço in Brazil.

Wal-Mart is also trying to integrate acquisitions with more sensitivity — a process that involves issues like deciding whether to consolidate multiple foreign headquarters and how aggressively to impose Wal-Mart’s corporate culture on non-American employees.

In Germany, Wal-Mart stopped requiring sales clerks to smile at customers — a practice that some male shoppers interpreted as flirting — and scrapped the morning Wal-Mart chant by staff members.

“People found these things strange; Germans just don’t behave that way,” said Hans-Martin Poschmann, the secretary of the Verdi union, which represents 5,000 Wal-Mart employees here.

Wal-Mart’s changes came too late for Germany, but they could help it crack other markets, like China, where it already has 60 stores and 30,000 employees. Far from being chastened by its setbacks, Wal-Mart is forging ahead with an aggressive program of foreign acquisitions.

In a single week last fall, Wal-Mart completed the purchase of the Sonae chain in Brazil, bought a controlling stake in Seiyu of Japan, and became a partner in the Carcho chain in Central America. The deals added 545 stores and 50,000 employees to Wal-Mart’s overseas empire.

“I’m hard pressed to name a U.S.-based general merchandise retailer that is doing better than Wal-Mart International,” said Bill Dreher, who follows Wal-Mart for Deutsche Bank in New York.

Starting from scratch 14 years ago, Wal-Mart International has grown into a $63 billion business. It is the fastest-growing part of Wal-Mart, with nearly 30 percent sales growth in June, compared with the same month last year. Even subtracting one-time gains from acquisitions, it grew at nearly 12 percent, about double the rate of Wal-Mart’s American stores.

Sustaining that pace is critical for Wal-Mart, because high fuel prices have helped sap the buying power of Americans. In June, store traffic in its home market declined. Wal-Mart estimated that its sales in the United States in stores open at least one year would increase only 1 percent to 3 percent in July.

Wal-Mart Germany, with 85 stores and $2.5 billion in sales, is almost a footnote for a company focused on Asia and Latin America. But the problems it encountered here have echoes elsewhere. For example, it never established comfortable relations with its German labor unions.

“They didn’t understand that in Germany, companies and unions are closely connected,” Mr. Poschmann said. “Bentonville didn’t want to have anything to do with unions. They thought we were communists.”

Ms. Keck said Wal-Mart did cultivate good relations with the leaders of the works’ council, which represents the unionized work force, and changed policies in response to employee concerns.

Wal-Mart will soon get another chance to deal with organized labor, albeit of a less independent sort. In China, the state-controlled All-China Federation of Trade Unions is organizing workers in Wal-Mart’s stores.

Germany also provides a lesson in the perils of buying existing chains. Wal-Mart’s purchase of Wertkauf and Interspar saddled it with stores in undesirable locations. The Wiesbaden outlet is worlds away from a squeaky-clean American Wal-Mart: nearby are a couple of sex shops.

“These were some of the least attractive of the big-box retailers out there,” said James Bacos, director of the retail and consumer goods practice at Mercer Management Consulting in Munich.

Compounding the problem, Wal-Mart shut down the headquarters of one of the chains, infuriating employees who opted to quit rather than move. Such a decision would have been routine in the United States, where Ms. Keck said, “moving is a big part of the Wal-Mart culture.” In Germany, she said, it prompted an exodus of talented executives.

In South Korea, Wal-Mart had only 16 stores — a small presence that contributed to its decision in May to sell out to a Korean discount chain. Many Koreans have never heard of Wal-Mart. In Seoul, a sprawling area of 10 million, there is only a single store.

This lack of scale causes another problem that has afflicted Wal-Mart in several countries: its inability to compete with established discounters, like the Aldi chain in Germany and E-Mart in Korea.

The obvious lesson is to try to bulk up. In Brazil, Wal-Mart opened only 25 stores in its first decade there and struggled to compete against bigger local rivals. Then, in 2004, it bought Bompreço, giving it a presence in the country’s poor, but fast-growing, northeast.

Wal-Mart did not change the names of the stores, which range from neighborhood grocers to large American-style hypermarkets. But with 295 stores in Brazil, Wal-Mart now ranks third in the market, after Carrefour of France and the market leader, Companhia Brasileira de Distribução.

Size has given Wal-Mart increased leverage with suppliers there, though analysts say the company needs even more stores to be in a position to undercut local discounters on the prices it offers customers.

At a Wal-Mart store in suburban Rio de Janeiro the other day, Ana Paula Cunha de Almeida, a 26-year-old housewife, had loaded her shopping cart with rice, beans and flour. But she was also carrying a bag from a smaller grocery store, where she had bought meat, cheese and cold cuts.

“These are always cheaper somewhere else,” she said.

The grocery business has proven the most difficult for Wal-Mart to crack. Aldi, with 4,100 stores in Germany, undercuts Wal-Mart on price, while still offering high-quality food.

Even in Canada, where Wal-Mart steamrolled local department store chains when it entered the country as a nonfood retailer in 1994, the grocery trade looms as a challenge. Wal-Mart recently announced plans to build supercenters that will also sell groceries. But analysts predicted Wal-Mart would face stiff competition from Canada’s largest chain, Loblaw.

Bernie Skelding, a vacationer shopping at a Wal-Mart in Huntsville, Ontario, north of Toronto, said he liked going to the store when he had a varied shopping list. But he added, “If I’m looking for food, I go to Loblaw’s.”

Wal-Mart’s most successful markets, like Mexico, are those in which it started big. There, the company bought the country’s largest and best-run retail chain, Cifra, and has never looked back. This year, Wal-Mart is spending more than $1 billion in Mexico to open 120 new stores.

Taking over Cifra “gave them a critical mass to build from,” said Tufic Salem, an analyst at Credit Suisse First Boston in Mexico City. “The management stayed, and they knew the market very well.”

Perhaps the most striking example of a Wal-Mart success is Asda, which was Britain’s No. 1 discount chain when Wal-Mart acquired it in 1999. With sales of $26.8 billion, Asda now accounts for 43 percent of Wal-Mart’s international revenue.

Wal-Mart’s German experience also taught it to use local management. The company initially installed American executives, who had little feel for what German consumers wanted.

“They tried to sell packaged meat when Germans like to buy meat from the butcher,” Mr. Poschmann said.

Some of Wal-Mart’s missteps — selling golf clubs in Brazil, where the game is unfamiliar, or ice skates in Mexico — are so frequently mentioned, they have become the stuff of urban legend. But even more subtle differences in shopping habits have tripped up the company.

In Korea, Wal-Mart’s stores originally had taller racks than those of local rivals, forcing shoppers to use ladders or stretch for items on high shelves. Wal-Mart’s utilitarian design — ceilings with exposed pipes — put off shoppers used to the decorated ceilings in E-Mart stores.

Beyond the ambience, Wal-Mart’s shoes-to-sausage product line does not suit the shopping habits of many non-American shoppers. They prefer daily outings to a variety of local stores that specialize in groceries, drugs or household goods, rather than shopping once a week at Wal-Mart.

“They have stacks of goods in boxes,” said Lee Jin Sook, 46, a housewife sitting on a subway in Seoul. “That may be good for some American housewives who drive out in their own cars.” But Koreans, she said, prefer smaller packages: “Why would you buy a box of shampoo bottles?”

“I heard Wal-Mart later tried to change their style,” Ms. Lee added, “but I guess it was too late.”

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Walmart's Japan exit comes amid deflation and rise of e-commerce

US retail giant shifts focus to fast-growing India and China

TOKYO -- Walmart is withdrawing from general-merchandise retailing in Japan at a time of persistent deflationary pressures and blossoming e-commerce, highlighting the U.S. giant's desperate bid to reallocate resources to more promising India and China.

Japanese retailing could be in for a shake-up no matter who ultimately buys Seiyu, analysts say.

Walmart to sell Japanese supermarket unit Seiyu

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Why Walmart is failing in Japan

• Post author By James Bond
• Post date February 21, 2022

Walmart is the largest retailer in the world, with revenues reaching 523.96 billion in 2019. They have been able to succeed in multiple countries, but have not had success in all. One of these failures for Walmart was in Japan.

Walmart’s presence in Japan was created by purchasing a stake in Seiyu, which was a Japanese grocery store, in 2002. By 2008 they fully owned this company. Seiyu’s model was based on “Everyday Low Prices” similar to Walmarts model. Even with Walmarts brand recognition, they have not been able to get a good market share in Japan. Currently, Aeon owns 45% of the market share while Seiyu is only 12%.

The main reason for this is that Japanese consumers are not as interested in the low price strategy as Americans are. Japanese customers enjoy hunting for good deals, and will go to multiple stores trying to find a good deal. Another reason for the lack of success is that Japan’s market was already very congested with many supermarkets as well as mom-and-pop shops. Lastly, Japanese consumers enjoy fresh and locally sourced food, and Seiyu does not offer much of that.

This shows that many different countries have different preferences when shopping. While people in the U.S. like to bargain shop all in one place, this does not work everywhere.

Works cited: https://www.mediabeacon.com/en/blog/case-study-social-understanding

Walmart is retreating from its effort to crack Japan’s retail market

Walmart Inc. is selling most of Japanese retailer Seiyu to KKR & Co. and Rakuten Inc. in a deal that values the supermarket chain at 172.5 billion yen ($1.6 billion), as the U.S. giant retreats from its two-decade attempt to crack Japan’s retail market.

Under the agreement, private equity fund KKR will become the majority owner with a 65% stake, while Japanese e-commerce giant Rakuten takes 20%, the companies said in a statement Monday. Walmart will retain a 15% minority interest. Rakuten and KKR will seek to shore up Seiyu’s digital operations as demand for online retail grows in Japan amid the pandemic. The new owners are retaining a previously announced  plan  to re-list Seiyu in the future.

“An IPO is certainly common goal for us,” Eiji Yatagawa, a partner at KKR, told Bloomberg News. “What’s important is to build a business that can go public. For a company to go public, you need to demonstrate a very attractive story to the market.”

In June last year, Walmart said it would seek to relist Seiyu, following years of speculation that it was seeking to sell the chain after years of poor performance. While a 2018 report in the Nikkei newspaper said the Bentonville, Arkansas-based retailer planned to sell the business for as much as 500 billion yen, the company had repeatedly denied it was looking to exit.

Foreign Failures

Walmart first invested in Seiyu in 2002 and took it private in 2008. But like other foreign retail giants, including Tesco Plc and France’s Carrefour SA, it failed to find success in Japan’s notoriously difficult and low-margin supermarket space, and struggled to compete with local rivals such as Aeon Co. and Seven & i Holdings Co.

In 2018, it began working with Rakuten on fresh produce delivery in Japan as well an e-book operation in the U.S. The U.S. giant has been reshaping its international operations to focus on high-potential markets like India and China, and investing to build its digital operations globally as it faces cost pressures and sluggish growth in its home market.

Fresh produce is a 60 trillion yen market in Japan, but only around 3-4% of that is online sales, according to Noriaki Komori, a Rakuten executive officer, creating a growth opportunity. Books and home appliance see about a third of sales online, he said. The pandemic has boosted e-commerce in Japan, where adoption has sometimes lagged other markets, with online clothes shopping and food delivery seeing notable gains.

The combination of online retailer — Rakuten runs Japan’s largest online shopping mall — with traditional brick-and-mortar store has echoes of Amazon.com Inc.’s $13.4 billion  purchase  of Whole Foods Market in 2017. Whole Foods has struggled during the pandemic, however, with foot traffic down an estimated 25%. Amazon’s Japan arm already runs a grocery delivery service with Life Corp., a supermarket chain.

“The world is very different today than it was 18 months ago for all of us,” said Judith McKenna, president of Walmart’s international business. “The world has accelerated in omni channel and digital transformation in the course of this year, not just in Japan but around the globe.”

The deal is expected to close in the first quarter of 2021. Seiyu Chief Executive Officer Lionel Desclee will stay in his role through the transaction and then take a new position within Walmart. A new CEO will then be appointed by a new board comprised of managers from the three owners.

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Please note you do not have access to teaching notes, walmart’s international expansion: successes and miscalculations.

Journal of Business Strategy

ISSN : 0275-6668

Article publication date: 16 April 2018

Walmart achieved extraordinary success and growth in its home country before embarking on a strategy of international expansion. While most of Walmart¹s international expansion efforts were successful, the retailer experienced some challenges in Germany and South Korea, exiting both less than ten years after initial entry. In 2016, Walmart announced the closure of 269 stores worldwide. Although most Walmart stores are now outside the USA, the performance of these stores lag their US counterparts. Walmart has not been able to simply export its “Everyday Low Price” approach. It is important to understand cultural differences in the way people shop in addition to understanding the market, economy and laws of various regions around the world.

Design/methodology/approach

Walmart’s successes and missteps in each country are analyzed. The studies looked at each country’s culture, shopping habits and discuss what worked and what did not in each country. The authors hope that managers planning international expansion will learn from the successes and failures of this giant retailer.

Walmart has a significant presence in Mexico, the UK, Brazil, China and Canada. It has been successful in countries where it has adapted the Walmart model to the local market. International expansion for Walmart, along with other retailers, is now being highly impacted by the growth in online shopping. However, the use of technology for shopping is not a homogenous global experience. The increased demand for online retailers suggests that firms slow down (but not stop) brick and mortar international expansion.

Practical implications

Considering the projected growth in online shopping, retailers with global aspirations need to have a strong and sustainable competitive advantage (e.g. products, operations, marketing and brand name reputation) in addition to a clear internationalization plan. The same factors critical to brick and mortar expansion are applicable to online growth. Having a successful, long-term presence in selected countries requires a clear understanding of each country’s infrastructure, demographics, political and economic systems, in addition to cultural awareness and an understanding of shopping practices.

Social implications

The growth of online shopping internationally will also fundamentally alter international expansion for Walmart and other retailers. Interestingly, Chinese shoppers may be leading the trend in online shopping, as nearly 65 percent of Chinese shoppers use their mobile phones for online shopping, are more likely to buy from off-shore online retailers and are more likely to use their mobile phones to compare prices than either Canadian or US shoppers (PWC, 2016). Walmart’s recent acquisition of Jet.com is sending a clear signal that brick and mortar shopping is not the only way to expand internationally.

Originality/value

This original work about Walmart’s growth strategy internationally is unique. This work will be of great value to managers thinking of expanding internationally. The non-embracing of local cultural habits and use of non-local managers is something that can be easily overlooked when thinking of expansion. Serious financial consequences can be easily avoided by being aware of the mistakes that others have made.

• Case studies
• International expansion
• Corporate strategy
• International strategy

Hunt, I. , Watts, A. and Bryant, S.K. (2018), "Walmart’s international expansion: successes and miscalculations", Journal of Business Strategy , Vol. 39 No. 2, pp. 22-29. https://doi.org/10.1108/JBS-02-2017-0013

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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Case study - companies that failed internationally from a lack of social understanding.

For many companies, expanding internationally is a huge goal. To be able to grow a brand outside of the initial country opens up the opportunity for increasing sales by entering untapped markets who are looking for exactly what a company is selling. 

For company’s who have successfully expanded internationally, the rewards are plentiful. For example, Lego — which is a Danish company — came to the United States in the 70s . Since their expansion, they have become one of the United States’s most beloved toys, reaching nearly 10% of the toy market share in 2018 (good enough for third overall, behind Hasbro and Mattel). 

But, not all international expansions go smoothly.

If a business is not careful and doesn’t do their due diligence, their marketing messages may be lost in translation. Or, if they don’t take the time to incorporate some in-depth market research into their expansion strategies, they may end up losing money instead of making money. 

Here are some examples of companies that failed internationally due to a lack of social understanding and an in-depth breakdown of what really went wrong. 

Walmart in Japan and Their Failure to Differentiate

In 2018, Walmart brought in more than $500 billion in sales globally. Not surprisingly, 3/4 of those sales came from the U.S.

But, overseas — particularly in Japan — things are not going so well for the American retail giant. 

Recent reports have shown that Walmart may be looking to exit Japan nearly 17 years after its initial expansion into the Japanese market. This expansion involved purchasing a minority stake in Seiyu — a Japanese grocery store — in 2002, which then turned into a fully-owned subsidiary in 2008. Like Walmart, Seiyu uses the “Everyday Low Prices” mantra to market to their consumers. 

In between then and now, not much has gone right for Walmart in Japan. Aeon, the top supermarket in Japan, owns 45% of the market share. Meanwhile, Walmart’s Seiyu sits at 12%. 

That may not sound terrible, but to put it into perspective, let’s compare it to another U.S. supermarket that has expanded into Japan with much more success — Costco. 

Costco only has 26 stores in Japan, but in 2017 they brought in just over $3 billion in revenue. Seiyu, on the other hand, has 331 locations and brought in $7.1 billion in revenue. 

So, what went wrong exactly? 

Well, the low price strategy that both Walmart and Seiyu abide by is not nearly as effective in Japan as it is in the United States. 

While consumers in the U.S. appreciate the convenience of being able to find great deals at one central location, Japan consumers are not as concerned with this convenience, making it less of a differentiator in the Japanese market. 

Michelle Grant, the Head of Retailing at Euromonitor International, outlines this issue in a CNBC video , titled “Why Walmart is Failing in Japan.”

In the video, Grant describes how Japanese consumers “enjoy the treasure hunt of pricing” and will go to multiple stores while shopping in search of the best deals. Also, as this Bloomberg Businessweek article points out, Japanese consumers often associate low prices with cheap quality. 

In addition to all of that, Japan’s retail market was already so congested with everything from your stereotypical supermarket to online retailers and mom-and-pop shops by the time Walmart expanded into that region. 

Now, this doesn’t mean that the barriers to entry were impenetrable. It just means that  to enter that market, you need to have a strong differentiator that was effective to the market. This was something that Costco did well, while Seiyu failed. 

Japanese consumers typically aren’t used to shopping in bulk, so going to Costco offers them a totally new shopping experience. Meanwhile, Seiyu was no different than any other supermarket that Japanese consumers were already familiar with. 

Last, Walmart also failed to recognize that Japanese consumers enjoy fresh, locally sourced food — which is something Seiyu does not offer a lot of. 

It remains to be seen whether Walmart will be able to turn it around or if they’ll ultimately end up selling Seiyu. But, one thing is certain, the U.S. supermarket’s lack of understanding their consumers in Japan has set them pretty far back. 

Home Depot in China and the DIY Attitude

Home Depot is known as the place to go for those who embody the DIY mindset when it comes to home improvement. 

In the late 20th century, China started to commercialize and privatize urban public housing to encourage homeownership. For the first time since the 40s, Chinese citizens could own homes. 

Up until this point, Home Depot didn’t even think about expanding to China. But, as more and more Chinese citizens started to own homes, the demand for home improvement and construction materials boomed. As a result, Home Depot acquired Home Way in 2006. 

Unfortunately, in 2012, Home Depot closed all its Home Way stores and left the market. 

So, why the quick exit from the Chinese market for Home Depot? 

The problems they encountered — as laid out in another CNBC video — can be boiled down to two main issues. 

First, the Home Way stores were predominantly located in Chinese suburbs. While being located in the suburbs makes sense in the U.S. — as this is where people tend to move when they gain wealth — this is not the case in China. 

Chinese citizens who acquire wealth will typically stay in the cities and live in apartments or condominiums, which typically don’t require the need for renovations. 

Home Depot took their time when it came to deciding whether or not to enter the Chinese market. However, it seems they still lacked the proper amount of preparation and social understanding it takes to successfully navigate a new and foreign market.  

Starbucks in the Land Down Under and the Importance of Originality 

From its humble roots in Seattle to becoming one of the largest coffee giants in the world, Starbucks is one of the most successful coffee chains out there today. 

In the U.S., it reigns supreme. Look no further than its heavy presence in our pop culture and movies as an indication that it is a staple of American society . But, it’s also a world leader in coffee sales, with nearly 30,000 stores worldwide. 

After its initial success in international markets, Starbucks decided to expand to Australia — opening up their first shop in Sydney in 2000. By 2008, there were over 87 Starbucks locations throughout Australia. 

Despite this growth, things were not going so well for America’s favorite coffee in the Land Down Under. Early on in their Australian endeavors, Starbucks reported $105 million in losses. 

But why was Starbucks expansion into Australia so different than the other international markets it had entered? What exactly went wrong? 

The biggest mistake that Starbucks made when they decided to move into Australia was that they thought they didn’t need to adjust their offerings. 

Australia has a rich coffee culture, where local cafe menus are dominated by complex coffee drinks as opposed to the basic offerings found in Starbucks stores. 

In addition to the basic drinks on Starbucks’ menus, they also have many sugary drinks, which Australians also aren’t particularly fond of. 

Not only did Starbucks fail to tailor their menu to fit the preferences of the Australian coffee consumer, they also failed to alter the physical stores to fit Australia’s idea of what a coffee shop should look like. 

Australians see their cafes as a meeting place to talk business or to catch up with friends. The actual coffee is seen as more of a bonus to meeting there. So, cafes in Australia offer a place to socialize and drink coffee. Meanwhile, a Starbucks shop treats the coffee as the main offering, where you can get your drink and then head out as you start your day. 

Today, Starbucks still operates in Australia — but its target market isn’t Australians.

It’s tourists who are visiting Australia. 

Instead of having locations in various cities and suburbs throughout the continent, they are focusing on major tourist cities. The idea here is that these tourists are looking for something familiar while in a foreign city, and there are few brands that are more well-known than Starbucks.  

Coors’ Messaging is Lost in Translation in Spain

Coors is a very successful American beer manufacturer. But, they made an all-too-common mistake when it came to launching their “Turn it Loose” campaign in Spain — not double-checking a slogan’s translation before going to market. 

When translated into Spanish, their tagline was interpreted as a common expression that means “suffer from diarrhea.” So, not great. 

While this isn’t as big of a failure as the previous case studies, and Coors maintains a strong presence in the Spanish market, it is a lesson in the importance of tailoring your marketing message to fit new consumers, and their language and cultural terms, when in an international market. 

You can find plenty of examples of other companies who have made mistakes in marketing to foreign markets, and there will certainly be more messaging mishaps in the future. 

Takeaways: How to Avoid These Mistakes For Your International Expansions

To ensure that your company doesn’t fall victim to an international marketing blunder, there are a few things you should do prior to setting up shop in a new country, region, or even state. 

First, do the research. ou most likely conducted market research in your current markets and target audience, you will also need to go through the same process in new markets before expanding. It’s important to first establish whether or not there is an opportunity in that international market prior to entering. 

In addition, you have to zero in on the consumer preferences of the new target audience. What type of products they like, what their hobbies are, what flavors they prefer, and simply whether or not your offering will be valuable to them. 

When it comes to marketing, it is not effective to  simply assume you can take current campaigns and apply them without alteration in other areas of the world. People differ from city to city, country to country, and continent to continent. 

How MediaBeacon Can Make Your International Expansions Easier

Some of a business’s most powerful marketing tools are the digital assets that have been created to resonate with their audience. 

When operating in multiple countries, you also have employees who are scattered throughout the world but all need access to the same assets. For example, if you’re rolling out a new product in multiple markets, the assets revolved around that product (such as photos of it) needs to be accessible to all your teams — including those abroad. 

Other assets that your marketing teams, both domestic and abroad, need easy access to are your logo, typography, images, and more. 

That’s where MediaBeacon, a digital asset management (DAM) software, comes in. 

MediaBeacon is all about delivering the correct content and assets to the correct people, no matter where they are working. It also gives your teams access to original assets so that they can quickly alter them to attract a new market while remaining consistent with the international brand.

By incorporating a digital asset management system into your organization, you can have a secure means of facilitating the creation, organization, production, and distribution of all your digital assets.

For countries that require different assets, you can carefully label and tag those specific assets so that the wrong ones don’t get used (you know, so you can avoid accidentally having types of digestive issues inserted into your taglines). 

Contact MediaBeacon today to learn more about how digital asset management can help you thrive abroad!

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Home » Management Case Studies » Case Study: Wal-Mart’s Failure in Germany

Case Study: Wal-Mart’s Failure in Germany

Wal-Mart Stores, Inc. is the largest retailer in the world, the world’s second-largest company and the nation’s largest non-governmental employer. Wal-Mart Stores, Inc. operates retail stores in various retailing formats in all 50 states in the United States. The Company’s mass merchandising operations serve its customers primarily through the operation of three segments. The Wal-Mart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States. The Company’s subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers. Wal-Mart serves customers and members more than 200 million times per week at more than 8,416 retail units under 53 different banners in 15 countries. With fiscal year 2010 sales of $405 billion, Wal-Mart employs more than 2.1 million associates worldwide. Nearly 75% of its stores are in the United States, but Wal-Mart is expanding internationally. The Group is engaged in the operations of retail stores located in all 50 states of the United States, Argentina, Brazil, Canada, Japan, Puerto Rico and the United Kingdom, Central America, Chile, Mexico,India and China.

Wal-Mart’s Entry and Operation in Germany

Wal-Mart’s initial entry into German market was through the acquisitions of renowned 21 store Wertkauf chain for an estimated $1.04 billion in December 1997.It was  followed one year later by the acquisition of In-terspar’s 74 hypermarkets from Spar Handels AG, the German unit of the French Intermarche Group , for ‚¬560 million. Thus Wal-Mart immediately became the country’s fourth biggest operator of hypermarkets. However, with a turnover of around ‚¬2.9 billion, and a stagnating market share of just 1.1 per cent, the US giant still was a negligible one in the German retail market. Even worse, with estimated accumulated losses of more than ‚¬ 1 billion, it is literally drowning in red ink although, according to Wal-Mart Germany’s CEO, Kay Hafner, its non food assortment, which accounts for around 50 per cent of its revenues, is profitable. Instead of expanding its network of stores by 50 units by early 2001, as originally planned, the company has been forced to close two big outlets, while at the same time it was only able to fully remodel three locations into its flagship Super center format. Due to its problems the company also had to lay off around 1.000 staff. On July 2006, Wal-Mart announced   its official defeat in Germany and  would sell its 85 German stores to the rival supermarket chain Metro and would book a pre-tax loss of about $1 billion ( £536 million) on the failed venture.

A Critical Analysis of Reasons for Wal-Mart’s Failure in Germany

There were several factors that contributed to Wal-Mart’s Failure in Germany. Amazing management blunders have plagued Wal-Mart’s German operation from the very start. Wal-Mart’s major mistakes on the German market may be summarized as follows.

• Cultural Insensitivity was the major reason of failure.
• Entry to German market by acquisition strategy.
• Failure to deliver on its legendary “every-day low prices” and “excellent service” value   proposition.
• Bad Publicity about the company due to breaking of some prevailing German law and regulations.

In January 1997, Wal-Mart had first entry in Europe market with the acquisition of Wertkauf hypermarkets in Germany.   Later in that year, Wal-Mart also acquired Interspar, another German hypermarket chain. While its first move — the 1997 takeover of the 21 Wertkaufstores  was indeed a shrewd one, given that company’s excellent earnings, its competitive locations, and its very capable management. Wal-Mart’s 1998 follow-updeal with Spar for 74 hypermarkets was widely judged an ill-informed, ill-advised act, for several reasons. Spar is considered to be the weakest player on the German market due to its mostly run-down stores, very heterogeneous in size and format, with the majority of them located in less well-off inner-city residential areas.

Wal-Mart’s cultural insensitivity led to its failure in Germany.

Wal-Mart’s Failure in Germany – A Case of Cultural Insensitivity

Most of the Global mergers and acquisitions failed to produce any benefit for the shareholders or reduced value, which was mainly due to the lack of intercultural competence. Lack of sensitivity and understanding of language barriers, local traditions, consumer behavior, merchandising, and employment practices irreversibly damaged Wal-Mart’s image in Germany. One of the main reasons that failed Wal-Mart in Germany is when it attempted to transport the company’s unique culture and retailing concept to the new country. The top management refused to even acknowledge the differences in customer behavior and culture in Germany when compared to its US customers, and the top management failed to listen to the feedback from its employees. Not every new cross- border retailer can be a retail giant outer its home.   The mistake of exporting its culture wholesale, rather than adapting to local market, leads Wal-Mart failed in Germany market.

Wal-Mart’s ambitions to position itself profitably in European markets through Germany have been hit badly by their inability to fully understand and to adapt to the specific conditions of doing business in other countries. This exposed their obvious lack of intercultural competence and management skills. The main challenge of post-merger integration is further complicated significantly if it is in a Cross-border Merger or acquisition, with all issues frequently being compounded by a lack of language and culture bridging skills. Failure to accomplish this task satisfactorily, results in mutual distrust, de-motivation and negatively impacts the merged companies’ competitiveness, profits and shareholder value. This is exactly what happened to Wal-Mart Germany.

Following are the main two factors that contributed to the  Wal-Mart’s Failure in Germany;

1) Specific Difference in German Consumer behavior and Culture in comparison with US consumers:

The biggest mistake of Wal-Mart was to ignore the local culture, local buying habits and impose an American boss on its German operations. Wal-Mart stores are designed for customers who are willing to spend lot of time shopping. But in Germany, the shopping hours are shorter: Shops close by 5 PM on weekdays, and no shopping on Sundays. This meant that customers don’t have the habit of spending lots of time in a store – wandering around for the things they need. Coupled with this problem, German customers do not like to be assisted by Wal-Mart’s friendly store assistants. Germans prefer to do their own search for bargains. Instead of understanding and adjusting to the culture of its clients, Wal-Mart tried to impose their Culture on to the Customers, which never worked out.

Germans like to see the advertised discount products upfront without having to ask the store assistant. This implies that the discount products must be placed at the eye level. Instead Wal-Mart chose to use its US style merchandise display strategy – where premium priced products are kept at eye level and discount products are kept at higher shelf or in the bottom racks. This irritated the German shoppers. Wal-Mart also got its store inventory wrong, Wal-Mart stocked its store with clothes, hardware, electronics and other non-food products were given much bigger floor space than food products, as a result more than 50% of the revenue was from non-food products. But other German retailers stock more of food products. For example for Metro, food products constitute more than 75% of the revenue. Germans prefer to bag groceries themselves into reusable carriers, or at least to pay a small fee for the avoidable sin of needing a plastic bag.

German’s are introvert in nature and doesn’t like display of emotion in public, as they always care for their private personal space. Employees, like the reserved customers, didn’t care for Wal-Mart’s public displays of corporate moral such as the morning cheer. The German Customer’s even didn’t liked to be accompanied by the Cheerful employees either, as they would like to make choices by themselves. These are cultural misunderstandings as well, but one could say the cultural philosophy of Wal-Mart could not survive in the context of a German culture with a Happy Planet Index significantly higher than America’s.

2) Inefficient Top Management which ignored the relevance of local Culture:

It was clear that the cultural insensitivity of Wal-Mart started right at the top management. To begin with, it appointed four CEOs during its first four years of operation. The first head of German operations was Rob Tiarks, an expat from the USA – who did not understand Germany or its culture. He had previously supervised around 200 Supercenters in America. Not only did he not speak any German. Due to his unwillingness to learn the language, English was soon decreed as the official company language at the management level. He also ignores the complexities and the legal framework of the German retail market, ignoring any strategic advice presented to him by former Wertkauf executives. This has resulted in the resignation of top three management executives from Wertkauf. His successors were also unsuccessful in integrating German Outlets with the Wal-Mart’s Business model and culture.

Other Reasons of Failure

A number of factors that resulted Wal-Mart’s failure in Germany are such as different corporate culture, political influence, stiff competition and inefficient management and marketing strategies . Firstly, David Wild, Wal-Mart’s CEO in 2004, believed that cultural differences between American and German consumers were considerable challenges to Wal-Mart. Debby, CEO in 2006, concluded that German shoppers are accustomed to shop at small scale discount stores such as Aldi and Netto that provides a limited range of products with special offers each week and no customer service, unlike US customers. In addition to different corporate culture, the competition has become gradually more intense between Wal-Mart and domestic retailers. The price difference has so lessened that sometimes even Wal-Mart had a higher price than their competitors. Consequently, consumers had little incentive to visit Wal-Mart Germany because of no obvious price advantage.

Some other factors that lead to Wal-Mart’s failure in Germany were, their strategy of acquiring the top competitor did not work, as the German government did its best to ensure the welfare of the domestic players. Also, due to wage restrictions, Wal-Mart could not practice wage bargaining, as it did back in U.S, this was a huge, uncommon expenditure for the company. Its American strategy of restricting employee freedom and forcing them to work extra hours, brought up problems of high labour turnover and a negative image as an employer. Wal-Mart failed to have an effective management at the top level. It’s CEO’s changed every year, this in an obvious way effected the company’s performance. Wal-Mart constantly ignored the strictness of German laws, and was charged heavy penalties for doing so. One of the most challenging thing for Wal-Mart was capturing the market- share. As per German legislation it was illegal to sell products below cost,because of which Wal-Mart could never achieve the ‘Low price leader’ tag.

It is impossible to smoothly run any organization, until there is co-operation between the employees and the employer. Wal-Mart faced a severe labour unrest,which hampered its brand-image. Kay Hafner,CEO of Wal-Mart reduced the wages to cut cost, this negatively influenced individual behaviour , as an anti-union decision. As suggested by Arndt and Knorr, a firm needs to understand the specifications when indulging in global expansion.Out of all the CEO’s, only David Wild has been sensitive to cultural difference.He did bring about changes based on this understanding,which had some positive results,yet not profitable enough to impress investors for future investments.

Moreover,as per German legislation their were some specific retail related laws, such as, limited legal working hours (80 hours/week) which were way less than the other European countries and had strict rules governing closure on Sunday’s and holidays. Wal-Mart repeatedly infringement German laws but were able to do away with it mainly because of global presence and influence on the government of US which played a major role in global politics. Some of incidences where the company broke few laws and was able to get away are summed up below:

• ‘Unfair trade’ practices such as selling goods below the cost price was prohibited in Germany but Wal-Mart was found violating these laws as it randomly sold some product below cost.
• German law required a company to disclose it financial statements annually, Wal-Mart seldom did that and was spared without any fine or legal proceedings at number of occasions.
• Obligatory Deposit Regulation’s law stipulated the retailer to provide deposit-refund-system on few products like metal beverages, cans etc. But Wal-Mart never followed this law.

Thus from the above incidences it can be concluded that Wal-Mart used its global influence to refrain from some of the German laws.

However, because German culture is quite different from American culture and because of unfamiliarity with the legislation, it would be difficult for Wal-Mart to make marketing and promotion right. And in fact these difficulties had been proved in Wal-Mart Germany. Consequently, rather than choosing Germany as the gateway to Europe, virtually after two years of operating in Germany it had entered in U.K. Even though U.K is not in the Euro zone and its geographic location is less favorable than Germany, it has a similar culture and legal environment as U.S. which makes it easier to operate the company’s business and strategies. It has considerable success in the UK market which is called by as a ‘Wal-Mart-ready’ market. Therefore, the lessons learned from from Wal-Mart’s failure in Germany has proven useful for U.K.

Suggestions and Recommendations

Cross-border, Cross-cultural business is a challenge even for the biggest companies. Companies have to be sensitive to the local cultures and tailor their offerings to local market. To localize their offerings, Wal-Mart and other Companies that are going global companies must carry out cultural assessment of the Citizens of the Country before acquisitions. All their Corporate Business and Communication strategies should be based on this cultural assessment. This will help companies measure the effectiveness of its localization efforts and make adequate changes in local strategy & tactics as and when required. Considering the following steps would help Wal-Mart or any other Company while they are on lookout of Global alliance or business.

1. Political, Social, Economic and Cultural Analysis of the Country

Before expanding its business operations to a new country, the Company should understand the Political, Social, Economic and cultural aspects of the Country in depth. Wal-Mart’s case, Germany was selected primarily because of a central European location and economic attractiveness of the Wertkauf acquisition. But a serious research would have shown that Germany had strong national values resistant to change ; possibly the most deeply rooted retail traditions in Western Europe. This could have avoided either Wal-Mart’s selection of the Country or the strategies it has adopted in Germany.

2. Go global and think they are local

After conducting an in depth research about the prevailing trends in the customer’s Country, the Company should be ready to modify its own identity to suit itself to the cultural differences without compromising much on its Corporate Mission . This step will also force organizations to clearly define globalization goals. Wal-Mart put the company name on many German stores before being fully established. Immediately, the run down stores left an impression on consumers who formed a negative image of the Wal-Mart name.

3. Employment of Cross-Cultural Management approaches

Employment of Hofsted’s Culture Dimensions or HT&T Analysis will help Companies in understanding the minute cultural differences between the countries. For example , Communitarianism over Individualism

Germans degree of communitarianism is on the higher side mainly because Germans prefer participating on a team. Most Germans see business as a group of related persons working together. But, most of Americans see their company as a set of functions, tasks, people, machines and payments in which individuals compete.

This difference in Cultural dimensions between the 2 countries has resulted in inside management conflict among the employees, which also resulted in resignation of efficient German executives from Wal-Mart post integration.

Understanding the cultural dimensions of a Country through proven Cross-Culture models will always help a company to formulate a specific approach that will encourage team spirit and joy among the Global Team.

4. Continuous Updation of Strategies to successfully withstand the local competition

It is very important for a Global firm to continuously analyse the impact of their various strategies on the local market. Understand the shortfalls, and modify it in such a way as to cater the local market in a much better way than the competitors. It is always better to scrutinize the strategies adopted by them with a panel of local experts, as they will be having a better picture about the local consuming behavior and culture. Perceptions do matter a lot, So a surveys to find the customer’s perception about the company will also help them to change their strategies accordingly.

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