Wal-Mart to Abandon
Germany
By MARK LANDLER,
NYTimes on the Web, July 29, 2006
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Martin Meissner/Associated Press
Wal-Mart
is retreating from the German retail market by selling out to the
Metro Group. One of its 85 stores is in Dortmund, Above |
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FRANKFURT, July 28 — Wal-Mart
Stores, admitting defeat in Germany’s giant but cutthroat retail market,
announced Friday that it would sell its 85 stores here to a German retailer,
incurring a loss of $1 billion.
The decision to sell out to the Metro Group came two months after Wal-Mart sold
its stores in South Korea and amounts to a marked retreat by the world’s largest
retailer from its breakneck global expansion.
In Germany, analysts say, Wal-Mart never got traction in a market characterized
by unrelenting price competition, well-established discounters — and the
cultural resistance of German shoppers to hypermarkets — sprawling stores where
the fresh vegetables may be a few aisles away from the shirts or the lawn
mowers.
“They walked into a triple-witching hour in Germany,” said James Bacos, the
director of the retail and consumer goods practice at Mercer Management
Consulting in Munich. “They got into Germany at a time when the whole
market was shifting away from their model.”
Wal-Mart does not break down its results by country, but analysts estimate it
has lost money for most of the eight-and-a-half years it has operated here,
sometimes hundreds of millions of dollars a year.
Wal-Mart and Metro did not disclose the financial terms of the sale, but
Wal-Mart said it would record a pretax charge of about $1 billion in the second
quarter of fiscal 2007 to write off its German investment. “We put a good
effort into the country,” a Wal-Mart spokeswoman, Beth Keck, said. “But as
we looked at our competitive environment here, we realized it was going to be
hard to achieve the results we expect.”
Some of Wal-Mart’s troubles stem from the way it broke into the German market in
1998, according to analysts. By acquiring the outlets of two second-tier
retailers, Wertkauf and Interspar, Wal-Mart wound up with a hodgepodge of
stores, geographically dispersed and often in poor locations.
The company initially installed American managers, who made some
well-intentioned cultural gaffes, like offering to bag groceries for customers
(Germans prefer to bag their own groceries) or instructing clerks to smile at
customers (Germans, used to brusque service, were put off).
Wal-Mart, based in Bentonville, Ark., made a similar calculation in South Korea,
selling 16 stores to a local retailer, Shinsegae, for $882 million. As in
Germany, Wal-Mart did not appeal sufficiently to local tastes, and struggled to
compete with aggressive Korean discounters.
Despite these setbacks, Ms. Keck said, Wal-Mart continues to thrive in many
countries outside the United States, with particularly robust markets in Mexico,
Canada, Brazil and Britain. Wal-Mart had international net sales of $7.6
billion in June, a 29.5 percent increase over the same month in 2005, though
nearly two-thirds of that gain came from acquisitions.
Metro, one of Germany’s largest retail conglomerates, said it planned to fold
the 85 stores into its chain, Real, which is bigger than Wal-Mart’s chain here,
but also ailing. Wal-Mart’s German stores employ 11,000 people and
generate 2 billion euros ($2.5 billion) a year in sales, according to Metro.
By adding those stores to Real’s 550 supermarkets and hypermarkets, Metro said
it could fortify its purchasing power in what is the world’s third-largest
retail market. The company said it was committed to developing the
hypermarket concept in Germany.
Wal-Mart had German managers for its German operation before appointing David
Wild, a former executive at Tesco, the British chain. He tried to win over
customers by selling organic meat and produce.
“They found they had some things to learn about the German market, and they did
change, but maybe too late,” Mr. Bacos said.
Other problems, however, were largely outside Wal-Mart’s control. Two
German discounters, Aldi and Lidl, dominate the grocery business with smaller
shops that feature cut-rate, though still good quality, food. Aldi also
heavily promotes one-week sales, featuring deeply discounted merchandise,
ranging from wine to garden hoses, which draw customers back.
While Wal-Mart’s vast size gives it enormous leverage in purchasing clothing and
other goods, it must buy much of the food for its German stores locally.
And there, it lacks the muscle of Aldi, which has 4,100 shops and a presence in
nearly every town in the country.
“Germany is the home of the discounter,” said Mark Josefson, a retail analyst at
Kepler Securities in Frankfurt. “Wal-Mart is not competing on price, and
that is one of its main attributes in its home market.”
Beyond these competitive pressures, there is the reality of the German consumer
— one of the most parsimonious and price-conscious in Europe. While
consumer confidence has picked up recently, Mr. Bacos said the proportion of
household income that Germans spend on retail purchases continues to decline.
Profit margins in German retailing are the lowest in Europe.
“Wal-Mart has tried, for the better part of a decade, to adapt to this market,”
he said. “I think they’ve looked at the situation and come to the
conclusion, ‘how long is it going to take?’ ’’
Moratorium on
Industrial Banks
WASHINGTON, July 28 (AP) —
Bank regulators have halted for six months any new approvals of the sort of
industrial banks that Wal-Mart, Home Depot and 12 other companies are seeking to
establish.
The directors of the Federal Deposit Insurance Corporation made the decision to
impose the six-month moratorium on approving applications for the so-called
industrial loan corporations or I.L.C.’s. Nearly 100 members of Congress
recently asked the F.D.I.C. to put into effect such a halt to give lawmakers a
chance to consider legislation that would block commercial companies from owning
industrial loan corporations.
The directors voted informally, without convening a meeting, over the course of
this week. It was the first major action taken by the F.D.I.C. under its
new chairman, Sheila Bair. The F.D.I.C. will not make any final decisions
on applications for the banks or for changes in control of existing banks and
will not accept any new applications for six months, the agency said in a news
release.
The moratorium, which takes effect immediately and extends until Jan. 31, will
give the regulators time “to assess developments in the I.L.C. industry, to
determine if any emerging safety and soundness or policy issues exist involving
I.L.C.’s, and to evaluate whether statutory, regulatory or policy changes need
to be made in the oversight of these charters,” the agency said.
The application of Wal-Mart Stores, the world’s largest retailer, to establish
an industrial bank based in Utah has spurred opposition from banks, unions,
lawmakers and consumer and community organizations.
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