Wal-Mart in Europe

Wal-Mart: Background

• Founded by Sam Walton in 1962 in Bentonville, USA

• 1970s marked the beginning of significant growth-opening of the first Wal-Mart distribution centre

• 1980s- transformed from regional to national discount retailer-aggressive diversification

• Late 1990s Wal-Mart became the largest private employer in the world

• Entered German market in 1997,followed by UK -acquiring ASDA in 1999

• Present:8,986 retail units under 55 different banners in 15 countries

Culture• Followed 3 key principles:

respect the individual provide superior customer service strive for excellence

• Sundown rule In Sam Walton’s words - “never put off till

tomorrow what you can do today” company’s dedication to customer service products should be available to the customer

whenever they want• Ten Foot rule

Sam Walton encouraged associates to take this pledge with him "I promise that whenever I come within 10 feet of a customer, I will look him in the eye, greet him, and ask if I can help him.“

Staffs offered assistance to customers within the radius

Strategies adopted

• Everyday Low Price Guarantee, inventory control, efficient distribution strategy

• Aggressive bargaining with suppliers • Unique culture• Stores located within a day’s drive from

distribution centre• Adopted Radio Frequency Identification

Technology (RFIT) - able to track inventory as it moved through distribution centers to store

• Efficient supply chain management• Overall cost leadership

Consequences

• US economy experienced boost in productivity (late 1990’s)

• Increased employment• Growth in labor productivity• Technological innovations• Raised the standard of living of

average Americans

Criticisms faced by Wal-Mart

• Low salaries to its employees• Legal suits regarding hiring practices

failing to pay overtimeunderpaying hourly workers sexual discriminationnon-compliance with the

Americans with Disabilities ActUnderpaying immigrant workers‘locking in’ overnight workers

• Strike by the unions for better health benefits (2003)

Globalization of Retail• Early 1990s - rapid global expansion in retail

sector• Expansion became crucial for Wal-Mart• Players in international retailing in Europe:

Woolworths, USA ( Canada+ UK+ Germany)

Sears Roebuck, USA (Cuba+ Mexico)Metro group, GermanyRoyal Ahold, DutchK-mart, USA (Czech Republic+ Slovakia)Costco, USA (UK+ Mexico+ Korea +Japan)

Refer Exhibit 10

Wal- Mart into Europe

Britain: • Entered in 1999 by acquiring U.K ASDA

retail chain• 8.4% market share at the time of

acquisition• 3 supercentres and 247 stores• Introduced Wal-Mart IT systems,

investment resources, buying power, low prices

• Price margin increased 13% over competitors

• Introduced low-cost George apparel line

Wal-Mart in Germany

• Entered by acquiring Wertkauf chain (24 stores) + Interspar chain (74 stores) in 1998

• Established players: Metro Group, Rewe Group

• Strategy: Price leadership (by low cost)Centralized distributionHigh quality customer serviceInventory control system

• Consequences: Price war

1) Wal-Mart not successful in Germany

• Stringent regulatory Environmental law• Zoning Regulations

Prohibited the construction of stores with more than 800 sq.mt sales area

Large-store development was hamperedObjective: to protect traditional retailers

• Pricing policy• Strict labor laws• Store hours• Customer service culture • Suppliers• Competitors

Porter’s 5 forces analysis

Bargaining Power of Supplier

• Very high• Poor suppliers network• German suppliers were slow to adjust

to Wal-Mart system- centralized distribution centre

• Strong connection with already established players

• Low switching cost since abundance of retail companies

Bargaining power of Customers

• Very high• German customers not accustomed

to friendly atmosphere• American culture imposed on them• Presence of strong German

competitors• Switching cost low

Competitive Rivalry

• Huge competition from Metro, Aldi, Lidl, Rewe

• Established in European market in many years

• Loyal customer base• Strong suppliers and distribution

network• Hard-discounters• Same strategies as Wal-Mart “low

cost”

• Low threat of new entrants  New firms would face task of

beating the prices of wholesale giants

Cost of entry is high resources, competencies and

competitive capabilities are needed to enter the market

• High threat of potential substitutes

2) Benefits for Germany:• Employment opportunities• Technological innovations

• Efforts to motivate employees • Hire temporary workers or shifts

• 3) Mistakes:• German market had head-on

competition• Imposing American business

approach• Overlooked the local needs

• Wal-Mart can use Germany as base for expansion in Europe

• Can use trade harmonization to develop suppliers relationship in European market

• Need to create goodwill • Adapt to European standards of

business

THANK YOU