[MUSIC] In 1997, Walmart opened its first store in Germany.
They had officially entered the largest retail market in Europe.
But nine years later they sold their stores,
packed their bags and left the country.
They had lost one billion dollars.
So how did the largest private employer in the world fail so badly?
[MUSIC].
By 1988 Walmart had become the most profitable retailer in the US.
Their success spurred the company to start looking abroad at the international market,
and the expansion has been largely successful.
Walmart now has almost 12,000 stores in 27 countries.
In Britain, they now own the second largest supermarket chain in the country ASDA.
They're the largest private employer in Mexico,
and the third largest in Canada.
But that success is not universal.
In 1997, Walmart purchased two German retail chains,
Wertkauf and Interspar, totaling 95 stores.
It was a huge risk.
Germany in the late '90s was a hostile market.
Restrictive shopping hours, regulated zoning,
and high unemployment kept other companies
away according to analysts at Kurt Salmon Associates Europe.
Retail market growth rates averaged just 0.3 percent per year in the '90s.
It was also entering a market full of
successful native discount retailers like Aldi and Lidl which were stiff competition.
By German law, these smaller stores could offer
lower prices than big box stores like Walmart.
Soon after arriving in Germany,
Walmart faced accusations that it was using
short term predatory pricing to try and put local shopkeepers out of business.
Regulators had to order Walmart to raise
the price of basics like milk, flour, and butter.
After that their prices were too high in comparison to
the competition like Aldi which ran a small bare bone stores.
The discount retail sector was a lot larger in Germany than in other countries.
It was about 40 percent of the supermarket business,
which meant that groceries and daily goods tended to
cost around 15 percent less than the European average.
On top of these financial obstacles,
Walmart faced a different kind of problem, a cultural problem.
The friendly Walmart practices based on
Southern hospitality were perceived by many to be fake and at odds with German culture.
German media reported that Walmart required its employees to start their shifts by
engaging in synchronized calisthenics and group chants of Walmart, Walmart, Walmart.
This was intended to build loyalty and morale.
Walmart also required its cashiers to flash smiles at patrons,
which a lot of customers thought was flirty and creepy.
That's also how they felt about Walmart greeters, pretty creepy.
People found these things strange.
Germans just don't behave that way.
Hans-Martin Poschmann, the secretary of the Verdi Union which
represented 5,000 Walmart employees told the New York Times.
Walmart also imposed restrictive measures on their employees,
which they called an ethics code.
Walmart required its employees to report if co-workers broke any rules,
and if they didn't comply they could be fired.
Walmart also prohibited sexual intimacy and flirting
between co-workers according to The Financial Times Deutschland.
A German court eventually struck down this ethics code in 2005.
By German standards, Walmart is also anti-union.
They didn't understand that in Germany,
companies and unions are closely connected.
They thought we were communists,
Poschmann told The Times.
It sounds like employees associates, they listen too.
And without going through union politicians.
Of course not.
All unions will get is taking a cut out of my pay.
Unions strongly opposed the working culture in Walmart.
Walmart and German unions never established comfortable relations.
All of these obstacles combined lead to declining sales.
Walmart's German stores had a profit margin of
one percent compared to their British stores which had a margin of 6-8 percent.
Germany's top 10 chains made up 30 percent of the market.
But Walmart made up just three percent of the market.
Full time staff in Germany demanded a 19 percent premium compared to
UK workers on average which drove up Walmart's operational costs as their sales declined.
So Walmart withdrew from the country in 2006,
offloading 85 of its stores to its local rival, Metro.
They had employed 11,000 people and generated a two billion dollars in 2005,
but that represented just four percent of Walmart's international operations.
It has become increasingly clear that in Germany's business environment,
it would be difficult for us to obtain the scale and results we desire,
Michael Duke, Vice Chairman of Walmart Stores told The Times.
Walmart's dedication to their company culture ended up dooming them in Germany.
The lesson, the locals are always right.
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Thank you. [MUSIC].
