Wal-Mart Strategies Lost in Translation

From Bloomberg:

When it comes to selling overseas, the strategies of American retailers don’t always translate.

The failed attempt of Wal-Mart Stores Inc., the world’s largest retailer, to conquer Germany illustrates the pitfalls of trying to stamp the U.S. model on another culture. Companies from Starbucks Corp. to Toys “R’’ Us Inc. have had to change the formulas that brought them domestic success when they have expanded abroad.

“It is a lot tougher than people think to take a retail concept and go global,’’ said Stephen Hoch, chairman of the marketing department at the University of Pennsylvania’s Wharton School of Business in Philadelphia. ``You dominate in one market, does that help you dominate in another?’’

Wal-Mart said July 28 it would exit Germany after eight years and $1 billion in losses, defeated by Aldi Group and privately-owned Lidl, homegrown discounters which rule the segment in Germany. The Bentonville, Arkansas-based chain is selling its 85 German stores to Metro AG, the country’s biggest retailer, for an undisclosed amount.

The German rout follows failure in South Korea. Wal-Mart in May sold its 16 stores there to Seoul-based Shinsegae Co., the country’s biggest discounter.

Even in the U.K., where shopping habits and language are similar, the chain is struggling. Its Asda supermarket group trails market leader Tesco Plc, which gained 1.2 percentage points in market share in the past year, compared to just 0.1 percentage point for the folks from Bentonville. Tesco, with 31.5 percent of the British market, has almost twice Asda’s 16.6 percent share.

Shoppers in Europe, for example, are generally more loyal to local outlets, said Richard Hastings, an analyst at New York- based Bernard Sands LLC, a retail credit rating service. “Wal- Mart had the task of trying to convince people to stop shopping elsewhere and switch over,’’ he said.

Nonetheless, Wal-Mart aims to generate one-third of sales and earnings growth from the international division. Last year, Wal-Mart’s overseas sales growth accounted for 24 percent of total gains. About 20 percent of the company’s $312.4 billion in sales came from outside the U.S.

Wal-Mart earned $11.2 billion last year, with sales of groceries and other basics outpacing items such as clothing and electronics. In the past year, shares of Wal-Mart have fallen 11 percent compared to a 13 percent decline in the Standard & Poor’s 500 Retailing Index.

Wal-Mart has been able to grow in markets where the whole concept of big-chain retailing is still in development. In Mexico and more recently in China, Wal-Mart has done well because it’s entered those markets before other large competitors or partnered with local businesses, Edwards said.

Wal-Mart de Mexico SA, Latin America’s largest retailer, said July 10 that second-quarter profit surged the most in five quarters, helped by World Cup merchandise. The Mexico unit, Wal- Mart’s first international foray, plays to hire 15,000 new workers this year. It has 807 stores in Mexico.

Posted by Laura Jack on Tuesday, August 01, 2006