Walmart - Case Study Analysis Assignment

.. .. .. .. .. Type Case Study Analysis . . . . . . . . Wal-Mart Courts European Shoppers . Executive Summary Wal-Mart stores Inc. is the largest retail company in the United States. Today it operates 7,357 retail stores in 14 markets employing more than 2 million associates and serving over 200 million customers per year. Wal-mart’s entry into the international market for the most part has been very successful. It is not a surprise to see Wal-mart ranked number one on the Fortune 500 index by Fortune Magazine. Wal-mart’s expansion has been successful however it also continues to have problems in several international sectors. This case study will focus on Walmart’s struggle in the European market. Background: Walmart’s international expansion began in 1991 when they opened their first store in Mexico City. Since then they have expanded their operations to 3146 . units in 14 countries serving over 49 million customers weekly. Walmart’s expansion in Europe is a tale of two cities. In the UK Walmart has been successful and in Germany they have been a failure. Walmart’s expansion into Europe started with the UK in July 1999. Since then they have opened 344 units in the UK and 88 units in Germany. They continue to show losses and they continue to struggle with German consumers. Walmart’s expansion strategy has not been very effective in Germany. Regulations, local competition, labor practices, cultural understanding and consumer behaviors and slowing economy have been the roadblocks to the success in the European sector. Regulations One of the factors that contributed to Walmart’s success in the US and Latin America has been the large retailer image with big box stores and everyday low prices. In Europe, scarcity of land and the zoning laws have prevented Walmart from acquiring large space for their superstores. This has prevented Walmart from providing volume sales and the big box store image. Walmart also operates many of its units 24/7 however in Europe government regulated operating times prevents them from doing the same. Strict regulations also prevent Walmart from implementing their rollback program. Rollback is just another form of advertising and the Germans have a hard time understanding the concept of the sale of “loss leaders”, popular products sold below cost to attract customers. Local competition Walmart’s strategy in international market is growth through acquisition. This strategy worked in the UK when they took over ASDA and they continue to operate under that name. ASDA is a subsidiary of Walmart International Inc. and it was recently featured in Britain’s Top Employers 2007. However, in Germany the same strategy failed. Walmart acquired 21 Wertoff hypermarkets and 71 units from Interspar hypermarket chain. Although these chains are big they don’t give Walmart the edge to compete with other retailers. The retail giants Metro AC and Kaufland continues to dominate the retail market because they have cultural context to succeed and also well established European and German suppliers. Walmart on the other hand relied heavily on its supplier relationships formed in the US. This resulted in poor product selection and lack of understanding the needs of the German consumer. Local stores such as Tesco in the UK and Kaufland in Germany understand the FilmWatch Division Marketing Plan 2 .. .. .. .. and tastes of the consumers and therefore are able to better serve their culture . consumers. In France, Carrefour merged with the number two retailer Promodes to increase its market share. In Dutch Ahold is considering preemptive mergers. These retial giants will be tough competition for Walmart if they choose to enter these markets. Labor practices Walmart’s anti-union stance has caused considerable back lash from watch groups in the US and Europe. Hiring low wage employees to keep their low prices has worked in the US. Their thinking seems to be that going union would hurt their bottom line and that would jeopardize their number one retailer spot. However, in Europe labor unions have protested this practice. UNI Commerce affiliate ver. Di, the world’s largets trade union says it will not rest until Walmart is covered by its branch collective agreement. Walmart also has had issues with their employees. In the UK they were threatened with a law suit from English labor groups when they forbid employees from drinking beer on their lunch hour. In Germany the courts upheld employee’s rights to wear earrings and sport facial hair. Also in Germany courts ruled against Walmart in their efforts to prohibit courting among employees and establishing whistle blowing practices such as anonymous hotlines to report any unacceptable behavior by an employee. Cultural understanding and Consumer Behavior Walmart often lacks the cultural understanding in many of the areas it enters, which has created a situation that may not be sustainable for a company that will be very dependent on international expansion in the future. European shoppers are quite different than the American shoppers. They don’t like the impersonal feeling of a big store.Their habits and their tastes differ from the Americans. For example, in Europe shoppers prefer to buy small quantites and like to visit the store more often. The big shopping carts are not needed in European stores. Shoppers don’t like greeters at the door. They don’t like the idea of paying for their salaries. Anoter mistake that Walmart made in Germany was to offer to bag the grocieries, Germans prefer to bag their own groceries. Instructing clerks to smile and greet the customers. Germans were put off by these cultural gaffes. 3 Local Economy In the recent times American economy has slowed down. In Europe it’s much the same. Revenue from Walmart International represents more than 20% of it’s total revenue and its operating profits account for 18% of Walmart’s total. Walmart’s subsidiary in the UK, ASDA is facing tough competition from Tesco and Sainsbury. Recently released figures show that ASDA’s market share slipped from 16.5% to 16.4%, while Tesco’s grew from 27.9 % to 30.3% and Sanisbury’s rose from 15.3% to 15.9%. The US’s credit crunch has reached Europe and economy downturn along with increased competition will definitely hit Walmart’s bottom line. It will also slow down the much anticipated expansion in Europe. Proposed solution and alternatives Walmart’s strategic goal of expansion by growth and dominating the retial industry in Europe and around the world could be more successful if they just don’t repeat the mistakes they have made in the past. Understanding the culture, the politics, the social norms and not forcing the American way would make the difference in being just successful and to very successful. Although Walmart’s international sales is a big part of its revenue, it’s growth could be in jeopardy if it does not realizie the mistakes it madfe in Germany. Walmart should continue with its stategy of corporate takeover. Such a move would kill two birds with one stone, one it elminates a large competitor and secondly, through acquired stores and employees, it commands massive presence in targeted areas. In the UK, Walmart should look to acquire Sainsbury and that would put Walmart ahead of Tesco. Walmart’s anti-union stance has everyone question its labor practices. Walmart should respect the labor practices in the countries it wishes to establish its presence, for the simple fact that Walmart would have to rely on the local labor market for its survival in the market. IT should also work closely with Public Realtions firms to make sure there is no backlash against them moving into other countries. They must be careful to follow all the laws and regulations to avoid any litigation and negative publicity. Understanding diversity and cultural differences is critical to establishing good business practices. Culture plays a big role in determining consumer behaviors. Walmart should conduct thorough research of the culture and FilmWatch Division Marketing Plan 2 .. .. .. .. consumer behaviors so it doesn’t repeat the mistakes it made in Germany and . the UK. One of the advantages that Tesco in the UK and Kaufland and Aldi in Germany have is their strong relationships with local suppliers. Walmart should not look to always depend on the supplier relationships from Bentonville. It should look to source from local suppliers who understand the taste of the local consumers. Establishing strong relationships wit them would give Walmart the necessary edge in meeting the consumer’s needs. As Walmart expands in China and enters India, it should look to take advantage of suppliers since Walmart has been sourcing from tem for years. Walmart should also look into branching out into different sectors. After expanding physically and geographically, Walmart must look to expand in terms of what they sell, for example, branching into pharmacy, automotive sales and repair, financial services, food services, home improvement and retail gas stations. Significance of these problems and why we care: Walmart’s international growth is good for Americans and also the American economy. Europe is still an open market and Walmart has great opportunites to expand their operations to other countries. If Walmart is successful means it has corrected all its mistakes and created a more favorable environment for aothe US businesses that may follow the suit. Walmart’s success also means increased market share for a US firm. As suggested earlier if Walmart changes it’s anti-union stance, it will help the standard of living for many employees. Better wages and increased benfits could lower the burden for the tax payers who end up paying for the employees benefits. Walmart is the second largest employer in the US right behind the Federal Government. The impact it would have on the labor market would be significant in terms of cost and standard of living. This will hurt the bottom line but in the long run it would make Walmart a stronger, more ethical and most favored employee with higher retention rates of the employees. Priorities and Goals and Objectives 3