Wal-Mart Concept Fails in Germany

According to a report in the leading German grocer's journal, "Lebensmittel-Zeitung", approximately 1,350 jobs will be slashed over the next few months. Nearly 1,200 employees or every tenth worker and 150 managers will lose his or her job.

The announcement comes at a time when the company is faced with its largest-ever losses in Germany. The "Financial Times Deutschland" estimates that the company has accumulated over $250 million in losses for the past year. Wal-Mart, the leading retailer in the US, is currently ranked at the bottom of the German retailing market.

Wrong concept for Germany

Competitors, such as Metro CEO Hans-Joachim Körber, say the Wal-Mart concept is not right for the German market. The aggressive pricing strategy and the import of US management tactics simply do not work in a European context where the consumer places a great deal of importance on the quality of products offered.

Leading market analysts say the American company failed to take German retail regulations seriously and underestimated the stiff competition among the 14 hypermarket chains. They claim Wal-Mart wants too much too fast and refuses to abide by the rules.

Last year the German Cartel office threatened to fine Wal-Mart if it didn't change its pricing tactics. According to government reports, Wal-Mart was breaking the fair competition laws by selling products at dumping prices, far below cost, and thereby posed a risk to smaller competitors. Wal-Mart was forced to increase prices for milk, butter and several other staple products to a level compatible to other retailers.

Poor working conditions

Making matters even worse, Wal-Mart is struggling with difficult labor relations at several of its German locations. Earlier in the year the commerce trade union wrote a letter to the Arkansas headquarters demanding that the company either join the German employer's association or sign a collective wage agreement. Wal-Mart did neither.

Union representatives have continually criticized the retailer for prohibiting the meeting of the works councils and demanding that workers put in overtime without increased benefits pay. The unions have accused the company of paying sub-standard wages to offset the enormous financial losses.

Uncertain future

What started out as an ambitious project 10 years ago when Wal-Mart first ventured overseas has turned into a self-inflected financial disaster. So far the company has been unable to get a firm foothold on the European continent.

Chains exist only in the United Kingdom and Germany, and future expansion in Europe has been slowed dramatically. Over the past year only 2 new chains have been acquired in Germany, a dramatic decrease from the 74 bought up in 1998.

The "Lebensmittel Zeitung" suggests that the layoffs come in response to pressure from the mother branch in the US. The German branch needs to reduce its personnel costs from 13.3% to 11.5%, and slashing a thousand jobs would do the trick. Wal-Mart has denounced such announcements as pure speculation.