Reference no: EM132122822

It has been a stressful summer for Wal-Mart. After eight difficult years in Germany, WalMart announced the sale of its German businesses to the nation's leading retail chain, Metro AG. In a May interview with RM, David Wild, former president and managing director of Wal-Mart Germany, spoke of the difficulty applying the American Wal-Mart model to the German consumer climate. "The biggest challenge Wal-Mart faced was the culture change throughout the organization," he said. Wal-Mart Germany, which was launched in 1998 and operated 85 locations at the time of its sale, was criticized for trying to force American culture into its stores. The policy of having employees smile and greet customers seemed unnatural to Germans, and signage and product organization needed to be reworked. While Wal-Mart Germany struggled to fit in, competitors like Metro and Rewe Group benefited from the national loyalties of Germany's 91% native population. Wild attempted to fix the ailing German franchise with some strategic adjustments: an emphasis on food and fresh produce, and a greater sensitivity to local culture in employee practices and product presentation. In the end, changes came too late. The decision to terminate Wal-Mart Germany came on the heels of a similar decision to sell the company's South Korean holdings in May. Wal-Mart South Korea also suffered from cultural incongruities in addition to a difficult political climate and a low number of stores. In a New York Times article in August, Beth Keck, international spokesperson for Wal-Mart, spoke of the company's "naivete" in its international expansions and called Germany "a good, important lesson, a turning point." This lesson--that one formula does not fit all--will be critical to the continued success of Wal-Mart's other international endeavors in countries like Canada, where it opens its first Canadian Supercenters this fall; Japan, where first-half operating losses at Seiyu, its Japanese unit, were reportedly half of those of the previous year; and China, where this summer the company bowed to pressure and agreed to unionize its 60 stores. YOUNG RESIGNS Just weeks after the Germany announcement, Wal-Mart faced another setback when Ambassador, civil rights leader and former Atlanta mayor, Andrew Young, chairman of the business's advocacy group, Working Families for Wal-Mart, made derogatory comments about Jewish, Asian and Arabic store owners during an interview with the Los Angeles Sentinel. After a fierce backlash from labor and minority groups, Young retracted his statement and resigned. Wal-Mart distanced itself from Young's comments, emphasizing its support of urban communities and diversity in the workplace. Evidencing the importance of urban communities, Wal-Mart opened stores this summer in White Plains, NY, and in Kearny, NJ, an urban enterprise zone where the majority of consumers are Hispanic, African-American and Asian. Both towns are in close proximity to New York City. Adding to Wal-Mart's negative publicity travails but finally putting an end to the saga, former Wal-Mart Stores vice chairman Tom Coughlin was sentenced to 27 months of home confinement for stealing thousands of dollars from the company. In addition to five years of probation, he was also ordered to pay restitution to Wal-Mart and the IRS totaling about $411,000. He had faced up to 28 years in prison and $1.35 million in fines after pleading guilty to wire fraud and tax evasion in January. Finally, Wal-Mart, along with other retailers such as Target and Home Depot, had to put plans for an aggressive expansion in the city of Chicago on hold after the city council passed a "living wage" ordinance requiring retailers with sales of $1 billion or more and stores of 90,000 or greater square feet to pay workers a minimum of $13 per hour in wages and benefits by 2010. Wal-Mart subsequently placed construction of 10 Chicago stores on hold, pending a possible veto of the measure by mayor Richard M. Daley in September. Despite these challenges, and recording a loss of $863 million in connection with the sale of its German operations, Wal-Mart reported that net sales for its second quarter were $84.524 billion, up 11.3% over last year's results. Wal-Mart has experienced some other positives this summer. It garnered some good publicity by announcing it was raising salaries for starting workers by an average of 6%. Former vice president Al Gore praised the company for its focus on environmental sustainability. Analysts report that Wal-Mart's keener focus on improved merchandising has helped to enhance average ticket. In the U.S., Wal-Mart continues to grow its premium and specialty offerings. Addressing the needs of an ever-more health-conscious consumer, Supercenters will feature an extended line of competitively priced organic foods. In fashion, the company rolled out its new George ME ladieswear line in August. Wal-Mart is also transforming its stores through customer service initiatives and remodeling. Banc of America analysts believe that unlike many other retailers, there is a fourth-quarter catalyst from remodels. Maybe a change of seasons will do Wal-Mart some good.

1. What are some of the cultural misunderstandings that led to the closing of all Wal-Mart stores in Germany?

2. How do these misunderstandings reflect U.S. culture? Which aspects of culture are most different between the United States and Germany?

3. How should Wal-Mart have better prepared for this expansion into the German market? How should the managers have shown more of a “global mindset” in entering the German market?