Walmart Case Study: Expansion into Germany

Walmart has been pilloried in the film Walmart: The High Cost of Low Price. For the first time in its history, Walmart is facing a serious legitimacy problem. A combination of factors has led to a decline in the company$$s reputation and a growing criticism of its practices.

People naturally begin to distrust corporations that grow so large and dominant as Walmart. It is the world$$s largest corporation and has substantial bargaining power with its suppliers to cut costs. $$Walmart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So$$wham$$you have a large switch to overseas sourcing in a period quicker than in the old rules of retailing.$*$ In addition, the company$$s size has brought a host of new management challenges. Publicity about cleaning contractors using illegal immigrants in U$.$S$.$ Walmart stores tarnished the company$$s image. Walmart$$s early$-1990$s claim to $$Buy American$$ has quietly been shelved as the company has more than doubled its imports from China since then. And some critics charge that manufacturers of everything from bras to bicycles have had to close plants, lay off workers, and outsource to low$-$wage countries in order to survive in the face of Walmart$$s cost$-$cutting demands. Employee complaints about low pay, and a damaging gender$-$discrimination suit, have compounded the company$$s image problems.

Walmart$$s $1998$ foray into the German market was unsuccessful, and the company shut down its German outlets in $2006.$Walmart$$s attempt to apply the company$$s proven U$.$S$.$ success formula in an unmodified manner to the German market turned out to be nothing short of a fiasco.$*$ Walmart$$s approach ran afoul of German labour laws and traditions. In addition, Walmart underestimated the extent of the differences between the U$.$S$.$ and German markets; for example, it provided pillow cases that fit North American pillows but did not fit German pillows! Walmart$$s exit from Germany cost the company $$1$ billion.$*$

Consumers are still captivated by Walmart$$s low prices, but there is growing concern and criticism about the high social and economic costs of the company$$s low$-$cost approach. $$Shoppers could start feeling guilty about shopping with us$,$ says Walmart spokeswoman Mona Williams. $$Communities could make it harder to build our stores.$*$ According to a McKinsey study, between two and $8$ percent of consumers do not shop at Walmart because of its practices. $$Walmart operates on such razor thin margins, and $[$the market$]$ demands such strong quarter$-$over$-$quarter sales, that the total impact of the public relations swirl could be devastating in the short and long term.$$