Beaten At Their Own Game

Saturday's Wall Street Journal had an interesting article (not available to non-subscribers unfortunately) about how Wal-Mart has just sold all its stores and inventory and pulled out of Germany. It seems the big box discounting machine couldn't make it in Germany.

Was it because elitist shoppers were repulsed by the low quality of merchandise? Was it because Europeans didn't want their historic cities blighted by big box monstrosities?

No. It was because the Germans were already better at playing the discount retailer game than Wal-Mart.

Part of this was the difficulty of adjusting to new rules. Germany mandates limited business hours by law, so Wal-Mart couldn't win out by being open when German discount stores like Aldi were closed. German law also forbids selling product at a loss -- thus removing Wal-Mart's ability to get people in the door with loss leaders.

The larger problem was that German shoppers turned out to be ruthlessly tight-fisted, and willing to go to multiple stores to get the cheapest price on each item. Wal-Mart makes much of its money off getting people to do all their shopping at Wal-Mart, bringing people in the door with some extraordinarily low prices but making it up with everything else in the basket.

Some 80% of German consumers are about 20 minutes from an Aldi, according to Nestle's research. The hard discounters account for about 40% of the German retail market, compared with Wal-Mart's share of less than 2%, analysts say.

German shoppers are accustomed to buying merchandise strictly based on price, German retail consultants say. They are willing to buy laundry detergent at one store and then go to another to get a better price on paper towels. That behavior is called "basket splitting." It is the antithesis of what American shoppers like: one-stop shopping. A big plank of Wal-Mart's strategy in the U.S. and elsewhere is getting shoppers to turn to it for an increasingly wide array of goods.

German shoppers, used to bagging their own purchases, were turned off by such American practices as clerks who bagged groceries. And some German employees objected to American-style workplace rules such as Wal-Mart's prohibition of romantic relationships between supervisors and employees. A lawsuit by workers forced Wal-Mart to lift its ban.

I was slightly surprised to hear that bottom-rung discounters accounted for so much of the German market, but it makes sense. Despite being famous for historic cities and luxury cars, the per capita income of Germany is much lower than the US (I recall reading a few years ago that if Germany was a US state, it would be the third poorest in the country in terms of per capita income) and their unemployment is significantly higher. For all that Europe is known for quality food and appliances, it's also known for three to four hundred square foot apartments.

Though I don't have any particular animosity towards Wal-Mart (though we don't shop there much) it's vaguely pleasing to see them being beaten at their own game.