Wal-Mart lesson: Smiling service won't win Germans

The retailer closed two stores in Germany this summer, its first shutdowns in Europe.

Nina Shokrol squeezes through the cramped store's narrow aisles, discarding empty boxes before picking some nectarines off a warehouse pallet. The gantlet at the cash register is even more daunting: lengthy lines and surly cashiers.

But like other customers at the Aldi discount store, Mrs. Shokrol doesn't mind. "I'm getting the best deal, and that's what counts," the young mother says. "It's OK if the cashiers are a bit stressed."

This preference for price over pleasantry is among the hitches slowing the German campaign of US vendor Wal-Mart, known for its smiling customer service. The chain closed two of its 95 stores in Germany this summer, the first shutdowns since its march into Europe's biggest consumer market five years ago.

Analysts say that Wal-Mart has continuously lost money in Germany, where it faces stiff domestic competition. But Wal-Mart's biggest hurdle, some say, may be a clash of shopping cultures between the US and Germany.

"Consumers want the cheapest prices on a selected number of products," says Olas Roik of the German Retailers Association in Berlin. "They couldn't care less if the cashier smiles at them."

Because they don't favor shopping in hulking stores that promise "everything under one roof," Germans are willing to go elsewhere for what they don't find at places like Aldi, analysts say. And unlike other shoppers who might want extra TLC, environmentally conscious German customers would also rather bag their purchases themselves, in their own totes, to save plastic.

Wal-Mart's own no-frills, warehouse-style stores – Sam's Clubs – run too big for German planning restrictions. That means regular Wal-Marts must compete with chains like Aldi, one of half a dozen small discounters who offer little service, no bagging, few in-house brands, and the cheapest groceries in Europe to shoppers from the low-income bracket to the BMW range.

"I don't think that Wal-Mart did their homework as well as they should have," says Steve Gotham, a retail analyst with Verdict Retail Consulting in London. "Germany is Europe's most price-sensitive market. Wal-Mart underestimated the competition, the culture, the legislative environment."

When the American retail giant arrived, domestic discounters dropped their prices even lower. "That wasn't good for Wal-Mart, but it's been good for the [German] discounters," says Wolfgang Twardawa, head of marketing research for the Nuremberg-based German Society for Consumer Research. Wal-Mart had profits of only $2.7 billion in 1999, compared with $18 billion for Aldi, according to Mr. Roik.

Despite the hitches in Germany, Wal-Mart is thriving in England. Three years ago, it bought up England's third largest retail chain, Asda, and has been winning customers faster than any other supermarket, analysts say.

The British success has experts saying that Wal-Mart could win the hearts of the French as well. Whereas the Germans value price at the expense of service and shop at discounters for a selected number of items, the English do value service, and the French like being able to find everything under one roof.

Some experts say they think Wal-Mart's German troubles can be overcome with time and experience. "Other players are suffering in Germany, too, but they don't have the deep pocket that Wal-Mart has," says Mr. Gotham.

Wal-Mart last year took plans to create 50 superstores by 2003 off the drawing board. But despite closing two stores – in Ingolstadt and in Wilhelmshaven – the retailer opened a new store in Bergkamen in western Germany in June, and a second superstore is to open in Berlin next year. Kay Hafner, head of Wal-Mart Germany, says this demonstrates a long-term commitment to expand in Germany.

The Bergkamen "supercenter" is 81,806 feet – huge for Germany but still smaller than the US's Sam's Clubs, which average between 110,000 and 130,000 square feet, according to Wal-Mart figures. By comparison, Aldi-type discounters average 10,764 square feet. The challenge will be to lure Germans into bigger stores and the "buy it all in one place" philosophy.

Wal-Mart, which according to a recent Fortune 500 survey has replaced giant oil Exxon as the biggest company in the world, started pursuing the international market 10 years ago by building new stores in Argentina, Brazil, Canada, Mexico, Puerto Rico, China, and South Korea.

Then, four years ago, it went after business in Europe's mature economies – a tougher mission because the strict planning restrictions and competition make it possible to grow only by acquiring existing chains.

Still, predicts Kurt Barnard, president of the New Jersey-based Barnard Retail Consulting Group, "gradually, Wal-Mart will change the shopping culture of Europeans – as it has changed the retail culture in this country."

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