Wal-Mart lost 4.5 Billion Dollars on its German fiasco

Social dumping does not pay:
Wal-Mart lost 4.5 Billion Dollars on its German fiasco

Wal-Mart's losses in Germany were even bigger than thought. The country's leading industry magazine Lebensmittelzeitung estimates that the Bentonville multinational burned altogether 3.5 Billion Euro, that is 4.5 Billion USD, before it finally threw in the towel. The operative losses alone for the years 2000 to 2004 amounted to a staggering 1.8 Billion Euro, or 2.3 Billion USD.

This Wal-Mart store in Berlin is one of the 85 markets that the company has sold to Metro, the third largest global trader. The Bentonville multinational's German adventure proved to be a costly flop, its losses estimated to anywhere between 4.2 and 4.5 Billion US Dollars. Walmartization does not travel, this became obvious already earlier this summer when the retail giant left South Korea.

Wal-Mart's departure from Germany is a victory for its main competitor, the Metro Group. Real, Metro's chain of hypermarkets and large supermarkets will now take over the 85 Wal-Mart stores, which employ a total of 11,000 workers. The signals from Metro have not been completely clear on whether all of these stores will continue as part of the Real network, which now consists of 550 shops, but the company has indicated that almost all of them will remain in operation.

Hans-Joachim Körber, Metro's CEO, cannot hide his satisfaction in a Lebensmittelzeitung interview, although he makes an effort to sound like the deal was equally favourable for both. But the fact is that the US retail giant lost out, and paid dearly for it.

German retail sector competition is rough and price margins are razor thin. Particularly the hard discounters, like Aldi and Lidl, keep up the pressure. Nowhere is hard discounting as strong as here, where it commands a grocery market share of almost 40 per cent. Also Real has had its share of problems, and particularly some management mistakes have been costly. This has lead to at times tense labour relations, but also to some speculations that the Metro Group would get rid of its hypermarket chain, as was recently the case with its Praktiker home improvement markets. The acquisition of Wal-Mart's German operations should now put a definitive end to these speculations, says Körber.

Wal-Mart got it wrong from the very beginning

Wal-Mart got it wrong in Germany from the very beginning. The commercial concept with much emphasis on no-food did not suit the consumers, who still preferred to buy their clothes in inner city shopping areas. The store network was not competitive, and logistics did not fall in place.

Instead of investing in its personnel to help overcome these projects, Wal-Mart succeeded in alienating them fast. The works councils felt that management hindered them from taking care of their responsibilities. UNI-affiliated trade union ver.di tried in vain to get the company to sign the general collective agreements and finally had to force a declaration where the employer reluctantly agreed to respect their conditions.

Wal-Mart's so called love ban scandal is still in fresh memory - the company wanted to forbid friendship relations between its workers. The management in Bentonville also wanted to install an anonymous hotline where workers could tell on each other, showing an incredible lack of sensitivity and ignorance of the bad experiences from the dictatorship years in large parts of Europe. True to its anti-union approach, Wal-Mart failed to consult its works council, and the whole attempt to install this curious ethics code ended with a German court declaring it illegal.

Now Wal-Mart has given up, as they have done also in South Korea. Of course, neither Metro nor the US retail giant tell about the price. What is clear though is that Wal-Mart must take responsibility also for any operative losses in 2007 and 2008, which leads to the conclusion that the whole affair has cost the company between 3.2 and 3.5 Billion Euro, or between 4.1 and 4.5 Billion USD.

Social dialogue is better than Walmartization for the bottom line

The Metro Group as well as its main component Metro Cash & Carry are engaged in a constructive social dialogue with UNI Commerce, which has allowed the partners to deal with potential conflict issues at an early stage. The global success and competitiveness of large European retailers such as Carrefour, Metro and Tesco should show Wal-Mart that not only is it possible for these big bow stores to show corporate social responsibility, but it is good for their bottom line as well.

Perhaps Wal-Mart's recent failures in Germany and Korea and its increasing problems at home signal an end to the spread of Walmartization - poor employment and working conditions and fighting unions at any price, as a tool for social dumping.