Archive for Saturday, July 29, 2006

Wal-Mart leaving Germany

July 29, 2006


Wal-Mart Stores Inc. is ending its loss-generating business in Germany just two months after leaving South Korea in what analysts welcomed as a move to focus resources on expanding in more profitable international markets like China and Latin America.

Wal-Mart said Friday it plans to sell its 85 stores in Germany to rival Metro AG, ending a nearly decadelong effort by the world's largest retailer to crack the market in Europe's biggest economy.

Terms were not disclosed, but the Bentonville, Ark.-based retailer said it expects to incur a loss before taxes of about $1 billion related to the deal in its second quarter.

Wal-Mart entered the German market in 1997 with the acquisition of the Wertkauf and Interspar hypermarket chains.

Sy Schlueter, chief executive officer of investment house Copernicus in Hamburg, said Wal-Mart had trouble winning over German consumers, who tend to be very price-focused and would rather drive to a different store if they know they can buy something cheaper. National discounters put the heat on Wal-Mart's sales, he said, by offering the same products at competitive prices.

Further, Schlueter said consumers rejected some of Wal-Mart's signature features, like stores outside of town centers, employees required to smile and heartily greet customers, or baggers at checkouts.

Patricia Edwards, a portfolio manager and retail analyst at Wentworth, Hauser & Violich in Seattle, which manages $8.2 billion in assets and holds 51,000 Wal-Mart shares, said Wal-Mart can use the money it was spending in Germany to fund expansion elsewhere.

"At some point it feels really good to stop beating your head against the concrete. That's a good thing, because it means that they're being much more logical about their growth and taking into consideration shareholder returns," Edwards said.


Use the comment form below to begin a discussion about this content.

Commenting has been disabled for this item.