Wal-Mart shuts shop in Germany

LONDON/FRANKFURT: Wal-Mart Stores, the world’s largest retailer, will retreat from Germany by selling its 85 stores to Metro at a $1-bn loss, two months after exiting South Korea.

The price of the transaction wasn’t disclosed. Wal-Mart will incur the $1bn pretax loss in the second quarter of fiscal ’07, according to a statement released by the Bentonville, Arkansas-based company. The German unit generated revenue of about e2bn ($2.54bn) last year.

Wal-Mart has failed to make money in Germany, Europe’s largest economy, where consumer spending is sluggish and closely held Aldiand Lidl dominate. Its UK unit, Asda, missed all profit and sales goals last year, and Wal-Mart is leaving South Korea after failing to win customers.

Metro, Germany’s biggest retailer, is buying the stores to gain scale and increase bargaining power with suppliers.“I would call it a U-turn strategy,” said Tim Albrecht, who helps manage the equivalent of approximately $6.3bn at DWS Investment in Frankfurt. “Wal-Mart realised that they can’t handle the German market, and Metro is getting rid of a competitor while receiving some money in addition.’’

The purchase will give Metro a total of 1,512 stores in Germany’s e130-bn food-retail market. The company plans to add the outlets to its Real chain of hypermarkets.

“It’s extremely difficult to grow food retailing organically,” Metro spokeswoman Albrecht Von Truchsess said. “It’s really only possible through acquisitions. This chance will not return so quickly.”

Wal-Mart said in June that it planned to close or sell stores in Germany if they couldn’t be made profitable. The company said in February that fourth-quarter sales at the German unit, headed by David Wild, were down in the ‘high single digits.’

The company may have failed in Germany as it tried to force its US strategies there, according to Tim Attenborough, an analyst at BNP Paribas in London. Wal-Mart, which doesn’t allow its workers in the US to have unions, battled with German workers over labour policy issues, culminating in strikes. It also had language barriers.

“It couldn’t cope with the rigidity of the labour market and lost its leading price strategy because of severe competition with discounters,” Attenborough said. “I think in the end it just wanted rid, and the size of the charge that Wal-Mart has taken implies that it is paying Metro to take it off its hands.”

Wal-Mart entered Germany in 1998 by buying the warehouse chain Wertkauf. It closed at least three stores there since then. Tesco and Carrefour, the world’s second- and third-biggest food retailers by market value, have also exited markets where they failed to win market share.

Last year, they agreed to swap superstore chains in central Europe and Taiwan to step back from global expansion that left them over-extended.

“Margins are so slim in food retailing that retailers are finding that they have to be where they can win and if they can’t, they have to get out,” said David Stoddart, an analyst at Teather & Greenwood in London.
Wal-Mart had sales of $312.4 billion last fiscal year.International revenue accounted for about 20% of that.
Profit rose 6.3% in the first quarter ended April 30,Wal-Mart said in May. Sales rose 12%. On May 16, Wal-Mart forecast second-quarter profit of 70 cents to 74 cents a share. It reiterated its forecast for annual profit of $2.88 to $2.95 a share.

Germany is not the only country where Wal-Mart is struggling to make a profit.Asda, its biggest international division, has lost market share to Tesco Plc, which has been quicker at broadening its food ranges and at introducing financial services such as life insurance.

Asda, which Wal-Mart bought for $10.8 billion in 1999, has seen its UK grocery market share rise just 0.1 percentage point to 16.6% in the past year, while Cheshunt, England-based Tesco’s has climbed 1.2 percentage points to 31.5%, according to research company Taylor Nelson Sofres Plc.

Wal-Mart agreed to sell its unprofitable chain of South Korean supercenters to Shinsegae Co for 825 billion won ($860 million) in May. It was never able to “successfully win market share” there,Credit Suisse analyst Michael Exstein wrote in a report at the time.

Metro said it was too early to say whether it would cut jobs after the purchase. It expects the transaction to be completed later this year.