A Bumpy Ride in Europe

It's peak shopping time on a sunny Friday evening, but customers are few and far between at the local Wal-Mart Supercenter in Maintal, just outside Frankfurt. Perhaps they're put off by the cracked floor tiles or the cobwebs on the headless, foam-rubber mannequins. Whatever the reason, the store's rock-bottom prices and helpful service clearly aren't pulling in many shoppers.

That's not the case at the Wal-Mart-owned Asda Group PLC store in Southgate, north London. There, the aisles are jammed with shoppers and brimming carts. "The prices are low, and the quality's good," says Valerie Collins, who runs a home for the elderly just down the road in Winchmore Hill.

Wal-Mart Stores Inc.'s experiences in Germany and Britain couldn't be more different. The world's top retailer has lost money in Germany every year since it entered the market in 1997, paying $1.6 billion for two local chains, Wertkauf and Interspar. Yet in Britain, its $10 billion acquisition of Asda in 1999 has been little short of a triumph. Sales have been growing at a 10% annual clip, with Asda recently overtaking J Sainsbury PLC to become the nation's No.2 retailer. "Wal-Mart moved relatively smoothly into Britain, which has so many cultural similarities with the U.S.," says Penny Jarvis, a retail specialist at Egremont Group, a London consultancy. "But they didn't appreciate the differences between Germany and the U.S."

It's not hard to understand why America's best retailer could have a tough time cracking Germany. Prices are tightly regulated, labor laws are rigid, and local discounters, notably Aldi and Lidl, are entrenched. German shops aren't allowed to sell goods below cost, so the Bentonville (Ark.) giant can't use loss-leaders to lure shoppers -- a favored tactic in the U.S. and Britain. In 2000, it was hauled before a German court for selling long-life milk and other staples below cost. And the company, which discourages workers from unionizing, has had run-ins with German labor. Employees affiliated with the ver.di union staged a brief strike in July. "It's a difficult market," acknowledges John B. Menzer, CEO of Wal-Mart's International Division.

Wal-Mart also started from a weak position. When the U.S. retailer acquired them, Wertkauf and Interspar were losing money and together accounted for less than 3% of the market. Changing their names to Wal-Mart, which most Germans had never heard of, didn't help. Then there are the cultural missteps. German shoppers dislike being approached by friendly sales staff. "They don't expect this 'Hi! How are you?' culture. That is alien to the workforce and to the customers," says Michael Poynor, chief retail adviser at PricewaterhouseCoopers in London.

In Britain, Wal-Mart hit the ground running. Asda was a thriving concern with an 8.4% market share when it took over. The retailers' cultures meshed easily. There was even an Asda equivalent of the Wal-Mart chant that starts off staff meetings at the U.S. stores. And Wal-Mart didn't change Asda's name. Its next goal in Britain: winning the takeover battle for Safeway PLC, which, if successful, would make it the country's No.1 retailer.

But Wal-Mart isn't giving up in Germany. It is building a hypermarket in Berlin. And it is introducing George, Asda's successful line of low-cost apparel, to its German outlets. "We're getting better every year," says Menzer. Judging from the desolate aisles in Maintal, shoppers aren't yet getting the message.

By David Fairlamb in Maintal, with Laura Cohn in London

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