WAL-MART PLANS TO EXIT GERMANY

MARK HAMSTRA

BENTONVILLE, Ark. - The decision by Wal-Mart Stores here to leave Germany could blunt the company's expansion into Europe, analysts said, although Wal-Mart is expected to continue driving deeper into Latin America and Asia.

Wal-Mart said it would sell its 85 stores in Germany, where it had operated for nearly 10 years, to German-based operator Metro AG, and take a $1 billion charge in the second quarter.

Bryan Roberts, retail analyst, Planet Retail, London, said maintaining a presence in Germany might have helped Wal-Mart expand into other European countries.

"It would have been a nice bridge into Eastern Europe, for example," he said.

In Germany, Wal-Mart faced stiff discount-grocery competition from chains like Aldi and Lidl, which Roberts said are known for having high-quality private-label brands at low prices.

"I think there was a fundamental misunderstanding of the market," said David Rogers, president, DSR Marketing Systems, Deerfield, Ill. "Wal-Mart went into Germany with a low-price offering in a market that is replete with low-price operators."

Wal-Mart also struggled with cultural issues in managing the workforce, analysts said - perhaps exemplified by the company's introduction of a Wal-Mart song designed to rally store-level workers that ran counter to German sensibilities.

"There was a lot of non-German management used over the years in Germany, and I don't think they fully understood the dynamics of the sector," said Roberts of Planet Retail.

For Metro AG, the acquisition will boost its share of the German grocery market to nearly 10%, according to Planet Retail. It operates the Real hypermarket chain in Germany, which is similar to Wal-Mart's format there. Wal-Mart captures about 0.9% of the retail food market.

Roberts said that before the sale was announced, analysts had thought Metro, which operates multiple retail formats, might itself be considering giving up food retailing in the market.

"The market speculation has always been that Wal-Mart needed to get bigger in Germany, so it's kind of surprising that this transaction went in this direction rather than the reverse," he said.

Wal-Mart entered the market though two acquisitions, but they saddled the company with several undesirable locations and some poorly designed stores, analysts said.

Rogers of DSR Marketing gave Wal-Mart credit for leaving the market, noting that "all successful retailers leave markets" where they cannot make a profit.

Earlier this year Wal-Mart said it would leave the South Korean market.

Analysts said Wal-Mart's prospects are much better for Latin America and perhaps China. Roberts said he expects the company to make at least one or two more acquisitions in Central and South America. Rogers pointed out that the company also has strong prospects for growth in Mexico and Canada.

In addition, British newspapers reported last week that Wal-Mart has been scouting Australia for possible acquisitions. The reports said Wal-Mart could pursue either of Australia's two largest supermarket chains, Coles or Woolworths.