Final curtain call for Wal-Mart Germany

It’s official – from the summer of this year, there will be no more Wal-Mart Germany. Seventy of the retail giant’s 85 stores in the country will be completely rebranded and integrated into Metro Group’s Real super/hypermarket chain portfolio, while the remaining 15 stores are expected to be closed down.
The process began at the end of November last year with the integration of five stores and will continue through the first half of 2007, culminating in the closure of Wal-Mart Germany’s headquarters in Q3.
Realistically, the writing has been on the wall ever since Metro Group bought the Wal-Mart stores from its US parent last July. Many would say a lot longer, in fact. Despite plenty of financial backing, Wal-Mart Germany simply wasn’t the success that its mighty parent so longed for – it failed to find favour with the country’s discerning consumers who can be described as somewhat change-shy.
And after eight years in the country, most of them marred by economic doom and gloom, the world’s largest retailer admitted defeat and sold up. It is said that Wal-Mart Germany never made a profit.
There are still plenty of unanswered questions, however: What will happen to the 1,200 staff that worked in the 15 stores that will be closed, or indeed the 600 employees that work at Wal-Mart’s German HQ in Wuppertal? What about Roland Neuwald, Wal-Mart Germany’s CEO who was only appointed a few weeks after Metro bought the stores? And will the remaining 9,000-plus Wal-Mart people be taken over into Real?
Questions that even the new owner can’t answer comprehensively. Metro Group spokesperson Markus Jablonski said: "First of all it’s important to point out that we’re integrating the biggest part of the Wal-Mart network, about 80 percent.
"The remainder of the stores simply don’t fit in with the Real portfolio in terms of sales, geographic coverage or for other strategic reasons, and they will be closed. Here we’re looking for other opportunities, for example new tenants. 
"As far as the stores that will be integrated into the Real chain are concerned, we will find out over the next few months how the employee structure of Wal-Mart fits in with that of Real. The Wal-Mart headquarterrs in Wuppertal will be closed and the Wal-Mart Germany board has agreed to a reconciliation of interests and a social compensation plan."
There’s no doubt that there will be redundancies – the question is simply how many. On a positive note at least, the German economy has been picking up at a rate not seen since 2000 and unemployment figures are finally going down – slowly but consistently. And any staff-related efforts made by Metro Group are likely to be complemented by strict German employment laws and the strength of the country’s unions.
From the outset, the integration of Wal-Mart Germany into the Real super/hypermarket chain makes perfect strategic sense. Store size and product offering – branded versus private label products and food/non-food ratio, for example – are very compatible.
And pooling together certainly gives Real an instant boost in terms of its market share and geographical coverage – by mid-2007, the chain is estimated to have an impressive 350 stores in the country. Furthermore, added Jablonski, "there’ll be great synergy effects in terms of marketing, logistics and purchasing".
But while size is important, a happy-ever-after is by no means a foregone conclusion. The Real chain itself hasn’t been doing well over the past few years, financially and in terms of reputation. Tying two ailing ships together could very easily make for a sinking fleet.
Vadim Khetsuriani, Metro Group analyst at retail consultancy Management Ventures, is clearly concerned: "I don’t have very big hopes for Real. The chain hasn’t had a clear position in the market for a number of years and it hasn’t done a very good job at finding a core competency.
"In my opinion Real – and Wal-Mart before it – has to decide if it wants to go upmarket or downmarket. Is it going to chase Aldi and Lidl, be downmarket and cheap, or will it try to find a niche and develop some competency, in fresh food or electronics, for example-
Location is key to future success, Khetsuriani added. "Real needs to have a close look at each store and decide where it has the most competition from discounters and other store formats.
"When Wal-Mart acquired the Wertkauf and Interspar chains in 1997, the Interspar locations in particular were pretty bad and this played a big part in them not being successful. Also, how much more hypermarket space can the German market bear? I don’t think there’s the need for any more."
And while Germany-based consultant Friedrich Becker-Birck agrees that Real has had its problems, he believes that the overall new model is sound. He said: "Integrating the Wal-Mart stores into Real is a positive move overall. It’s true that Real hasn’t been doing very well over the last couple of years, but that was more or less management failure – it didn’t review the market and do anything in a dull economic climate. Also, the assortment wasn’t very attractive, especially in terms of food. All this was recognised and addressed by Metro Group – there’s a new management team now and the plan to be closer to the customer. If the same changes are implemented at the Wal-Mart outlets, I believe that customers will accept it."
As far as Wal-Mart Germany is concerned, it was a proposition that just didn’t gel with the German consumer. An unfamiliar company that didn’t try hard enough to adapt to local preferences, a product assortment that was ever-changing and sometimes targeted at the wrong audience, changing price models, plus plenty of negative press through conflicts between staff and German unions – it all added up to an uncomfortable mix that couldn’t be overcome in a period of already low consumer confidence.