South Korea and Germany may seem a long way away from the average UK high street, but Wal-Mart's recent withdrawal from those countries has a significant impact for retailers in the UK.
Wal-Mart, which owns Asda, has not become the biggest and most effective retailer on the planet by taking poor investment decisions, in either capital or revenue terms. It lacked critical mass in both South Korea and Germany and, despite
appointing some highly respected individuals to both operations, decided in the last quarter that it simply wasn't going to crack these countries - so it got out sharpish. Wal-Mart does not throw good money after bad.
So what does this mean for the UK? So far, Wal-Mart has made a satisfactory - but no more than that - return out of its investment in Asda. In recent years the supermarket has seen sales growth and profitability come under pressure. Management inertia allowed its price lead to be lost through 2004/2005 and neither of its standalone formats - George and Living - have caught the imagination of shoppers. However, Asda lashed out this spring, cutting prices on milk, eggs and other staples. Genuine price aggression, but did it work?
Apparently not. The other majors had all cut their prices by 11am, and in the absence of a marketing campaign behind it, the impact on Asda's sales will have been small. All the cuts succeeded in doing was to remove a chunk of profitability from the industry. What's more, prices of most items reduced have now returned to where they were.
This lack of sales response will have been noted with interest back at Wal-Mart HQ, and as a consequence a similar campaign in the months ahead is unlikely.
Wal-Mart is not using Asda as a tool to undermine the core market of its global competitor, Tesco, with wild price cutting - it acquired Asda to make an economic return. Given that the spring price cuts didn't work, it will try a different key to unlock UK profitability. The word is that Asda is focusing on improving its fresh and premium ranges. One thing is certain - it will not throw good money after bad on price.
What Wal-Mart's decision to quit Korea and Germany does is remind us why it became, and remains, King of the Hill. The company is obsessed with returns and, in the light of Asda's ineffective price-cutting exercise, the outlook for UK retailers' profitability looks bullish.
Wal-Mart, which owns Asda, has not become the biggest and most effective retailer on the planet by taking poor investment decisions, in either capital or revenue terms. It lacked critical mass in both South Korea and Germany and, despite
appointing some highly respected individuals to both operations, decided in the last quarter that it simply wasn't going to crack these countries - so it got out sharpish. Wal-Mart does not throw good money after bad.
So what does this mean for the UK? So far, Wal-Mart has made a satisfactory - but no more than that - return out of its investment in Asda. In recent years the supermarket has seen sales growth and profitability come under pressure. Management inertia allowed its price lead to be lost through 2004/2005 and neither of its standalone formats - George and Living - have caught the imagination of shoppers. However, Asda lashed out this spring, cutting prices on milk, eggs and other staples. Genuine price aggression, but did it work?
Apparently not. The other majors had all cut their prices by 11am, and in the absence of a marketing campaign behind it, the impact on Asda's sales will have been small. All the cuts succeeded in doing was to remove a chunk of profitability from the industry. What's more, prices of most items reduced have now returned to where they were.
This lack of sales response will have been noted with interest back at Wal-Mart HQ, and as a consequence a similar campaign in the months ahead is unlikely.
Wal-Mart is not using Asda as a tool to undermine the core market of its global competitor, Tesco, with wild price cutting - it acquired Asda to make an economic return. Given that the spring price cuts didn't work, it will try a different key to unlock UK profitability. The word is that Asda is focusing on improving its fresh and premium ranges. One thing is certain - it will not throw good money after bad on price.
What Wal-Mart's decision to quit Korea and Germany does is remind us why it became, and remains, King of the Hill. The company is obsessed with returns and, in the light of Asda's ineffective price-cutting exercise, the outlook for UK retailers' profitability looks bullish.
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