Wal-Mart's announcement that it has sold its German stores to rival Metro has come as no surprise to industry observers in the wake of results this April revealing net losses of 1528m (£360m) on sales of 12.56bn (£1.75bn) in the country.
But there have been a few raised eyebrows over the timing of its exit so soon after pulling out of South Korea - and just as it announced plans to enter Australia. So what do the developments mean for the retailer's international ambitions? More importantly do they raise questions about Wal-Mart's ownership of Asda? Even Mike Duke, Wal-Mart's vice chairman, admitted that entering Germany had been a mistake and it had "become increasingly difficult to obtain the scale and results we desire".
Its main problem, says IGD, was that there was no potential for it to become a top three retailer. For one, it had a relatively small portfolio with 85 Supercenters compared with Kaufland's c.400 and Metro's 550. In 2005, this gave it a 1.5% market share, compared with Edeka and Rewe, the market leaders, with 20.1% and 13.2% share respectively.
Thanks also to the strength of the discounters and a tradition of independent supermarkets, there were limited opportunities for acquisitions. The stores it did acquire were of variable size and quality.Roy Edlestone, MD of Food from Britain Germany, says: "There was never the possibility of being the number one store. Its entry came at a time when a price war broke out between Aldi and Lidl. It didn't find the number of stores it needed or a niche beyond price. It suffered from having too wide a range of store sizes and its critical mass wasn't there."
Wal-Mart's failure raises questions over its future strategy in Europe and suggests a change in direction. Lee Scott, president and CEO, said last June that it was interested in entering the Central and Eastern European markets.
But as far as Steve Gotham, project manager at Allegra Strategies, is concerned, the German exit has been an important wake-up call. "I think it is good that the world's largest retailer has had its nose put out of joint and been given a dose of realism.
"Perhaps this will make it look at itself a bit harder. I don't think Wal-Mart did its market entry research well enough in Germany and it was right to pull out. The next steps will probably be looking more closely at the Americas and perhaps Australasia."
Wal-Mart's announcement that it has indeed set its sights on Australia, where the market is dominated by Woolworths and the newly rebranded Coles Group, confirms its interest in the latter. Some believe that Wal-Mart will have to pull out all the stops to succeed in Australia - and may have to rethink what is seen as not only a very US format, but also a pretty inflexible one. "It's not good enough to just do it like you do it at home," says one. "Some people say that if Wal-Mart can run its operations from Arkansas it will be fine. If it can't it will struggle, but it does appear to be taking decent international strides."
However, Edlestone says that despite its failure in Germany, Wal-Mart could still succeed elsewhere - especially if it sets its sights on acquiring another retailer of the right profile. "My judgement is that it can be successful anywhere and in everything as along as it sorts out the prerequisites," he says. "Asda copied what Wal-Mart did before it came here. Buying 200 stores of about the same size from a group that's working along the same lines clearly works. "
So what about the UK? Is there any chance that Wal-Mart could sell Asda after failing to turn the number two store into its number one? A spokesman for Asda says Wal-Mart has no such plans.
It is highly unlikely, agree analysts. Says one: "At the right price you may be able to find a deal but it would be a surprise if it was considering exiting the UK right now."
Asda's scale is significantly larger than that of its German operations, in the most recent financial year accounting for more than 40% of Wal-Mart's international turnover outside the US.
Mike Duff, senior editor at US trade magazine DSN Retailing Today, says: "The commitment and investment to Britain are much more substantial than they were in Germany."
He adds: "Getting out of Britain would be very expensive. Wal-Mart can be patient and it's trying new things and using the division to generate product for other divisions, as is the case particularly with George. It seems evident, given Wal-Mart's typical behaviour, that it will fight it out in Britain over the long term."timeline
1999 - Wal-Mart enters the UK market after buying out Asda for £6.7bn and gets to business slashing prices
1996 Wal-Mart enters South Korea and China through joint venture agreements.
The move brings it into the Asian market, although things do not run smoothly
2002 Wal-Mart buys a 38% stake in Seiyu, Japan's fourth-biggest supermarket chain.
It later looks to invest in Daiei, the troubled Japanese supermarket chain - but it is Marubeni, the Japanese trading company, that wins the opportunity to restructure the ailing retailer
2003 Asda fails in its bid to buy Safeway, as do Tesco and Sainsbury, having been blocked by the Competition Commission. Morrisons gets the green light.
May 2006 Wal-Mart announces it is pulling out of South Korea. After ten years the company gives up on the South Korean market and sells its 16 stores
July 2006 Just two months after selling its South Korean stores, Wal-Mart says it is selling its 85 German stores to Metro.
The news comes as it announces that it is looking to move into the Australian market
But there have been a few raised eyebrows over the timing of its exit so soon after pulling out of South Korea - and just as it announced plans to enter Australia. So what do the developments mean for the retailer's international ambitions? More importantly do they raise questions about Wal-Mart's ownership of Asda? Even Mike Duke, Wal-Mart's vice chairman, admitted that entering Germany had been a mistake and it had "become increasingly difficult to obtain the scale and results we desire".
Its main problem, says IGD, was that there was no potential for it to become a top three retailer. For one, it had a relatively small portfolio with 85 Supercenters compared with Kaufland's c.400 and Metro's 550. In 2005, this gave it a 1.5% market share, compared with Edeka and Rewe, the market leaders, with 20.1% and 13.2% share respectively.
Thanks also to the strength of the discounters and a tradition of independent supermarkets, there were limited opportunities for acquisitions. The stores it did acquire were of variable size and quality.Roy Edlestone, MD of Food from Britain Germany, says: "There was never the possibility of being the number one store. Its entry came at a time when a price war broke out between Aldi and Lidl. It didn't find the number of stores it needed or a niche beyond price. It suffered from having too wide a range of store sizes and its critical mass wasn't there."
Wal-Mart's failure raises questions over its future strategy in Europe and suggests a change in direction. Lee Scott, president and CEO, said last June that it was interested in entering the Central and Eastern European markets.
But as far as Steve Gotham, project manager at Allegra Strategies, is concerned, the German exit has been an important wake-up call. "I think it is good that the world's largest retailer has had its nose put out of joint and been given a dose of realism.
"Perhaps this will make it look at itself a bit harder. I don't think Wal-Mart did its market entry research well enough in Germany and it was right to pull out. The next steps will probably be looking more closely at the Americas and perhaps Australasia."
Wal-Mart's announcement that it has indeed set its sights on Australia, where the market is dominated by Woolworths and the newly rebranded Coles Group, confirms its interest in the latter. Some believe that Wal-Mart will have to pull out all the stops to succeed in Australia - and may have to rethink what is seen as not only a very US format, but also a pretty inflexible one. "It's not good enough to just do it like you do it at home," says one. "Some people say that if Wal-Mart can run its operations from Arkansas it will be fine. If it can't it will struggle, but it does appear to be taking decent international strides."
However, Edlestone says that despite its failure in Germany, Wal-Mart could still succeed elsewhere - especially if it sets its sights on acquiring another retailer of the right profile. "My judgement is that it can be successful anywhere and in everything as along as it sorts out the prerequisites," he says. "Asda copied what Wal-Mart did before it came here. Buying 200 stores of about the same size from a group that's working along the same lines clearly works. "
So what about the UK? Is there any chance that Wal-Mart could sell Asda after failing to turn the number two store into its number one? A spokesman for Asda says Wal-Mart has no such plans.
It is highly unlikely, agree analysts. Says one: "At the right price you may be able to find a deal but it would be a surprise if it was considering exiting the UK right now."
Asda's scale is significantly larger than that of its German operations, in the most recent financial year accounting for more than 40% of Wal-Mart's international turnover outside the US.
Mike Duff, senior editor at US trade magazine DSN Retailing Today, says: "The commitment and investment to Britain are much more substantial than they were in Germany."
He adds: "Getting out of Britain would be very expensive. Wal-Mart can be patient and it's trying new things and using the division to generate product for other divisions, as is the case particularly with George. It seems evident, given Wal-Mart's typical behaviour, that it will fight it out in Britain over the long term."timeline
1999 - Wal-Mart enters the UK market after buying out Asda for £6.7bn and gets to business slashing prices
1996 Wal-Mart enters South Korea and China through joint venture agreements.
The move brings it into the Asian market, although things do not run smoothly
2002 Wal-Mart buys a 38% stake in Seiyu, Japan's fourth-biggest supermarket chain.
It later looks to invest in Daiei, the troubled Japanese supermarket chain - but it is Marubeni, the Japanese trading company, that wins the opportunity to restructure the ailing retailer
2003 Asda fails in its bid to buy Safeway, as do Tesco and Sainsbury, having been blocked by the Competition Commission. Morrisons gets the green light.
May 2006 Wal-Mart announces it is pulling out of South Korea. After ten years the company gives up on the South Korean market and sells its 16 stores
July 2006 Just two months after selling its South Korean stores, Wal-Mart says it is selling its 85 German stores to Metro.
The news comes as it announces that it is looking to move into the Australian market
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