Wal-Mart Stores Inc is ending its loss-generating business in Germany just two months after leaving South Korea in what analysts welcomed as a move to focus resources on expanding in more profitable international markets like China and Latin America.
Wal-Mart said on Friday that it plans to sell its 85 stores in Germany to rival Metro AG, ending a nearly decade-long effort by the world's largest retailer to crack the market in Europe's biggest economy.
Terms were not disclosed, but the Arkansas-based retailer said it expects to incur a loss before taxes of about US$1 billion related to the deal in its second quarter.
The total cost of the German experiment is not known because Wal-Mart does not report individual financial results for each of its international markets. Wal-Mart has said over the years that its German operations were not profitable.
"They've been losing money there for years," said Robert Buchanan, head of retail analysis at A.G. Edwards & Sons.
Wal-Mart entered the German market in 1997 with the acquisition of the Wertkauf and Interspar hypermarket chains. But Wal-Mart's German stores, which employ 11,000 people, have struggled to break into the local market.
Sy Schlueter, chief executive of investment house Copernicus in Hamburg, said Wal-Mart had trouble winning over German consumers, who tend to be very price-focused and would rather drive to a different store if they know they can buy something cheaper. National discounters such as Lidl GmbH and Aldi Einkauf GmbH put the heat on Wal-Mart's sales, he said, by offering the same products at competitive prices.
Further, Schlueter said consumers rejected some of Wal-Mart's signature features, like stores outside of town centers, employees required to smile and heartily greet customers, or bag-gers at checkouts.
Buchanan said another candidate for withdrawal is Argentina, where Wal-Mart has 11 stores. It either needs to make an acquisition to gain scale and market share or pull out, he said.
In May, Wal-Mart left the highly competitive South Korean market.
Wal-Mart's total international division accounted for about 20 percent of last year's overall net sales of US$312.4 billion.
"As we focus our efforts on where we can have the greatest impact on our growth and return on investment strategies, it has become increasingly clear that in Germany's business environment, it would be difficult for us to obtain the scale and results we desire," Michael Duke, Wal-Mart's vice chairman in charge of international operations, said in a statement.
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