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Walmart? Nein, Danke!

A failure in Germany, will the retailer survive here?
AFP (From Outlook 08 October 2012)

Barely ten years into Germany’s economic boom of the mid-’70s, German consumers began to say “Nein, danke” to plastic shopping bags. But to wind energy, organic produce, jute bags and cycling instead of driving to work? A unanimous “Ja, bitte”.

For all their penchant for new age eco-friendliness and cutting-edge tech, Germans are traditional. No surprise that US retail giant Walmart’s all-American approach—of baseball caps and greetings like ‘Howdy, I’m Chuck,’—when it entered Europe’s largest retail market in the late ’90s cut no ice. By 2006, Walmart sold all its German acquisitions and beat a quiet retreat.

Primarily, the reson for Germany’s rejection of cheap retail products lay—and continues to lie—in the importance Germans place on quality over throwaway quantity.

According to a 2003 study by the Institute for Economics and World Management in Bremen, Walmart—with its 94 hyper-stores—was then Germany’s fourth biggest operator. But, with a stagnating marketshare of just 1.1 per cent, it remained a minion in the German market, which was, and is, dominated by local retailers Metro, Aldi and others.

Walmart’s stores were mostly situated away from big cities. The idea of driving out after a hard day’s work and walking long aisles in search of dinner amidst lawnmowers and washing machines turned Germans off. For that matter, there is a German retailer at every street corner. These competitively priced stores cover 90 per cent of the consumers’ daily needs. Even their cheapest sections do not compromise on quality.

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Berlin-based journalist Hermann Denecke points out that even in the late ’90s, Germany was at a different level on the growth curve than India is today and enjoyed a social welfare system which, after ww-ii, put an end to poverty.

“Understandably, bulk-packaging of compromised quality succeeds wherever money has to be stretched to feed families,” says Denecke, who has worked in the US and India. He also calls attention to Walmart’s anti-union policies and its tendency to ensure cheap prices at the expense of workers’ wages, which ran afoul of Germany’s stringent minimum wage and labour laws. “Even today, US companies here are under surveillance for possible violations,” he says.

Walmart in India. Will it create jobs and benefit farmers? Provide consumers a one-stop convenience? Instal cold storages to eliminate the current losses of roughly 40 per cent of rotting agricultural produce? Knock out kirana stores? Adhere to labour and other laws?

“Equally rich Indian retailers have not built storage facilities so far. Why do we expect a foreign retailer—whose goal, too, is profitability—to act differently?” asks Manoj Pant of JNU’s Centre for International Trade and Development. Since all firms want to ensure profitability, Pant says that Walmart’s 51 per cent equity in India (as opposed to 100 per cent in Germany), while being a wise move for a company entering an unfamiliar market, will not make any difference either. Pant is neither excited nor alarmed by Walmart’s entry. But he, too, feels the company’s failure in Germany can’t be a indicator of its future here.

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In India, unlike in Germany, unskilled labour means uneducated workers, while skilled labour is really ‘reskilled’ labour, the section Walmart will tap and hire from. Thus, it will not create jobs for the poor. At least, not till India’s GDP rises to 9-10 per cent, the middle class swells further and crosses over from one section to another.

While the novelty of foreign items will guarantee Walmart’s survival, Indians’ nonchalant—though dismaying—disregard for the environment, backed by lax law enforcement, will ensure that driving to get to a Walmart and carrying purchases in plastic bags won’t deter sales.

But kiranas can breathe easy. The JNU economist is confident that the interest-free credit and home delivery services that kirana stores offer, cannot be beaten by giant retailers for now. Indeed, the two are even expected to complement each other, especially if kiranas mark up and resell Walmart products to their regular customers.

Walmart seems to share Pant’s vision. “The fact is that we have built a very strong business that provides to the kiranas,” Walmart Asia CEO Scott Price said in a recent interview to CNBC-TV18. “We expect to grow it, we expect to expand it. I see decades of peaceful coexistence.”

However, and if there is anything that annoys JNU’s Prof Pant, it is the “diversionary and unfair” claim made by the government that Indian farmers will benefit from multi-brand retailers.

“Retailers are free to buy from wherever they want, whereas the Agricultural Produce Market Committees restrict small farmers to selling produce in their states,” he points. “Land, labour and company laws must be amended. Those are what I would call real reforms.”

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PLACES: Germany
SECTION: BusinessInternational
SUBSECTION: Cover Stories
OUTLOOK: 08 October, 2012
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