In mid-January, less than a week after Walmart abruptly closed scores of Sam’s Club stores, the CEO of low-cost grocery chain Lidl told a German magazine that his company, too, would pull back its planned store count in the United States. But he also admitted to a big mistake.
“Several things have gone wrong,” Klaus Gehrig told Manager Magazin about Lidl’s aggressive, 48-store expansion into the states, which kicked off in June 2017. He described the German retailer’s U.S. entry as a “catastrophe.” Among the miscalculations that led to weak sales, he said Lidl failed to address American shopping preferences.
Walmart, which abandoned the German market in 2006 after nine troublesome years, also would appear to benefit from a better understanding of the American consumer, based on how it handled the Sam’s Club closings.
Several news reports relayed stories of confused shoppers arriving at dark stores with locked doors, greeted by crying employees who were not alerted to the closures. If that sight wasn’t enough to turn shoppers off, there’s the issue of the prescriptions many had come to fill, not to mention the items waiting to be checked off their grocery lists.
The key difference between these two retail giants’ missteps is Walmart has 55 years of U.S. operating experience. Still, each chain could learn a few things from the other.
3 Cultural Lessons
Most intriguing about the Lidl-Walmart cutback overlap is Walmart’s struggle with similar oversights when it attempted a German expansion more than a dozen years ago. It pulled out of the nation after getting its prices, products and employee culture wrong.
Fast-forward to 2018, and Lidl’s CEO conceded his own company’s mistakes. Lidl had planned to open as many as 100 locations by this summer, but now projects just 20 in all of 2018, and they’ll reportedly be smaller formats. Like Walmart in both Germany and the U.S. with the recent Sam’s Club closures, it misjudged shoppers’ expectations of the chain.
While Lidl faces issues in retail today involving technology and data that Walmart did not years ago, the events do point out how repetitive the mistakes in the industry are. Here’s where both merchants went wrong, and where they can learn from each other.
Lesson 1: They didn’t put on shopper shoes (or schuhes).
Among Lidl’s recognized miscalculations, Gehrig said the chain failed to address American shopping preferences, such as for prepared foods. He also attributed the chain’s problems to poor locations and stores that are too big and expensive. It intends to roll back on experiments and store upgrades and limit its product range — it sells a lot of apparel and other nonfood items — to make the shopping trip simpler.
Walmart, in Germany, implemented a high-service/low-price business model in a market that did not appreciate the combination. Employees enthusiastically greeted shoppers at the door and offered help every 10 feet, which the unaccustomed Germans found annoying. Further, language barriers cost it key business connections. Years later, here in the U.S., communications continue to be an issue, as Walmart appears to have closed the Sam’s Club stores without alerting them first, thereby not recognizing their needs.
Lesson 2: They should have made shoppers their lead motivation.
One possible reason for Lidl’s slip-up in the U.S. is it might have focused too much on what its top rival, Aldi, was up to instead of what its new shoppers expected. It ventured into the opposite direction of low-fringe Aldi, with large, higher-end stores that many U.S. shoppers found too complex for quick trips. Lidl also might not have paid close enough attention to what its future U.S. competitors were up to — many were lowering prices ahead of its entry.
Walmart similarly might have been concentrating too singularly on the wrong motivation when choosing to shutter 63 Sam’s Club locations, affecting 9,400 workers. Rather than considering the longer-term effects, the immediate closings would have on its customers — all of whom paid for Sam’s Club memberships (they will be refunded) — it appeared to have been concentrating on the bottom line. That it announced employee pay raises, to $11 an hour, earlier on the same day made it appear Walmart was trying to mask an unpopular act with a popular one.
Lesson 3: Employee matters matter.
Lidl appears to understand what U.S. workers value, at least in terms of compensation. Store associates here earn a minimum of $12 an hour. Benefits, as detailed on its website, include medical, dental and vision insurance, a 401(k), life and disability insurance, an employee assistance program and time off for volunteering. However, the chain did replace its German head of U.S. operations in September after just three months, hinting at a “paramilitary” style of management that “wants to force success,” as described in Supermarket News. This could turn off potential talent.
While Walmart’s U.S. pay raises were applauded, they are now tethered to the bad mojo of the abrupt Sam’s Club closings. Walmart would have benefited from an advance warning, as Lidl provided with its reduced expansion plans. As for its employment experience in Germany, Walmart struggled to develop a good relationship with labor unions. For example, the retailer’s ethics code prohibited inter-office romances and encouraged workers to report inappropriate behavior, which concerned the union. Further, it operated the division from its headquarters in the United Kingdom, where English was the official corporate language. This resulted in communication breakdowns among German managers who did not speak English. Many left.
What both chains have in their favor is the experience and size to weather small missteps, but neither should take these benefits for granted. With an increasing number of shoppers buying their groceries online and more nonsupermarkets entering the food category, the line that divides success from failure is becoming thinner than any cultural border.