Kim Jung Hyun stopped shopping at the Wal-Mart Stores Inc. outlet near her Seoul home last year when Shinsegae Co. opened a discount competitor 4 miles away. She prefers to drive there twice a week, she said.
“I just don’t like to shop in a place that looks like a warehouse,” said Kim, 38, a housewife. “I can get everything I need, from fresh produce to televisions, at a cheap price while being treated like a customer in a department store.”
Wal-Mart’s retreat from 16 stores in South Korea after two years of losses underlines the perils of transplanting its U.S. model overseas. The world’s biggest retailer misread consumer preferences with warehouse stores that emphasized frozen foods in a spartan layout.
The missteps raise the possibility that Wal-Mart could fail in Japan if it doesn’t adapt to local tastes, said Yasuyuki Sasaki, a retail analyst at Credit Suisse Group in Tokyo.
“There’s no guarantee that the same thing won’t happen in Japan if Wal-Mart sticks to its own way and ignores the Japanese consumers’ demands,” Sasaki said.
Koreans, like Japanese, look first for fresh produce when they visit discount supermarkets, Sasaki said. Wal-Mart’s low-price strategy doesn’t compensate for a lack of localization, which includes the look and feel of stores, he said. Wal-Mart’s South Korea stores had $768 million in sales last year, the company reported.
Bentonville, Ark.-based WalMart entered Japan in 2002 by buying into debt-ridden Seiyu Ltd. Now majority owned by Wal-Mart, the Tokyo-based retailer forecasts a fourth year of losses from about 400 stores in 2006.
In Germany, Wal-Mart plans to close three of its 88 stores this year to try and make the business profitable, the company said. It bought separate retailers in the north and south of the country in 1997.
“Japan is not America; Korea is not America,” said Edwin Merner, who oversees $1 billion as president of Atlantis Investment Research Corp. in Tokyo. “Global giants like Wal-Mart fail in these countries because they don’t try hard enough to localize their businesses.”
Wal-Mart remains confident about its Japanese unit, said Billie Cole, the company’s spokeswoman in Tokyo.
In Germany, Wal-Mart has “yet to see a turn in the retail market,” vice chairman Mike Duke said during the company’s May 16 earnings conference call.
Wal-Mart arrived in Korea in 1998 through an undisclosed majority stake in four supermarkets and six plots of land.
It leaves with a 3.8 percent share of the country’s $30 billion-a-year discount market and a 9.9 billion won ($10.4 million) loss last year. Seoul-based Shinsegae agreed to pay $869 million for Wal-Mart’s business on May 22.
The U.S. company fell short on several fronts in Korea, said Na Hong Suk, a retail analyst at Good Morning Shinhan Securities Co. in Seoul.
Wal-Mart lost out on product mix. The frozen foods it stocks with fresh meat and vegetables have limited appeal to Koreans, Na said. Even the subdued lighting and the height of the shelves are wrong for local consumers, he said.
Wal-Mart’s Seoul store looks like a “cheap marketplace,” said Kim Se Hee, 31, a housewife who shops at E-Mart in Seoul.
For Min Jung Ah, Wal-Mart’s warehouse-style layouts are inconvenient for comparing prices and products.
“Besides, I never liked shopping in those dark stores where they sell frozen imported food in bulk, not fresh products sold in smaller bundles,” said Min, a Seoul housewife.
