Magazine article The American Prospect

Which Path for Europe? Wal-Mart Couldn't Cut It in Germany. but While Neighboring Scandinavia Still Pays Retail Workers Well, the Low-Wage Model Is Making Inroads into Other European Countries

Magazine article The American Prospect

Which Path for Europe? Wal-Mart Couldn't Cut It in Germany. but While Neighboring Scandinavia Still Pays Retail Workers Well, the Low-Wage Model Is Making Inroads into Other European Countries

Article excerpt

It's hard to say what Wal-Mart's top executives were thinking when they decided to expand the chain to Germany in 1997. Germany, after all, was a nation where retail establishments were actually regulated--indeed, stores, by law, were closed on Sundays. In Germany, management is required to meet regularly with employee councils, most major employers are unionized, and pay-scales are set by sectoral labor-management contracts that apply to all large employers.

In short, Germany just didn't look like Wal-Mart's kind of place. Nonetheless, in December 1997, the company purchased the 21-store Wertkauf supermarket chain and one year later, bought 74 stores from Interspar. Predictably, a collision of cultures soon followed. And while Wal-Mart's leaders ultimately decided that Germany was not for them, the economic pressures that Wal-Mart embodies continue to threaten the economic egalitarianism and social solidarity of Germany and continental Europe.

Wal-Mart's German road was always a rocky one. In 2001, the German government's cartel office accused Wal-Mart of selling such staples as milk and butter below cost. Such practices, the office said, could drive independent stores out of business. Much of Wal-Mart's meteoric rise to the position of the world's largest retailer, of course, was fueled by its success at driving independent stores out of business, but German anti-trust laws were apparently made of sterner stuff than their U.S. counterparts. In 2003, Germany's highest court found Wal-Mart had violated those laws.

The company also refused to follow the statewide labor-management agreements for its own pay and working conditions. In July 2000, ver.di, Germany's service-sector union, began picketing 30 of Wal-Mart's stores in a campaign to compel the chain to join the employers who recognized the agreements, resulting in a spate of bad publicity which damaged its image in Germany.

For Wal-Mart's executives, however, perhaps the company's greatest failing was that other German retail chains were able to match and beat its own everyday low prices. What the Bentonville brain trust had failed to understand was that there already was a low-cost sector of German retail marketing and that German shoppers patronized those stores for bargains even as they shopped elsewhere for higher-standard goods. (The chains that owned these stores didn't offer their workers the pay and benefits that most German employers did, but they still adhered to more German labor practices than Wal-Mart.)

At least one such chain, the ALDI Group, could and did undersell Wal-Mart: The week that Wal-Mart opened its superstore in Berlin, selling a loaf of bread for the equivalent of $1.13, the ALDI store across the street was offering a loaf of bread for 34 cents.

How could ALDI make money with prices that low? Unlike Wal-Mart, which was publicly traded and thus susceptible to shareholder pressure, most German retailers were family-owned or organized as cooperatives, with no shareholders demanding higher profits. In 2006, Wal-Mart sold its German stores and beat an ignominious retreat to nations (such as Britain and Mexico) that indulged its labor and pricing practices more readily.

IN A SENSE, WAL-MART'S failure in Germany can be seen as a transnational version of its failure to gain entry to the cities of the American Northeast and Pacific Coast--America's most "Europeanized" regions, if by that we mean the most heavily unionized and with the most requirements on business to heed the interests of its neighbors. And while a lower-wage model may be making some inroads in Germany, in Scandinavia and other labor strongholds, retail work still enjoys pay and protections unheard of in the U.S.

The Northern European advantage begins with the health care and pensions provided by the governments. In Sweden and the Netherlands, says Michael Bride, deputy organizing director for global strategies at the United Food and Commercial Workers (the largest U. …

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