How Do Cultural Differences Impact International Retail?

3 Retail Case Studies That Show the Impact of Cultural Differences

Looking for case studies of cultural issues in the retail sector? In this article, we look at some examples from the retail industry where cultural differences or cultural issues have resulted in business success and failure.

Through our work delivering cross cultural training for global retail brands, we have seen firsthand how cultural differences influence customer expectations, communication styles, and retail success in international markets.

This article will attempt to show the significance of cross cultural factors in international retail success. Through understanding the cultural reasons behind success or failure, it is then easy to apply the same principles to any business sector.

These examples also illustrate broader cultural differences in business, showing how cross cultural marketing and retail strategies must adapt to local consumer behaviour.

We have provided 3 case studies from the retail industry below:

#1: Wallmart in Germany
#2: Costco in Australia
#3: Carrefour in China

Each of our case studies will give you a brief background to the retail companies involved as well as an overview of the cultural issues at play. It then concludes with a summary of the main learning points that can be taken forward.

1. Walmart’s Failure in Germany: A Retail Case Study in Cultural Differences

Photo of retail supercentre in Germany. Click image to see source

In 1997 and 1998 Walmart acquired two companies – Wertkauf and Interspar –  in Germany. During its expansion Walmart managed to also successfully enter a number of international markets including Canada, Chile, Brazil, India, and China.

However, during this whole period of expansion Walmart also experienced a number of defeats. Germany was one of them.

Key Cultural Factors That Influenced the Retail Strategy

Analysts still argue about the reasons behind the failure of Walmart in Germany. However, among them are a number of culture-related issues that come up rather often. There were two groups of factors that contributed to Walmart’s failure in Germany.

The first cluster is related to mismanagement.

Firstly, some of the American management practices just didn’t fit in the German context. For example, each employee before their shift had to participate in a morning exercise. It could be seen as harmless, but the best thing about this practice was that they had to do it, chanting “WALMART! WALMART! WALMART!” If in America such a practice could be used to boost morale and inspire loyalty, then in Germany it was looked upon with annoyance, to put it mildly.

Secondly, Walmart’s ethical code caused much frustration as well. For example, the practice of actually spying on your co-workers and reporting any misconduct may be acceptable in the U.S. However, in Germany it is not the case. One only has to think back to the 1940s and post-war Germany, when citizens were actually doing this on a social level – thus the modern abhorrence.

Thirdly, cultural differences in giving feedback. The feedback of the German employees was ignored. Top management apparently didn’t listen to anything the lower employees and subordinates had to say.

Such a situation caused an enormous amount of frustration among the employees. Morale was significantly undermined as well. This, in turn, had a negative impact on the overall efficiency of the venture.

The second set of factors is related to the lack of analysis of the local market and the specifics of local customers’ demands.

1. Firstly, store merchandising was wrong. Walmart put all premium products at eye level, while all the discount products were stored either at the bottom shelf or on the top one. This irritated German customers a lot.
2. Secondly, as strange as it sounds, the habits of the average German customer weren’t taken into account. Germans are known to be efficient and spend as little time in the shops as possible. However, Walmart’s stalls were placed in such a way that the customer will have to spend more time shopping.
3. Also, at the check-out desks, the cashiers were ordered to always be smiling. In Germany, it is considered not normal to smile at total strangers. So the German cashiers, who were not in the habit of smiling at strangers, attempted to follow the orders but felt uncomfortable. As a result, the smiles didn’t seem sincere, which again aroused not the best feelings towards Walmart in its customers.
4. Thirdly, the brand name wasn’t particularly popular in Germany. The reason lies in the rise of “greenness” in Germany. The ideas of conservation of the environment and recycling were gaining momentum. That is why Walmart’s plastic bags and the redundancy of plastic packaging aroused more annoyance rather than enjoyment.

Retail Outcomes and Key Cultural Lessons

The cumulative effect of poor management and total absence of analysis of the local market or culture could not but have had serious impacts on Walmart’s position. Frustrations of both employees and customers played a major role in the downfall of Walmart in Germany.

As for financial performance, Walmart never officially published the losses it experienced during its stay in Germany. However, some analysts estimate that the losses of Walmart were US$ 200-US$ 300 million per annum.

Even though the exact number will remain a mystery, the retreat of the giant, who is not particularly used to failures, speaks louder than numbers. Walmart did fail in Germany, and cultural factors did play their role in it.

2. Costco’s Success in Australia: Adapting Retail Strategy to Local Culture

Photo of Costco in Australia. Click to see source.

In 2009, Costco attempted an expansion into the Australian market. Many experts had not anticipated this venture to succeed. Some analysts were emphasising high competition from the likes of Coles and Woolworths. Some thought that it would be differences in customers’ preferences and shopping habits.

However, Costco has proved them all wrong.

Key Cultural Factors That Influenced the Retail Strategy

The main thing that Costco showed is that it is important to adapt to the environment of each market you are operating in. There were two key moments:

• Costco analysed customer habits and came up with a brilliant marketing strategy
• Costco amended its working practises to reflect Australian business culture

The first point is reflected in the membership sales. Australians usually favour the “win-win” approach in life. This feeling of being appreciated and being exclusive in exchange for a membership fee attracted Australians.

Apart from this entrance strategy, Costco, unlike Walmart, decided to change its selling practices.

The first thing to go was their coupon practices. In America, coupons are widely used. However, in Australia it is an alien concept, which nobody uses. Costco, instead of trying to implement an already successful U.S.A. coupon system, decided to give it up in case of Australia.

Another thing that was left in the U.S.A. was the use of Costco cards. Americans are eager to use Costco cards as payment methods. However, Costco management saw a potential threat in the implementation of the same practice in Australia. Moreover, they were afraid of the frustrations and conflicts that these cards may cause. This is why the decision was made not to restrain any payment methods in Australia.

Also, Costco decided not to invest any money in marketing. They played on “word-of-mouth” marketing. It was smart, as in Australia, this is probably the best marketing money can buy. Partially, the success of this practice was ensured by the fact that many Australians and Americans travel a lot between the countries. The migration flow is quite strong there. This caused a certain number of people to have first-hand experience with Costco. This played its role in attracting new customers.

Unlike Walmart, Costco analysed the situation carefully and adapted itself to the demands of the local market. Paying attention to local demands and changing one’s ways accordingly – that is where the true value of Costco’s lesson lies.

Retail Outcomes and Key Cultural Lessons

The summary of the results can be summarised in one phrase: Costco secured its place in the Australian market swiftly and effectively.

Some numbers are in order. Thanks to the membership scheme, the first day sales were approximately $US 841,000 (Costco, 2009:3). In the first two weeks, sales went up to US$ 8,9 million (Costco, 2009: 3).

The future of Costco looks promising as well. According to the International Business Times, Costco has the right to be ambitious: “while Coles and Woolworths are busy battling their price wars, Costco is building its capacity in a bid to become the third major supermarket in Australia”.

3. Carrefour in China: How Cultural Awareness Drove Retail Growth

Carrefour in Beijing, China. Click image to see source.

In 2007, Carrefour started aggressive international expansion in other countries. Particular attention was given to the rising Asian markets. One of the main targets was China.

There were many retail experts filled with scepticism on the matter. Differences between French business culture and Chinese business culture in terms of management and customer behaviour were among the most mentioned reasons for failure.

However, instead of ignoring these remarks, Carrefour listened to them and constructed their selling strategy accordingly.

Key Cultural Factors That Influenced the Retail Strategy

As in Costco’s case, two main factors influencing the result of this venture:

1. Carrefour analysed customer habits and connected with them
2. Carrefour amended its business practices to the Chinese culture

Firstly, it is worth mentioning the overall strategy Carrefour chose. The general idea was to implement a really decentralized scheme for the business locally. This meant that the company was divided into four parts: East China, South China, North China, and Middle China. Managerial staff was constituted by locals.

This, in combination with the fact that Carrefour always listened to the managers and “kept an ear to the ground” produced positive results, “empowered [local managers] with deciding on orders, purchasing, pricing, supplier selection, arrangement of store displays, employee recruitments, negotiating, promotional campaigns and arranging store displays”. This gave Carrefour insight into local market and allowed it to act as efficiently as it was possible.

Also, Carrefour adapted itself to local customers’ demands. For example, Carrefour is more in the habit of building huge shops. That is why the original plan was to open 10,000 square foot shops, but after taking local specifics into account, the shops were resized into 3,000 square meter format.

Another thing which was realised by Carrefour was the enormous differences in the demands of coastal big cities in China as opposed to smaller cities in the mainland. A good example is how Carrefour differentiated the selling practices across the country. For example, the selling of fish had two modes: selling live fish and selling frozen fish. Coastal cities favoured the former, while the inland cities favoured the latter. Carrefour acted accordingly.

Another point of interest is that sometimes Carrefour adopted the Chinese customer’s to their practices. Such an interesting approach surprisingly yielded considerable results. For example, when wine taxes in China went down, Carrefour saw an opportunity, and via free wine seminars and tastings, Carrefour explained to them how to drink wine and the value of it. Because of that, Carrefour managed to enjoy revenues from freshly introduced products to the Chinese market, such as French wine.

Carrefour’s experience can be summarised as follows:

• empowering local management,
• listening to the feedback from lower echelons of the company and
• adopting oneself to local demands is extremely important.

Retail Outcomes and Key Cultural Lessons

Results were impressive. The following graph provides a visual representation of Carrefour’s performance:

Net sales in China of Carrefour between 2007 and 2011

As we can see, the profits were constantly soaring. Such a correlation between awareness of local specifics and generating profits cannot be ignored.

What These Retail Case Studies Teach Us About Cultural Differences

So what conclusions can we draw from looking at the case studies of retail giants like Walmart, Costco, and Carrefour? As it is evident, culture in retailing plays a crucial role. 

The most important lesson that one can take from the retailing industry’s experiences is that you not only need to pay attention to different management practices around the world, but also to how you sell across different cultures.

The management question is equally important for all industries. However, the selling practices in supermarkets bear much more importance for retail industries. The very positioning of shelves in the shop or the layout of the products on those shelves can have a significant impact on your revenues.

And in order to be aware of those specifics, you need to be aware of the hidden motivations of local customers. Walmart failed to take German pragmatism into account, while Costco managed to find a culture-smart entry strategy. Carrefour managed to understand not just how to sell in China, but that you actually need to differentiate who you are selling to within China.

Photo by BBH Singapore on Unsplash