Welcome to the the Ivey HBA Retail Marketing Management blog. Retail marketing is an exciting, dynamic, important, and very visible aspect of the overall field of marketing. Throughout the year, students will be posting comments regarding contemporary retailing issues. Although this is intended to be used by Bus 4411 students, industry marketing professionals are also invited to join in if they like.

Tuesday, February 10, 2009

Job Not 'Wal' Done; Failure Case of Wal-Mart In Korea

On 22nd May 2006, the American retail giant Wal-Mart had been merged into the Korean retail giant E-Mart of CJ Samsung. This is the second time a huge retail company from abroad was merged into an existing Korean retailer, after the Carre-Four had been acquisted by the E-Land group of Korea. Now that Wal-Mart is officially out of business from their long struggle, There seems to be no available space for foreign supermarket businesses in Korea. How come the two T-Rex of supermarket businesses were so unsuccessful just in Korea? The main reason is told to be the businesses not being able to read properly the unique consumer behavior of Koreans. Well, lets look in to more specifics including the short history.

8-Year business termination

Wal-Mart had entered the business in July 1998, so that comes to an entire 8-Year run. Through that period, they have been engaging in their usual low-price policy. Although they are the world's largest supermarket business, their market share was no larger than 4% maximum. Last year, they had a $9 billion loss in net income.

Wal-Mart is officially the largest business all around the world. There annual sales tops $3 trillion worldwide, which is 1.5 times the Korean government's budget for a year which is $2 trillion.

What did they do wrong?

Mess Up From the Beginning

In 1998, Wal-Mart entered the Korean market by acquiring a company called Korean Macro. But they could not use the name 'Wal-Mart' because a local businessperson in Korea had already registered the brand name and had the exclusive rights to it. Wal-Mart went to the court but the Korean businesses were overprotected by that time, so the judgment was ruled against Wal-Mart. Eventually to start the business, Wal-Mart bought the naming rights from the Korean businessperson for a quite a large number of Won(currency of Korea). It cost them almost a year for Wal-Mart, and this was definitely the set-back.

Disadvantage In Initial Store Placement

Korean Macro was all located in the outside belt of Seoul. Even until now, Koreans have a tendency to move toward the inside of the city, this condition was much worse back then. The expansion of business could not be arranged without the solid income, which they could not acquire in the first place. From 2002 to 2006, they could only expand their size from 15 stores around the country to 16.
However, local Korean retailers had stores more than 3 times the Wal-Mart. Also, their stores were located in diverse locations. From uptown, to downtown, from rural areas to urban areas because they were more flexible with the store sizes, which was crucial considering the massive real estate bubble of Korea.
No Acknowledgement Of Consumer Behavior
The typical Korean supermarket offers a quality consumer experience while the customer is in the store. Employees are trained to provide a service equivalent to that of a department store or the mall. Everything was not about the price.

However, Wal-Mart kept a warehouse like business policy. All their products were relatively cheaper but they were sold in bulks, and had no helpers and special employees who could target the 'Ajuma' segment(mothers aged 35-50) who were price conscious, at the same time who were vulnerable to quality services and special treatment from the employees.

Product Allocation Problem.

Usually shopping is the responsibility of a full-time housewife in Korea, which occured in weekdays. All the stores in Korea, keep the aisles and shelfs much lower than the western stores. The average of Korean aisles is less than 1.7 metres. This was much lower than the Wal-Mart's 5~6 metre aisles. It was definitely inconvenient than the Korean stores.

Bulk Sales Strategy

Koreans are usally intrigued by the colorful packaging. 'Ramen noodles' one of the most popular instant food in Korea, Wal-Mart offered them in 30 noodle pack boxes but oofered them in much cheaper prices, but they had relatively small choices. However, Korean supermarkets sold them in 5 noodle packs for comparably expensive price, but offered them in a colorful vinyl packaging and offered a much larger choice of products. Koreans did not buy food in bulk. This was one thing Wal-Mart missed out.

Not Keeping A Good Relationship With The Suppliers

In western retailing business, the retailer accepted additional money from the suppliers to place the suppliers product in the right place. This was not a common custom in Korean industry, so this led to a bad relationship between Wal-Mart and Korean local suppliers enabling the suppliers to leave for local retailers that offer much desirable in-store placements for no extra money. Wal-Mart had a wrong conception that any reasonable culture would be adapted easily in any part of the world.
Becoming The Test-Market For Worldwide Businesses
Nokia, reponsible for over 30% of market share in cell-phone industry, left Korea in their 3rd year of business. Yahoo, Google, is struggling in Korea while a Korean company 'Naver' 'Daum' splits over 70% of the portal sites shares. Dell does not count for 10% in shares while Samsung, LG, personal business assembled computers count for more than 70% of shares.

Korean consumer code is 'Best service, Best quality, Best Price'. This seems to be impossible to accomplish since low price and product differentiation is on end-to-end.
Because Korean has a demanding success code, the companies worldwide are using Korean market as a test market. A lot of hi-tech firms are lauching testing their products in Korea including automobiles, portable devices, computing devices. They understand that if their product is successful in Korea, it is likely that it would succeed anywhere. Especially IT industry, Korean market is becoming the quality standard. Microsoft is keeping Active-X code in Windows Vista to meet the needs of Korean banking system, and Apple is still unable to launch iPhone in Korea because it lacks the government's Wi-Fi regulation. Also, the world-wide iTunes system's success is not guaranteed in Korea since Korea has powerful alternative services.

However, through thorough understanding of Korean culture and consumer habits, businesses could succeed. Tesco of Britain, recently entered Korea which goes by the name 'Home-Plus'. They are offering everything local businesses are engaging in. And is covering more than 5 % of market share. If Wal-Mart, with their assets and their resources, could have done much better. Personally considering the fact the similar Costco-Wholesales is doing just fine by having huge stores in the city, if their store placement was a little better, they could have had a much happier ending. Wal-Mart just couldn't break the 'wals' down.

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