Walmart Failed in Korea Because of a Lack of Walking Around—–Sebastian Marshall blog – 2011
Y’know, you can read all the case studies you want. It’s hard to fully understand international business without going to different countries and walking around.
So, let’s talk business and walking around. I was in Seoul, South Korea for a month last summer.
I came to like Korean culture a lot. Koreans are some of the strongest, proudest people I’ve come across. They manage to combine a strong warrior culture with the utmost civility, order, cleanliness, and quality of life.
It’s incredible. Many societies with a strong militant, warrior feeling about them descend into kind of a barbaric police state sort of vibe, constant terror in the air.
Korea? Nope. The men are proud, masculine, patriot, somewhat militant, but in a good way. There’s a mix of strong, expansive, traditional values, along with a large minority undercurrent of modernity. It’s really good – it’s the best of all possible worlds. There’s problems – the blatant racism and xenophobia kind of sucks, but I don’t mind it so much. Nowhere’s perfect.
Let’s talk Walmart. We’ll get back to Korea in a moment.
Walmart has really, really low prices. There’s a few reasons for this – the company is one of the best in the world at logistics, so they manage to have fast turnover of inventory without keeping too much on hand at any given store. I’d love to see how their logistics division runs sometime – I remember reading that they’ve got some of the most sophistication about predicting and automatically changing stock at stores based on factors like the weather changing that are hard to pin down.
This means they can charge less. And because they’re so big, they’ve got a lot of bargaining power with their suppliers. There’s over 4,000 Walmart-owned stores in the USA doing over $258 billion in sales.
Let’s talk 1998. Population of South Korea in 1998 is around 46 million. American economy 1998 is in extremely good shape. Population of South Korea is just a bit under 50 million people. The fundamentals of the South Korean economy were excellent, but the Asian Financial Crisis had just destroyed the exchange value of the Korean won.
That was, y’know, almost correct. This was a, “Hey! This is a fantastically good opportunity to buy!” type buy on Walmart’s part.
And they got it all right. Everything. Except one little thing – Koreans weren’t interested in going to Walmart.
Yup, the stars were all aligned, the U.S. dollar was artificially high, the South Korean won was artificially low, Walmart had been experiencing great domestic growth, and the South Korean economy looked like it would be in pretty good shape after the financial crisis shook itself out.
But Koreans weren’t interested in the Walmart model.
To explain why, I’ll say – you gotta go walk around South Korea. I can explain it and it’ll make sense, but it’s the kind of thing that wouldn’t really resonate unless you go to Korea.
Korea’s got the longest work hours in the developed world, and it’s not even really close.
According to the OECD’s 2004 report, Korean average work hours per year comes in at 2390. Japan, internationally renowned workaholic land? Only 1828. USA? 1777.
So, Koreans work a lot. A whole lot. A lot, a lot, a lot.
When they’re not working, they’re not interested in lower quality experiences for less money.
Damn near everything in Seoul is really, really nice. All the restaurants, the food, the transit and trains, the buildings, everything. It’s clean and prestigious and high quality and upscale. The whole country. It’s like Japan in that regard.
So, Walmart rumbles in, gets a good price on the currency, and opens 16 spartan Walmart stores with low prices.
Things don’t sell.
Emart and Walmart are night and day different. Emart is closer to a spa than a warehouse. As you walk through the aisles, there’s samples of fresh juice, fresh coffee, fresh grilled meat, fresh hot and iced teas… I’d just gone in to buy some tuna and fruit, and I walked out (1) having eaten effectively a whole lunch worth of little samples, and (2) with about five times more groceries than I intended to buy. There must’ve been 40 plus samples in there, all managed by different friendly, smiling staff.
But they didn’t walk around enough. Koreans work, work, work, work, work. When Koreans aren’t working, they want the best. Not the best price. The best. Combine that with a bit of a nationalist sentiment that favors local companies, and you’ve got an $800 million loss on your hands. . . . Koreans don’t buy into discounting.
Numbers are good, but you can’t just trust the numbers. Gotta walk around too.______________________________________________________________________________
Good article by Sebastian Marshall, however, there is even more to the Walmart-Korean story than that. Having lived in Korea, let me report that Koreans have a real Korea First policy. They support their own.
In streets all around town, in restaurants and shopping centers, there are literally hundreds and hundreds of tiny Mom and Pop businesses. I typically shopped at the corner market which was literally about 150ft from my apartment. It was owned by an older man and run by himself, his wife and his son. They eventually sold out to a younger couple. I feel confident they were able to make enough money in the sale to support their retirement.
Not so in America. The Waltons, owners of Walmart stores, are listed in the top twenty richest people in America. Walmart typically comes into a neighbor, lowers the prices on everything, drives out the little guy. They then hire all young people with lower salaries and lower (if any) benefits.
The Walmarts in my area (yes, I shop there,) have in the last few years, forced out almost all of their older staffers. In the two stores I frequent, it would be a safe bet to say there are no employees there over the age of forty. Wow!
So, people are living longer, medical costs are rising. The chances of being successful in any small business is marginalized by huge mega businesses and the chance to make enough money to either live on or retire on are melting like snow in June. The American Dream is slowly being crushed under the heel of big business.
Good for you Korea. And, yes, keep all those little old ladies working!