updated 7/28/2006 10:51:59 AM ET 2006-07-28T14:51:59

Wal-Mart Stores Inc. said Friday it plans to sell its 85 stores in Germany to rival Metro AG, a move that effectively ends a nearly decade-long effort by the world’s largest retailer to crack the market in Europe’s biggest economy.

Terms were not disclosed, but Wal-Mart said it expects to incur a loss before taxes of about $1 billion related to the deal in its second quarter.

It would be the U.S.-based company’s second international withdrawal this year. Wal-Mart pulled out of the highly competitive South Korean market in May. The retailer is concentrating on expanding in China and Central America.

“As we focus our efforts on where we can have the greatest impact on our growth and return on investment strategies, it has become increasingly clear that in Germany’s business environment, it would be difficult for us to obtain the scale and results we desire,” Michael Duke, a vice chairman of Bentonville, Ark.-based Wal-Mart, said in a statement.

Under the proposed deal with Metro, the German retailer will take over 19 pieces of Wal-Mart real estate and lease the remainder of the other locations. The deal is subject to approval by authorities.

The stores, which had sales near 2 billion euros ($2.55 billion) in 2005, will be incorporated into Metro’s Real Hypermarket brand.

The addition of Wal-Mart’s warehouses and logistics systems are expected to strengthen the position of Metro’s existing 550 Real stores in the German market.

While financial terms of the deal were not disclosed, Duesseldorf-based Metro said it would book a one-time gain from the acquisition as the assets are worth more than the purchase price.

“The acquisition allows us to round out our portfolio of locations and increase our impact in the German market,” said Metro Chief Executive Hans-Joachim Koerber in a statement.

Wal-Mart, based in Bontinville, Ark., has more than 6,500 stores in 14 other countries and serves 176 million customers per week.

It entered the German market in 1997 with the acquisition of the Wertkauf and Interspar hypermarket chains. But Wal-Mart’s German stores, which employ 11,000 people, have struggled to break into the local market.

Sy Schlueter, chief executive of investment house Copernicus in Hamburg, said Wal-Mart had trouble winning over German consumers, who tend to be very price-focused and would rather drive to a different store if they know they can buy something cheaper. National discounters such as Lidl GmbH and Aldi Einkauf GmbH put the heat on Wal-Mart’s sales, he said, by offering the same products at competitive prices.

Furthermore, Schlueter said consumers rejected some of Wal-Mart’s signature features, like stores outside of town centers, employees required to smile and heartily greet customers, or baggers at checkouts.

“These guys are businessmen,” Schlueter told Dow Jones Newswires.

“The business had turnover, but if you lose money for 10 years, you get out. Wal-Mart wasn’t here to prove their business model works, they were here to make money,” Schlueter said. “Apparently even their patience is not unlimited.”

At its annual meeting last month, Wal-Mart trumpeted its expansion abroad. Net sales for Wal-Mart last year amounted to $312 billion, with its international division seeing net sales and operating income rise 11.4 percent.

But analysts said the sophistication of South Korea’s $26 billion discount market proved difficult for Wal-Mart, as the company failed to attract customers to the stores and housewives were dissatisfied with food and beverage offerings.

Wal-Mart also has struggled in Japan, known for its finicky consumers, but has lately boosted its investment there. In the last year, the company finished its push to gain a majority share of Seiyu Ltd. in Japan, as well as acquiring stores in Brazil and entering a partnership with a retail chain in Central America.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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