In a humbling admission of defeat, Wal-Mart said it would sell its 85 German stores to the rival supermarket chain Metro and would book a pre-tax loss of about $1 billion (£536million) on the failed venture.

Wal-Mart, which entered the German market eight years ago, struggled against the might of the discount retailers already operating in Germany, including the no-frills Aldi and Lidl. In a sluggish economy, it found it hard to convince shoppers that it had something extra to offer.

The withdrawal is a further blow to Wal-Mart’s overseas ambitions, an area of increasing importance as it seeks new sources of sales growth. Wal-Mart sold its 16 outlets in South Korea in May to exit that country. After the sale in Germany is completed, it will operate in 13 countries around the world, compared with the 29 countries in which its nearest rival, Carrefour, operates.

The giant American group now plans to invest more in the turnaround of Asda, which has struggled to compete with its larger rival Tesco in the past few years.

Analysts said that Wal-Mart Germany was losing about €200 million (£137 million) a year on a turnover of about €2 billion, despite several attempts to turn around the business.

Bryan Roberts, an analyst with the UK’s Planet Retail, said Wal-Mart will be looking at its whole European strategy in the wake of the German debacle. He speculated that Wal-Mart will have to go after one of the major French retailers, such as Auchan, if it wants to expand on the continent.

Wal-Mart, which operates in Japan and China, has found it tricky to adapt its concept to new markets and has done best in nearby countries such as Canada and Mexico.

Mr Roberts said Wal-Mart had underestimated the competition in Germany: “They forgot that discount retailing, as done by Aldi and Lidl, was firmly entrenched by the time they came here. There was nothing new they could add. Plus some of their stores weren’t in the best of areas.”

Insiders also speak of frustration with German shopping regulations – the feared Ladenschlussgesetz which regulates store opening times – and restrictions on discounting.

There were also troubles on the culture front for the chain’s notoriously conservative management, which, back in America, is used to hiring and firing at will and having the company line totally obeyed.

Last year a court ordered Wal-Mart to drop key parts of its employee code of conduct in Germany, including a ban on flirting between supermarket staff. The court in Wuppertal ruled that the provisions were in breach of worker rights.

In 2000, Metro’s chief executive, Hans-Joachim Koerber, predicted that Wal-Mart would not succeed. “The company’s culture does not travel, and Wal-Mart does not understand the German customer,” he said.

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