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1 Over View of Retail Industry of Pakistan..................................................................5

1.1 Structure of Industry.........................................................................................5

1.2 Job Creation.......................................................................................................6

1.3 Revenue Model..................................................................................................6

1.4 Traditional Business Model................................................................................6

1.5 Government Policies..........................................................................................7

1.6 Investors Perspective........................................................................................8

2.2 METRO CASH & CARRY – A STORY OF EXPANSION.............................................12

2.3 BUSINESS STRATEGY OF METRO........................................................................13

2.3.1 THE CASH & CARRY STRATEGY FOCUSES ON COMMERCIAL CUSTOMERS AND
LARGE-SCALE CONSUMERS...................................................................................13

2.3.2 SELECTIVE EXPANSION COURSE CONTINUED, ESPECIALLY ABROAD............13

2.3.3 FLEXIBLE STORE SIZES ENSURE HIGH MARKET PENETRATION.....................14

2.3.4 "HOUSE OF TRAINING" ENSURES UNIFORM QUALIFICATION STANDARDS


WORLDWIDE..........................................................................................................15

2.4 METRO PERFORMANCE IN 2008..........................................................................16

2.5 SALES BRANDS OF METRO..................................................................................19

2.6 METRO PRODUCT RANGE...................................................................................21

2.6.1 Food............................................................................................................. 21

2.6.2 NON FOOD....................................................................................................24

2.7 METRO STRUCTURE OF SUPPLY CHAIN...............................................................27

2.7.1 PROCUREMENT.............................................................................................27

2.7.2 LOGISTICS....................................................................................................27

2.7.3 INFORMATION TECHNOLOGY........................................................................28

2.8 METRO REASONS FOR ENTRY IN PAKISTAN........................................................29

2.9 METRO SUCCESS FACTORS.................................................................................31

2.10 TEN GOOD REASONS WHY YOU SHOULD BECOME A CUSTOMER OF METRO....32

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3. Wal-Mart............................................................................................................... 33

3.1 INTRODUCTION................................................................................................33

3.2 BUSINESS MODEL...............................................................................................34

3.3 MANAGING THE SUPPLY CHAIN ..........................................................................36

3.3.1 PROCUREMENT AND DISTRIBUTION ............................................................36

3.3.2 LOGISTICS MANAGEMENT ............................................................................37

3.3.3 INVENTORY MANAGEMENT ..........................................................................39

3.4 THE COMPANY’S PHILOSOPY...............................................................................43

3.4.1 WAL-MART’S HR POLICIES............................................................................44

3.4.2 HOW IT HAS CHANGED: THE COSTS OF DOING BUSINESS...........................44

4. K-Mart...................................................................................................................47

4.1 INTRODUCTION................................................................................................47

4.2 BUSINESS MODEL & VALUE CHAIN OF K-MART................................................48

4.3 COMPARISON BETWEEN THE MANAGEMENT OF WAL-MART & K-MART...........50

5. ANALYSES OF METRO CASH & CARRY...................................................................52

5.1 Porter 5 Forces Model......................................................................................52

5.1.1 Existing Threats............................................................................................52

5.1.2 Barriers to Entry...........................................................................................52

5.1.3 Threat of Rivalry...........................................................................................52

5.1.4 Threat of Substitutes ...................................................................................53

5.1.5 Threat of Suppliers.......................................................................................53

5.1.6 Threat of Buyers...........................................................................................53

5.2 Strategic Factor Analysis.................................................................................55

5.2.1 VRIO Framework...........................................................................................55

5.2.2 Value............................................................................................................56

5.2.3 Rarity............................................................................................................ 58

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5.2.4 Imitability.....................................................................................................58

5.2.5 Organization.................................................................................................59

5.3 SWOT Analysis....................................................................................................60

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1 OVER VIEW OF RETAIL INDUSTRY OF PAKISTAN

1.1 STRUCTURE OF INDUSTRY


The services sector has emerged as the main driver of economic growth around the world and it
has remained the economic powerhouse of Pakistan for some time. Wholesale and Retail trade is
one of the important sub- sector of this important service sector. The services sector has
surpassed the growth target of 7.1 percent and grew by 8.2 percent in 2007-08 as against actual
achievement of 7.6 percent last year. The point to note here is that the country is going through a
lot of problems in the current year and most of the major industries of Pakistan have been greatly
affected. The positive growth rate as compared to the last year growth rate shows that there are
tremendous opportunities in this sector. It is encouraging to note that the contribution of
wholesale and retail trade is increasing. It has contributed 18.7 percent or 1.1 percentage points
to GDP growth in 2007-08. The following table shows the share of different sectors in the GDP.
Wholesale and Retail trade has the 3rd largest share in GDP apart from Agriculture and
Manufacturing.

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1.2 JOB CREATION
This sector is highly labor-intensive and higher growth in the sector may have contributed to the
rise in employment and income level of the people attached with the sector. The service sector
collectively absorb one third of the total workforce in Pakistan.

1.3 REVENUE MODEL


Value added in the wholesale and retail trade sector is based on the margins taken by traders on
the transaction of commodities traded in the wholesale and retail market. In 2007-08, this sector
grew at 6.4 percent as compared to 5.4 percent in last year and target for the year of 7.8 percent.

1.4 TRADITIONAL BUSINESS MODEL


A business model (also called a business design) is the mechanism by which a business intends
to generate revenue and profits. In Pakistan the business model is not properly defined as many
different models are currently prevailing in the country. The biggest among these is the concept
of markets in different convenient locations. Products are actually scattered over the whole of the
market and for a particular product people need to visit shops which are specialist in that
particular commodity. The price of commodities in such model is defined by the shop keeper
itself according to the cost incurred by him and revenue is generated accordingly. The second
prevailing concept is that of specialized markets. For instance rice buyer will prefer to go to rice
market (mandi) of their city or town to buy rice e.g. sabzi mandi for vegetables. Prices in such
markets are defined by the demand n supply of the product. The third concept is adopted from
the west and that is of one roof shopping. The buyers find everything under one roof. This
concept is new but from the success of different super stores such as Wal-Mart, K mart and
Metro this concept is getting popular in the big cities like Islamabad, Karachi and Lahore.

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1.5 GOVERNMENT POLICIES
The economy of Pakistan rests on four pillars
1. Agriculture
2. Manufacturing
3. Services
4. Minerals and Natural Resources.

The government is adopting different policies to update the major sectors according to the 21st
century. In order to improve the wholesale sector of Pakistan following steps are being taken by
the government.

1. Establish new wholesale Markets


2. Reform old Market Regulations
3. Improve market infrastructure through public private partnerships
4. Establish grading and testing facilities
5. Enforce food safety regulations in line with international standards
6. Developed urban commercial centers
7. Develop linkage between urban and rural marketing networks
8. Providing marketing linkages between micro-credit based activities and larger
marketing network.

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1.6 INVESTORS PERSPECTIVE
Pakistan is the 6th largest country on the basis of population. To fulfill the requirements of people
huge amount of raw material is required thus increasing the demand of products. The only way
to reduce the cost is by attaining the economy of scale. One roof shopping concept focuses on
economy of scale while keeping in mind the quality of the product. In normal markets of
Pakistan the quality factor is a big question and this is one of the reasons why the stores like
Metro are getting a huge success. The success of Metro can be judged by the statement made by
manager Metro Islamabad “ The first day sales of Metro Islamabad was R.s 20 million”. This
clearly shows that the concept is greatly appreciated by the people of twin cities. This is an
opportunity for different companies like K-Mart and Wal-Mart that the concept is greatly
appreciated by the people of Pakistan. Though there are only 2 such stores in Pakistan of this
kind namely Metro and Makro and both these stores are based in the major cities of the country
i.e. Lahore and Islamabad. Pakistan rural population represents approximately 70% of total
population of Pakistan and they are yet to be exposed to such business model thus creating a
huge amount of opportunity for these companies and other who are planning to invest in
Pakistan.
The following chart shows the comparative Real GDP growth rates of different countries of the
world. Pakistan as compared to other Asian countries stands at number 2 which also makes
Pakistan as an attractive market.

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2.1 COMPANY HISTORY OF METRO

METRO Cash & Carry is a leading international company in self-service wholesale and operates
more than 600 outlets in 29 countries. With over 100,000 employees worldwide, the company
achieved sales of € 31.7 billion in 2007. By generating almost 50 percent of the total sales,
METRO Cash & Carry is the top-selling sales brand of the METRO Group. Assortment and
service of METRO Cash & Carry’s unique business-to-business model are targeted only towards
professional customers such as hotels and restaurants as well as small and mid-sized retailers or
institutions. The company offers these special groups a high level of assortment competency both
in food and nonfood as well as attractive wholesale prices. An efficient and internationally
conferrable concept ensures success in entering new markets.

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2.2 METRO CASH & CARRY – A STORY OF
EXPANSION
The self-service wholesale trade came to Europe in the year 1964 when METRO SB-Großmärkte
GmbH & Co. KG was founded in Mülheim/Ruhr. The initiator and driving force behind this
concept was Prof. Dr. Otto Beisheim. In 1967 the Franz Haniel & Cie. company became a
partner in the new venture. Prof. Dr. Otto Beisheim, the Franz Haniel & Cie. GmbH company
and the Schmidt-Ruthenbeck family then each held one third of the shares in the German
METRO activities and thus constituted the “original group of partners”.

As from the year 1968 the concept was extended beyond the German borders, with the Dutch
company Steenkolen Handelsvereeniging N.V. (SHV) as a new partner. The two sides jointly
established Makro Zelfbedienigsgroothandel C.V. with the original group of partners holding 40
percent of the shares in this activity. Within the framework of a first major expansion drive
METRO/MAKRO Cash & Carry entered the market in nine Western European countries by
1972. In the nineties, METRO Cash & Carry expanded its activities to Portugal, Turkey,
Morocco and to Eastern Europe.

In July 1996 METRO Cash & Carry merged with Kaufhof Holding AG and Asko Deutsche
Kaufhaus AG and the METRO Group was founded. That year also saw the group’s going public.
The Metro stock is the only retail stock listed in the German blue-chip index “DAX 30“.

The first step into Asia was taken when METRO Cash & Carry moved into China in 1996.
Today the company is present in 5 Asian countries: China, India, Japan, Pakistan and Vietnam.
The METRO Cash & Carry business is going to be further internationalized and expanded with
the focus on Eastern Europe and Asia. Already by today, more than 80 percent of the staff is
working outside of Germany. In many countries the company is on of the major employers.

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2.3 BUSINESS STRATEGY OF METRO

Sales at Metro Cash & Carry's two brand name wholesale stores, Metro and Makro, rose 5.4
percent over the year before to € 26.4 billion, thus underscoring again the sales division's
position as a growth driver within the METRO Group. The share of sales earned abroad has
continually risen over the past few years and 2004 was no exception. Sales outside of Germany
accounted for 78 percent of the total, further underlining the international orientation of this sales
division. The number of full-time employees rose during the year by 7.9 percent to 83,425.

Following are the business strategies of metro on which the company is emphaing to increase the
sales and compete in the market.

2.3.1 THE CASH & CARRY STRATEGY FOCUSES ON


COMMERCIAL CUSTOMERS AND LARGE-SCALE
CONSUMERS
Metro Cash & Carry's sales strategy is specially tailored to the needs of commercial customers
and large-scale consumers. These include hotels, restaurants, kiosks, small food retailers,
hospitals, government offices, and to a growing extent, service companies. Under the motto,
"From professionals for professionals," Metro Cash & Carry offers these customers an
extraordinarily large, diversified range of high-quality goods under one roof. Depending on the
type and size of the store, the selection includes up to 20,000 food items and 30,000 nonfood
items. One feature of all Metro and Makro Cash & Carry stores worldwide that is appreciated by
customers is their special competence in fresh foods. In addition to that, low wholesale prices
and a consistently guaranteed supply at the same level of quality have contributed to the success
of the sales strategy.

2.3.2 SELECTIVE EXPANSION COURSE CONTINUED,


ESPECIALLY ABROAD

Metro Cash & Carry opened 33 new stores worldwide in the past fiscal year, of which 29 were
outside of Germany. This raised the total number of stores to 114 in Germany and 390 abroad. In

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China alone, Metro Cash & Carry increased its sales network by five to 23 stores during the year.
In Russia, the number of stores doubled from seven to 14. In 2004, Metro Cash & Carry opened
its first location in Moldova and its first store in Serbia opened at the beginning of the new fiscal
year. The key to the success of the international expansion has been and still is the continuous
refinement of the high performance sales strategy. It can easily be adapted to meet national and
local consumption customs and customer needs. Its international success moreover is particularly
based on the fact that 80 to 90 percent of Metro Cash & Carry's merchandise comes from local
producers and suppliers. This increases acceptance in foreign markets and creates trust. The
positive effect is further reinforced by the fact that Metro Cash & Carry almost exclusively
employs local workers in its stores, including at management levels.

With the goal of boosting cross-border synergies and pooling the purchasing volume of
individual countries, Metro Cash & Carry has bundled its sales activities in western and eastern
Europe into regional business units. During 2004, it continued to develop its already existing
business units of Spain/Portugal, Czech Republic/Slovakia, and Austria/Croatia/Serbia. The
bundling of resources in the two-year-old Spain/Portugal business unit was particularly
successful in improving business there. A new business unit, Romania/Moldova, was created in
fiscal 2004. Continually achieving new synergies by expanding existing and creating new
regional business units will remain an important part of the international expansion and should
make a positive contribution to business growth in the future.

2.3.3 FLEXIBLE STORE SIZES ENSURE HIGH MARKET


PENETRATION
Continuous modernization of the stores and a uniform line of brands are important building
blocks for further developing Metro Cash & Carry's sales strategy. Furthermore, the strengths of
the company include the high degree of flexibility that comes from operating three different store
formats. This gives the sales division the ability to establish a market presence which takes local
conditions into account. The portfolio comprises Classic, Junior and Eco wholesale stores.
Classic stores, which operate mainly in Germany, offer the largest selection of merchandise in
both the food and nonfood categories. They have 10,000 to 16,000 square meters of selling
space. Next are the Junior stores, which generally have between 7,000 and 9,000 square meters

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of selling space. Eco stores are the smallest, with only 2,500 to 4,000 square meters of selling
space and a merchandise assortment which concentrates on food items. Within this assortment,
fresh food again is the main focus. Eco stores are found mainly in France – 75 of the 83 total
Metro Cash & Carry wholesale stores in France are Eco stores. With their special competence in
fresh food, they appeal especially to restaurants and hotels as well as retailers which have a daily
need for large amounts of fresh, high-quality food.

2.3.4 "HOUSE OF TRAINING" ENSURES UNIFORM


QUALIFICATION STANDARDS WORLDWIDE

The strong international expansion would not be possible without a structured, multinational
personnel development system. This realization has led to the creation of the "House of
Training" concept. Metro Cash & Carry will soon conduct extensive training in the areas of
purchasing and distribution at a total of four locations: Royaumont (outside Paris), Shanghai,
Düsseldorf and Moscow. Improving customer service further is at the heart of all the training. In
addition, the training program also includes courses aimed at personality development and
management skills. The goal is to further improve the skills of the employees and achieve a
uniformly high qualification standard worldwide. The training centers in France and China were
opened in 2004. Over 450 employees from 26 countries were trained in Royaumont alone by the
end of the year.

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2.4 METRO PERFORMANCE IN 2008
• Group sales grow by 7.3% to €15.6 billion.

• Sales in Germany increase by 0.9% to €6.3 billion despite high prior year level.

• International sales continue to grow dynamically by 12.1% to €9.3 billion.

• Western Europe +4.8%, Eastern Europe +21.6%

• EBIT increases by 13.8% to €152 million.

Outlook 2008 confirmed:

Sales growth: >6%

EBIT increase of 6 - 8%

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METRO STORE NETWORK AS AT 31/05/2008

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COUNTRIES Metro Cash & Carry Real Media Markt and Galeria Other Total
Saturn Kaufhof
Germany 123 345 353 126 306 1,253
Austria 12 31 19 62
Belgium 10 14 15 39
Denmark 5 5
France 89 25 114
Italy 48 87 135
Luxemburg 2 2
Netherlands 16 29 45
Portugal 10 7 17
Spain 34 51 85
Sweden 8 8
Switzerland 18 18
UK 33 33
Western Europe 257 270 15 21 563
Bulgaria 8 8
Croatia 6 6
Czech Republic 12 12
Greece 9 7 16
Hungary 13 20 33
Moldova 3 3
Poland 27 50 43 120
Romania 23 14 37
Russia 40 11 11 62
Serbia 5 5
Slovakia 5 5
Turkey 11 11 4 26
Ukraine 18 18
Eastern Europe 180 86 85 351
China 37 37
India 3 3
Japan 3 3
Morocco 7 7
Pakistan 2 2
Vietnam 8 8
Asia/Africa 59 59
Total 619 431 708 141 327 2,226

2.5 SALES BRANDS OF METRO


Metro Cash & Carry is the global market leader in self-service wholesaling. Operating under the
METRO AND MAKRO brands, it is our biggest and most international sales division with

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operations in 29 countries. Its product assortment is geared exclusively towards commercial and
wholesale customers.

REAL is the market leader in the German and Polish hypermarket sectors. The sales brand has
also successfully established itself in Turkey, Russia and Romania.

MEDIA MARKT Europe’s No. 1 consumer electronics retailer: the Media Markt and Saturn
sales brands convince with their innovative, powerful and large-scale sales and marketing
concepts. Both have been posting strong growth in recent years and are rigorously expanding
their market-leading position in Europe.

GALERIA KAUFHOF is the concept and system leader in the German department store sector
and the market leader in Belgium. The sales division’s department stores help boost the appeal of
shopping zones and city centers with their sophisticated, high-quality assortment presented in
product worlds that reflect a modern lifestyle-orientated sales approach.

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2.6 METRO PRODUCT RANGE

Each store is tailored to address the needs of professional customers. We offer a wholesale price
that leaves the customer room for healthy margins and provide a one-stop-shop for the customer.

In the food range, freshness is our first priority. This is guaranteed by the efficient supply-chain
and quality control management we have in-place.

In non-food, we offer only products that are up-to-date in terms of technology and design, and
meet all safety standards.

2.6.1 FOOD

At the METRO wholesale center you can find a wide range of food products

1. DAIRY, FROZEN

METRO offers an all-new assortment of cheese and dairy products sourced from across the
globe which includes a delectable range of fine cheese, rich cream, butter and other exciting
gourmet products - all available to suit your needs.

The range includes: Cheese, Butter, Eggs, UHT Milk, Cream, Pasteurized Milk, Yogurt,
Chilled Ready Meals, Drinks, Ice Cream, Frozen Vegetables & Fruits and Frozen Ready to
Serve.

2. MEAT

All types of Halal meat (Fresh, Frozen, Processed) is available in a temperature-controlled


environment. Availability of premium quality meat is ensured through reliable supply chain

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procedures and strict quality assurance measures, right from live stock procurement to end-
product at our center. A variety of meats is available in different cuttings of Mutton, Beef and
Chicken to cater the needs of our professional customers

The assortment comprises a wide range of meat from local breeds:


- Mutton: (bakra, chatra, dumba)
- Beef: (bachra, katta, cow, buffalo)
- Chicken: (Broiler, Desi)

All meat products are packed in a hygienically controlled environment.

3. FRESH FISH & SEAFOOD

An assortment of high quality seafood, obtained through local and international sources,
is available at METRO Cash & Carry. The seafood is offered in different forms such as
alive, fresh, frozen (raw & marinated) and delicatessen.

Quality and freshness is guaranteed through proper handling at source and through strict
temperature control all along the supply chain. The seafood is cleaned, graded and
packaged conveniently and is consistently available throughout the year. Discounts are
offered on bulk buying besides special promotions.

4. FRUITS & VEGETABLES

Think METRO, Think Fresh!

Fruits and vegetables sold at METRO are sourced directly from growers. State-of-the-art
technology is used to maintain freshness and quality while availability is guaranteed by
keeping the products under a cool chain. METRO has its own system for quality analysis
and checks. Fruits and vegetables presentation and packing are designed to make life easier

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for our customers. There is a wide range of local and imported products available under one
roof.
5. EDIBLE GROCERIES, CANNED GOODS AND BAKERY

Edible Groceries include all such items that are consumed in every part of Pakistan on a daily
basis, such as Sugar, Vegetable Oil, Rice, Spices, Flour, Lentils and many other products. A
wide range of grocery items are available under one roof at METRO centers with a mix of
local and imported brands. The Canned Goods category offers Jams, Ketchup, Sauces,
Canned Fruit and Vegetables, Pet Food, Canned Fish and other canned food products. In the
freshly baked category, all kinds of breads, cakes, biscuits, etc. are available.
6. SWEETS AND CONFECTIONARY

The assortment includes: Biscuits, chocolates, toffees, chewing gums, candies, tea, coffee,
cocoa powder, crispies, Nimko, powder drinks and dried fruits and nuts.
7. GENERAL GROCERY

Under this category, the products offered include:


Canned Goods - Fruit, Vegetables, Meats & Meat Products, Pet Foods
Edible Grocery - Oils, Cereals, Coffee, Tea, Biscuits, Spices, Seasonings, Sugar, Sauces,
Pickles, Noodles, Soups, etc.
8. TOBACCO AND BEVERAGES

The category offers a wide variety of Carbonated Soft Drinks, Bottled Water, Juices, Energy
Drinks, Squashes, Syrups & Concentrates, Non-Alcoholic drinks and cigarettes.
9. DETERGENTS

Detergents include all products that come under Cleaning & Caring. METRO Cash & Carry
offers a wide range of national and international brands are made available after
understanding the needs of our customers. This category includes: Laundry Detergents,
Fabric Caring Agents, Dish Washing Agents, Hygiene Papers, Paper Products, Shoe
Cleaning & Caring, Insecticides and Disposables.

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10. COSMETICS & TOILETRIES

Cosmetics and toiletries included articles related to personal care and hygiene. Our focus on
understanding the needs of our customer enables us to build assortment that becomes
business solution for our customers. The articles in this category include: Baby care products;
Bath and shower products; Color cosmetics; Deodorants; Depilatories; Fragrances; Hair care
products; Men & Women grooming products; Oral hygiene; Premium cosmetics; Skin care
and Sun care products.

2.6.2 NON FOOD

1. OFFICE EQUIPMENT

METRO caters to the needs of modern business by providing a wide range of office
equipment and materials. These include: Computers, Accessories, Printers, Mobile phones,
Fixed Line Phones, Faxes, School Products, Copy Paper, Packaging Materials, Office
Supplies, POS material and Stationary. All major brands are available under one roof, such
as HP, Samsung, LG, Motorola, Nokia, Aurora, Sigma, Max, Pelikan, Piano, Picasso, etc.

2. MEDIA, RADIO & ACCESSORIES

METRO offers all the famous brand names such as Samsung, Sony, LG, Philips, Olympus,
Nikon, Yashica, Nobel, Fuji, etc. The product range includes TV sets, DVD Players, Home
Theatre, Hi Fi, MP3/MP4 Players, Digital Camera, Camcorder, Game Consoles, Car Audio,
Batteries and Chargers, Books, Journals, Magazines, Newspapers, Recorded, Unrecorded
Media and Storage Media. METRO prides itself in bringing the latest technologies &
innovations to its customers.
3. HOME ELECTRONICS/HOUSE HOLD

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A wide range of Home Appliances such as washing machines, refrigerators, freezers,
cookers, microwave ovens, air conditioners, built-in appliances, hand blenders, mixers, deep
fryers, irons, vacuum cleaners and all small electric appliances. All leading brands such as
LG, Samsung, Mitsubishi, Haier, Dawlance, PEL, Panasonic, Siemens, etc. are available at
most reasonable prices.

4. HOUSEHOLD GOODS

The Household range includes products from pots and pans and chafing dishes to commercial
tableware and glasses for Hotels, Restaurants and Caterers. The selection includes brands in
the following segments:

• Pots & Pans (Tefal, Sonex, Majestic, Prestige)


• Tableware (Luminarc, Clayworks)
• Glass (Pasabache, Bormioli Rocco, Toyonasic, Ocean)
• Cutlery & Cutting Tools (Cocktail, Kiwi)
• Kitchen Utensils & Serving Articles (Fackleman).
• The range also include decoration products (Walther Glass),
• Candles
• Cleaning items.

5. HOME IMPROVEMENT/DIY (DO IT YOURSELF)

The Do It Yourself (DIY) department caters to all home improvement needs under one roof
with strong competitive prices in both local & international brands. Categories available:

• Lamp fixtures, lamps & bulbs (OSRAM, PHILIPS)


• Electrical items (BUSH) Bathroom & Sanitary (Faisal & ICL)
• Flooring (Krono Flooring)
• Paints and painting accessories (ICI,Master Paints)

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• General use and specialized hand tools (Stanley)
• Power tools (BOSCH, Black & Decker)
• Generators (Honda) and operating equipment.
DIY also offers a wide range of car interior and exterior equipment, car care solutions
(MOTHERS, COSMIC) and good quality tires at low rates (GOODYEAR, NEXEN).

6. HOME TEXTILE/HOME DECORATION

METRO offers a comprehensive array of Bed Linen, Towel, Quilts, Cushions, Blanket,
Table cloth, Carpets, Mattress and Office Furniture to suit domestic and commercial needs

7. LADIES WEAR/MEN’S WEAR/CHILDREN’S WEAR/SHOES/LUGGAGE

The Apparels Division at METRO offers a wide variety of brands and high quality products
at wholesale prices. The Ladies wear category offers both Eastern and Western wear. Men’s
wear offers top brands such as Wrangler, Bonanza, Leeds, etc. for formal and casual wear.
The Children’s wear section offers Skids and Colors and a modern collection of shoes under
such brands as Servis, Bata, and Starlet. The luggage category besides American Tourister,
Eminent and Lambertazzi (a METRO brand) are available.

8. SPORTS & SEASONAL

This section offers high quality Gym Accessories, Motorcycles, Sports Apparel, Swimwear
and Sports Shoes. There is a complete collection of top brands is available at compatible
prices, such as Puma, Servis, Cheetha, and Ihsan Sports, besides Pak Hero motorcycles. The
section also offers a complete range of imported Garden Furniture and Accessories,
Lawnmowers, Camping, Water Sports, BBQ, Decoration Items, Artificial Flowers and
Planting Pots. Additionally, some leading brands that are available include Barbie, Disney,
Fisher Price, Hot Wheel and Leapfrog.

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2.7 METRO STRUCTURE OF SUPPLY CHAIN

2.7.1 PROCUREMENT

Procurement is one of the core competencies of a retailing company. MGB METRO Group
Buying organizes and is responsible for the procurement of food and nonfood products on a
national and international level. Strategic procurement provides decisive competitive edges: low
prices, optimal conditions and consistently high quality standards. Our suppliers regard this
procurement company as a strong and reliable partner that values long-term business
relationships built on mutual trust.

Low procurement costs allow us to offer our customers low retail prices. This is why the
competitiveness and profitability of retailing companies depend to a great extent on the
professional usage of synergies in procurement. As early as 2006, MGB optimized its
organizational structure in order to better exploit cross-country and cross-divisional potential: as
an umbrella organization, MGB METRO Group Buying International sets the strategic direction
of four regional organizations – South, East, West and Central. These organizations bundle the
procurement activities for up to eight countries at a time. Thanks to their close regional
proximity to customers and suppliers, they can gain substantial market intelligence and respond
even more flexibly to local customer needs. MGB METRO Group Buying Hong Kong is
responsible for import and export trade with Asia.

2.7.2 LOGISTICS

As the logistics service provider of METRO Group, MGL METRO Group Logistics is
responsible for providing the sales divisions with the right product to the right place at the right
time and in the right quantity and quality. The broad merchandise assortment and related specific
logistics challenges mean that MGL must handle heterogeneous and complex demands from the

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sales brands. Aside from cost efficiency and quality assurance, speed and flexibility play a key
role in the processes. In its work, MGL relies on the bundling of merchandise volumes,
standardized logistics solutions, and optimal use of ground, air and sea transport. The successful
bundling of merchandise flows is based on the procurement logistics concept, which has won
much praise from experts. Under the central management of MGL, the lion’s share of
merchandise flows in procurement logistics makes its way from the suppliers via networks of
high-performance logistics partners to the stores of METRO Group, without any interim storage.
This system offers such benefits as cost savings and lower transport-related environmental
damage thanks to the reduction of tonne-kilometres. At the same time, the number of deliveries
at the stores’ loading ramps declines – which also produces cost advantages and helps the
environment. In the context of its warehousing and distribution logistics, MGL also achieves
additional synergies and efficiency gains from the management of 11 own nonfood and food
warehouses in Germany. In addition, MGL manages all central warehousing activities outside
Germany.

2.7.3 INFORMATION TECHNOLOGY

Managing Group-wide data and information flows is just as demanding as managing


merchandise flows. MGI METRO Group Information Technology, which has five subsidiaries in
Poland, Romania, Russia and Turkey, handles this task. MGI develops merchandise
management, logistics and data warehousing systems, among others, and pioneers innovative
technologies such as Radio Frequency Identification (RFID) in the context of Advanced
Retailing. In addition, MGI operates one of Europe’s biggest Group networks und guarantees the
functionality and performance of the IT infrastructure across all divisions both on a national and
international level.

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2.8 METRO REASONS FOR ENTRY IN PAKISTAN
Metro entered into Pakistan in 2007. The company opened its first store in the city of Lahore.
Then they opened their second store in Islamabad in 2008. There are currently about 400
employees in both the stores. They are performing well in Pakistan. Now the question is why the
company had chosen Pakistan for Metro. Few of the advantages of Pakistan as a country are
given below.

Reason - 1: Geo-strategic Location

Located in the heart of Asia, Pakistan is the gateway to the energy rich Central Asian States, the
financially liquid Gulf States and the economically advanced Far Eastern tigers. This strategic
advantage alone makes Pakistan a marketplace teeming with possibilities.

Reason - 2: Trained Workforce

Here the people are mostly English proficient, hardworking and intelligent. They have ….lesser
costs.

Reason - 3: Economic Outlook

Pakistan is one of the fastest growing economies of the world having touched a GDP growth rate
of 8.4% in 2005. Today Pakistan has 160 million consumers with an ever growing middle class.
Foreign investment has risen sharply from an average of $400 million in the 1990s to over $ 3.5
billion in 2005-06. Fiscal deficit has declined from an average 7% of GDP in the 1990s to around
3% in recent years. And FOREX reserves have increased from $3.22 billion in 2000-1 to $13.14
billion in 2005-6.

Reason - 4: Investment Policies

Current investment policies have been tailor made to suit investor needs. Pakistan 's policy trends
have been consistent, with liberalization, de-regulation, Privatization, and facilitation being its
foremost cornerstones.

29
Reason - 5: Financial Markets

The capital markets are being modernized, and reforms have resulted in development of
infrastructure in the stock exchanges of the country. The Securities and Exchange Commission
has improved the regulatory environment of the stock exchanges, corporate bond market and the
leasing sector. Whilst the Central Board of Revenue has facilitated structural reform in tax and
tariffs and the State Bank of Pakistan has invigorated the banking sector into high returns on
investment.

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2.9 METRO SUCCESS FACTORS
The success of the company is based on the following principles:

• Focus on professional customers

• One-stop shopping

• Efficient store concept designed for professional needs

• Advanced customer service

• Enhanced customers’ competitiveness

• Excellence in supply chain and quality management

• Strengthening of local suppliers

• Development of national infrastructures

• Career opportunities

• Internationally transferable concept

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2.10 TEN GOOD REASONS WHY YOU SHOULD
BECOME A CUSTOMER OF METRO
• Lowest possible prices

• Stock availability

• One-stop shop

• Extensive business hours

• Quality guarantee

• Free parking

• After sales services

• Promotional activities

• Simple but comprehensive billing system

• Great value for money

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3. WAL-MART

3.1 INTRODUCTION
Wal-Mart Stores, Inc. is an American public corporation that runs a chain of large, discount
department stores. It is the world's largest public corporation by revenue, according to the 2008
Fortune Global 500. Founded by Sam Walton in 1962, it was incorporated on October 31, 1969,
and listed on the New York Stock Exchange in 1972. It is the largest private employer in the
world and the fourth largest utility or commercial employer, trailing the British National Health
Service, and the Indian Railways. Wal-Mart is the largest grocery retailer in the United States,
with an estimated 20% of the retail grocery and consumables business, as well as the largest toy
seller in the U.S. It also owns and operates the North American company of Sam's Club.

Wal-Mart operates in Mexico as Walmex, in the UK as ASDA, and in Japan as Seiyu. It has
wholly-owned operations in Argentina, Brazil, Canada, Puerto Rico, and the UK. Wal-Mart's
investments outside North America have had mixed results: its operations in South America and
China are highly successful, while it was forced to pull out of Germany when its venture there
was unsuccessful.

Wal-Mart has been criticized by some community groups, women's rights groups, grassroots
organizations, and labor unions, specifically for its extensive foreign product sourcing, low rates
of employee health insurance enrollment, resistance to union representation, and alleged sexism.

33
3.2 BUSINESS MODEL
The Wal-Mart department store chain, which employs 1.3 million people at 4,700 stores
worldwide, and in 2002 became the largest corporation in the world, is leveling economies of the
U.S., industrial nations, and the Third World.

Wal-Mart is a driving force behind the decadent Imperial Roman model of the United States.
Unable any longer to reproduce its own population's existence through its own physical
economy, the United States has, for the past two decades, used an over-valued dollar to suck in
physical goods from around the globe for its survival. Wal-Mart is both the public face and
working sinews of that policy. It brings in cheap pants from Bangladesh, cheap shirts from
China, cheap food from Mexico, etc. Workers who produce these things are paid next to nothing.

Not since the days of the British East India Company as the cornerstone of, the British imperial
system, has one single corporate entity been responsible for so much misery. At the core of its
policy, Wal-Mart demands of its suppliers that they sell goods to Wal-Mart at such a low price,
that they can only do so by outsourcing their work to low-wage factories overseas.

Wal-Mart has been primed for this role since 1962, when it was founded by Sam Walton in his
hometown of Bentonville, Arkansas. Sam Walton started in the retailing business when he
bought a Ben Franklin five and dime store in Newport, Arkansas in 1945. In 1962, he opened the
first store under the name "Wal-Mart." In 1970, Wal-Mart made its first public stock offering;
the issue was underwritten by Stephens, Inc. of Little Rock, an investment bank which has been
identified with some shady dealings.

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Wal-Mart's annual sales increased from $55.5 billion in its Fiscal Year 1993, to $244.5 billion in
FY 2003 (which ended Jan. 1, 2003). Wal-Mart has grabbed a dominant or near-dominant
position in key sectors of the retail market:

The Business model of Wal-Mart is Business to consumers. The Wal Mart divides its customers
into 3 distinct segments: Price Value Shopper, Brand Aspirations, and Price-Sensitive Affluent.
Part of “The Shopper Universe” includes a slide scale of customer loyalty with the Price Value
Shopper being more loyal, and the Price-Sensitive Affluent customer being less loyal.

Reciprocally, Wal-Mart controls a large and increasing share of the business done by almost
every major consumer-products company: 28.3% of Dial's (soap products); 24% of Del Monte
Foods'; 23% of Clorox's (bleaches and cleaners); and 23% of Revlon's (cosmetics). It controls
one-fifth or more of the business done by Proctor & Gamble (household products and soaps);
Levi Strauss (jeans and clothing); and Newell Rubbermaid (household consumer rubber
products).

The company is militantly anti-union. Reportedly it has instructed its managers never to hire
workers who once belonged to a union. It also reportedly fires workers who score too high on a
"union probability index." When a union tries to unionize a Wal-Mart cluster of stores, "labor
experts" are flown in from Bentonville to counter organize. Workers are ordered to sit in on
weekly "labor relations classes," where management tells them why they should not join a union,
and gives them badges saying, "We can speak for ourselves." At one store in Texas, where a
union tried to organize, 15 surveillance cameras were installed.

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3.3 MANAGING THE SUPPLY CHAIN

3.3.1 PROCUREMENT AND DISTRIBUTION

Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best price to
its customers. The company procured goods directly from manufacturers, bypassing
all intermediaries. Wal-Mart was a tough negotiator on prices and finalized a purchase deal only
when it was fully confident that the products being bought were not available elsewhere at a
lower price.

Mart spent a significant amount of time meeting vendors and understanding their cost
structure. By making the process transparent, the retailer could be certain that the manufacturers
were doing their best to cut down costs. Once satisfied, Wal-Mart believed in establishing a
longterm relationship with the vendor. In its attempt to drive hard bargains, Wal-Mart did not
even spare big manufacturers like Procter & Gamble (P&G). However, the company,
generally, preferred local and regional vendors and suppliers.

In 1998, Wal-Mart had over 40 distribution centers located at different geographical locations in
the US. Over 80,000 items were stocked in these centers. Wal-Mart’s own warehouses directly
supplied 85 percent of the inventory, as compared to 50-65 percent for competitors. According to
rough estimates, Wal-Mart was able to provide replenishments within two days (on an average)
against at least five days for competitors. Shipping costs for Wal-Mart worked out to be roughly
3 percent as against 5 percent for competitors.

Each distribution center was divided into different sections on the basis of the quantity of goods
received and was managed the same way for both cases and palletized goods. The inventory
turnover rate was very high, about once every two weeks for most of the items. Goods meant for
distribution within the US usually arrived in pallets, while imported goods arrived in re-usable
boxes or cases. In some cases, suppliers delivered goods such as automotive and drug products

36
directly to the stores. About 85% of the goods which were available at the stores passed through
the distribution centers.

The distribution centers ensured a steady and consistent flow of products to support the supply
function. As Wal-Mart used sophisticated barcode technology and hand-held computer systems,
managing the center became easier and more economical. Every employee had an access to
realtime information regarding the inventory levels of all the products in the center. They had to
just make two scans - one to identify the pallet, and the other to identify the location from where
the stock had to be picked up. Different barcodes were used to label different products, shelves
and bins in a center. The hand-held computer guided an employee with regard to the location of a
particular product from a particular bin or shelf in the center. When the computer verified the bin
and picked up a product, the employee confirmed whether it was the right product or not. The
quantity of the product required from the center was entered into the hand-held computer by the
employee and then the computer updated the information on the main server.

The hand-held computer also enabled the packaging department to get accurate information
about the products to be packed. It displayed all information about the storage, packaging and
shipping of a particular product thus, saving time on unnecessary paperwork. It also enabled the
center supervisors to monitor their employees closely enabling them to give directions and even
guide them even on the move. This enabled the company to satisfy customer needs quickly and
improve the level of efficiency of the distribution center management operations.

Each distribution center had facilities for maintaining personal hygiene such as shower bath and
fitness centers. It also had provision for food, sleep and personal business. The distribution
center could also be used for meetings and paperwork. The truck drivers of Wal-Mart sometimes
availed these facilities.

3.3.2 LOGISTICS MANAGEMENT

An important feature of Wal-Mart’s logistics infrastructure was its fast and responsive

37
transportation system. The distribution centers were serviced by more than 3,500 company
owned trucks. These dedicated truck fleets allowed the company to ship goods from the
distribution centers to the stores within two days and replenish the store shelves twice a week.
The truck fleet was the visible link between the stores and distribution centers. Wal-Mart
believed that it needed drivers who were committed and dedicated to customer service. The
company hired only experienced drivers who had driven more than 300,000 accident-free miles,
with no major traffic violation.

Wal-Mart truck drivers generally moved the merchandise-loaded trailers from Wal-Mart
distribution centers to the retail stores serviced by each distribution center. These retail stores
were considered as customers by the distribution centers. The drivers had to report their hours of
service to a coordinator daily. The coordinator scheduled all dispatches depending on the
available driving time and the estimated time for travel between the distribution centers and the
retail stores. The coordinator informed the driver of his dispatches, either on the driver’s arrival
at the distribution center or on his return to the distribution center from the retail store. The
driver was usually expected to take a loaded truck trailer from the distribution center to the retail
store and return back with an empty trailer. He had to dispatch a loaded truck trailer at the retail
store and spend the night there. A driver had to bring the trailer at the dock of a store only at its
scheduled unloading time, no matter when he arrived at the store. The drivers delivered the
trailers in the afternoon and evening hours and they would be unloaded at the store at nights.
There was a gap of two hours between unloading of each trailer. For instance, if a store received
three trailers, the first one would be unloaded at midnight (12 AM), the second one would be
unloaded at 2 AM and the third one at 4 AM.

Although, the trailers were left unattended, they were secured by the drivers, until the store
personnel took charge of them at night. Wal-Mart received more trailers than they had docks,
due to their large volume of business.

Wal-Mart maintained a strict vigil over its drivers by keeping a record of their activities through
the “Private Fleet Driver Handbook”. The purpose of the book was to educate the drivers with
regard to the code of conduct. It also included the terms and conditions regarding the safe

38
exchange of trailers with the store personnel and the safety of Wal-Mart’s property. This book
also contained a list of other activities, the non-compliance of which would result in the
termination of the driver.

To make its distribution process more efficient, Wal-Mart also made use of a logistics technique
known as ‘cross-docking.’ In this system, the finished goods were directly picked up from the
manufacturing plant of a supplier, sorted out and then directly supplied to the customers. The
system reduced the handling and storage of finished goods, virtually eliminating the role of the
distribution centers and stores. There were five types of cross-docking.

In cross docking, requisitions received for different goods from a store were converted
into purchase or procurement orders. These purchase orders were then forwarded to the
manufacturers who conveyed their ability or inability to supply the goods within a particular
period of time. In cases where the manufacturer agreed to supply the required goods within the
specified time, the goods were directly forwarded to a place called the staging area. The goods
were packed here according to the orders received from different stores and then directly sent to
the respective customers.

To gain maximum out of cross-docking, Wal-Mart had to make fundamental changes in


its approach to managerial control. Traditionally, decisions about merchandising, pricing
and promotions had been highly centralized and were generally taken at the corporate level. The
crossdocking system, however, changed this practice. The system shifted the focus from “supply
chain” to the “demand chain,” which meant that instead of the retailer ‘pushing’ products into the
system; customers could ‘pull’ products, when and where they needed. This approach placed a
premium on frequent, informal cooperation among stores, distribution centers and suppliers
with far less centralized control than earlier.

3.3.3 INVENTORY MANAGEMENT

Wal-Mart had developed an ability to cater to the individual needs of its stores. Stores could
choose from a number of delivery plans. For instance, there was an accelerated delivery system

39
by which stores located within a certain distance of a geographical center could receive
replenishment within a day. Wal-Mart invested heavily in IT and communications systems
to effectively track sales and merchandise inventories in stores across the country. With the
rapid expansion of Wal-Mart stores in the US, it was essential to have a good communication
system. Hence, Wal-Mart set up its own satellite communication system in 1983. Explaining the
benefits of the system Walton said, “I can walk in the satellite room, where our technicians sit in
front of the computer screens talking on the phone to any stores that might be having a problem
with the system, and just looking over their shoulders for a minute or two will tell me a lot about
how a particular day is going. On the screen, I can see the total of the day’s bank credit sales
adding up as they occur. If we have something really important or urgent to communicate to the
stores and distribution centers, I, or any other Wal-Mart executive can walk back to our TV
studio and get on that satellite transmission and get it right out there. I can also go every
Saturday morning around three, look over these printouts and know precisely what kind of work
we have had.”

Wal-Mart was able to reduce unproductive inventory by allowing stores to manage their own
stocks, reducing pack sizes across many product categories, and timely price markdowns. Instead
of cutting inventory across the board, Wal-Mart made full use of its IT capabilities to make more
inventories available in the case of items that customers wanted most, while reducing the overall
inventory levels. Wal-Mart also networked its suppliers through computers. The company
entered into collaboration with P&G for maintaining the inventory in its stores and built an
automated reordering system, which linked all computers between P&G and its stores and other
distribution centers. The computer system at Wal-Mart stores identified an item which was low
in stock and sent a signal to P&G. The system then sent a re-supply order to the nearest P&G
factory through a satellite communication system. P&G then delivered the item either to the
Wal-Mart distribution center or directly to the concerned stores. This collaboration between Wal-
Mart and P&G was a win-win proposition for both because Wal-Mart could monitor its
stock levels in the stores constantly and also identify the items that were moving fast. P&G
could also lower its costs and pass on some of the savings to Wal-Mart due to better
coordination.
Employees at the stores had the ‘Magic Wand,’ a hand-held computer which was linked to in-

40
store terminals through a radio frequency network. These helped them to keep track of the
inventory in stores, deliveries and backup merchandise in stock at the distribution centers.
The order management and store replenishment of goods were entirely executed with the help of
computers through the Point-of-Sales (POS) system. Through this system, it was possible to
monitor and track the sales and merchandise stock levels on the store shelves. Wal-Mart also
made use of the sophisticated algorithm system which enabled it to forecast the exact quantities
of each item to be delivered, based on the inventories in each store. Since the data was accurate,
even bulk items could be broken and supplied to the stores. Wal-Mart also used a centralized
inventory data system using which the personnel at the stores could find out the level of
inventories and the location of each product at any given time. It also showed whether a
product was being loaded in the distribution center or was in transit on a truck. Once the
goods were unloaded at the store, the store was furnished with full stocks of inventories of a
particular item and the inventory data system was immediately updated.

Wal-Mart also made use of bar coding and radio frequency technology to manage its inventories.
Using bar codes and fixed optical readers, the goods could be directed to the appropriate dock,
from where they were loaded on to the trucks for shipment. Bar coding devices enabled efficient
picking, receiving and proper inventory control of the appropriate goods. It also enabled easy
order packing and physical counting of the inventories.

In 1991, Wal-Mart had invested approximately $4 billion to build a retail link system. More than
10,000 Wal-Mart retail suppliers used the retail link system to monitor the sales of their goods at
stores and replenish inventories. The details of daily transactions, which approximately
amounted to more than 10 million per day, were processed through this integrated system and
were furnished to every Wal-Mart store by 4 a.m., the next day. In October 2001, Wal-Mart tied-
up with Atlas Commerce for upgrading the system through the Internet enabled technologies.

Wal-Mart owned the largest and most sophisticated computer system in the private sector. The
company used Massively Parallel Processor (MPP) computer system to track the movement of
goods and stock levels. All information related to sales and inventories was passed on through an
advanced satellite communication system. To provide back-up in case of a major breakdown or

41
service interruption, the company had an extensive contingency plan.

By making effective use of computers in all its company’s operations, Wal-Mart was successful
in providing uninterrupted service to its customers, suppliers, stockholders and trading partners.

42
3.4 THE COMPANY’S PHILOSOPY
Sam Walton was known to be a conservative on the issues of family, religion and government.
Yet in the sphere of business, he was a radical trend-setter. Choosing to be innovative and
aggressive, the founder of Wal-Mart took the large scale discount retailing business to new
heights and down new avenues. Sam borrowed a lot of ideas for his early stores from Kmart and
others. But it was what he chose to do differently – the ways he put his own stamp on the basic
business model – that made Wal-Mart so fabulously successful. His model was the same as
Kmart’s, but his strategy was unique.

From the very beginning, Walton chose to serve a different group of customers. At that time, the
10 largest discounters (in 1962) focused on large metropolitan areas and cities like New York.
Wal-Mart’s key strategy was to put good-size stores into little one-horse towns which everybody
else was ignoring. He sought out isolated rural towns with populations between 5,000 - 25,000,
and correctly bet that if his stores could match or beat the city prices, people would shop at
home. Since Wal-Mart’s markets tended to be too small to support more than one large retailer,
eventually the small local competitors went out of business, making the whole area Wal-Mart
territory.

Wal-Mart also took a different approach to merchandising and pricing than its competitors.
While competitors relied heavily on private label goods, second-tier brands and price
promotions, Wal-Mart promised National Brands at everyday low prices. The company pursued
efficiency and reduced costs through innovative practices in areas such as Purchasing, Logistics
and Information Management.

Wal-Mart offers branded goods for less to a carefully chosen customer base. Compared to this,
Kmart, once Wal-Mart’s main competitor, went into bankruptcy and failed because it tried to be
all things to all people. Kmart failed to find distinctive ways to compete.

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3.4.1 WAL-MART’S HR POLICIES
The key principles of Wal-Mart’s HR policies flow from the idea of Giving More Value to the
Customer. Recognizing that the customer is king, Walton exhorted his managers and employees
to provide the best possible customer service and assistance at all times. Employees and
managers alike know that they are operating on narrow profit margins. Walton was among the
first to develop a Corporate Culture where employees and managers were rewarded in terms of
Stock Ownership. This in turn built loyalties among the workers and encouraged them to work
harder.

Walton was totally against Wal-Mart’s Unionization. He thought that Unions were a needless
nuisance, interested in following their own agenda. Rather than working for the employees, in
his opinion Unions drove a wedge between management and employees. They feed on the
earnings of both management and labor, adding to the cost of running a business. Moreover, a
few prized workers and Union leaders could get by with little or no work, thereby setting a bad
example for the rest of the group. Unions broke down direct communication, made it harder to
take care of customers, to be competitive, and to gain market share. Right from its inception,
Wal-Mart has fought tough battles to stay non-union.

True to its philosophy, while Wal-Mart scoured the marketplace for the best prices on
everything, it also kept a relentlessly tight rein on expenses. Executives bunked together on
buying trips and passed up gifts from suppliers, because those perks ultimately drove up the price
of goods. Walton himself kept his front office lean and mean. The company never spent more
than 2 percent of sales on administrative costs, less than half the industry average.

3.4.2 HOW IT HAS CHANGED: THE COSTS OF DOING


BUSINESS
Wal-Mart has been one of the most successful companies in American business. But it is not
without its critics. Analysts say that the entry of Wal-Mart into a locality can result in
unemployment and drudgery- for nearly all of the local suppliers are driven out of business. It
would be well for city planners and local government to consider these costs before letting Wal-
Mart come in to a particular locality. The wages at Wal-Mart are some of the lowest in the

44
industry. Wal-Mart capitalizes on hiring immigrants or retired senior citizens at low wages. In
this way, it can both control costs and exploit the workers. Another shady practice is to secretly
buy insurance policies for its aged employees and encash the same after their demise if any. Any
small to medium sized supplier doing business with Wal-Mart eventually becomes a captive due
to volume of business. Meanwhile, Wal-Mart in its

Relentless efforts to control costs, then asks the supplier to cut down their supply prices. The
competition is not only unhealthy for the suppliers; the competitors have also been drawn into it.
Competitors also operating on the low profit margins are forced to drop down their wages and
costs even further to stay in business. Thus the fate of suppliers, workers and employees all hang
in the balance. On the other hand, supporters of Wal-Mart say that its entry into an area of
unemployment or under-development can be a boost for the local community. It sparks up
economic activity, as other businesses also move in and set up in adjacent areas, no doubt
assured of customers who would flock to Wal-Mart.

In recent years to cut costs, Wal-Mart has switched to outsourcing some product lines. Even
here, Wal-Mart takes full advantage of the weak or almost non-existent labor laws in
undeveloped nations. Employees in poor Asian and Latin American nations are forced to work in
laborious conditions just to make ends meet. These poor workers never know their true
employer, only the middleman. Wal-Mart has scant regard for these outsourced workers.

Despite the charge that Wal-Mart doesn’t pay sustainable wages, the company has little trouble
recruiting, in part because the gap between its pay and union wages is offset by the other benefits
that a growing company like Wal-Mart offers workers, especially in the form of advancement
and stock benefits. Wal-Mart promotes heavily from within. More than two-thirds of its
management started out working in its stores.

Regardless of the campaign against it, Wal-Mart is generating enormous support in many of its
newest markets, especially in lower-income urban areas where shoppers often have few choices
among stores, and where prices are typically high—especially for groceries, which account for
so big a percentage of low-income budgets.

All these attacks downplay Wal-Mart’s many virtues. It has never been accused of funny
accounting. It doesn’t load its executives with exorbitant salaries or perks. Despite its market

45
power, it doesn’t charge vendors “slotting” fees—bribes to stock their goods. U.S. executives
voted Wal-Mart America’s most admired company in Fortune magazine’s annual survey.
Manufacturers ranked Wal-Mart the best retailer to do business with, while nearly three in ten
shoppers surveyed by the WSL Strategic Retail consulting firm voted Wal-Mart their favorite
store.

Wal-Mart faces a growing number of potentially costly class action lawsuits, exemplified by a
sex-discrimination suit brought by the Cohen, Milstein, Hausfeld & Toll firm. The suit is a
collection of anecdotes of individual female employees—many of whom received poor
evaluations and were turned down for promotion. They now claim that Wal-Mart managers have
frustrated their career ambitions. A few other cases involve accusations of supervisors making
discriminatory remarks toward female employees—entirely possible in a company with more
than 1 million employees, but hardly amounting to a company-wide pattern of discrimination.
Wal-Mart has succeeded like no other company in understanding what consumers want and
giving it to them. Despite Wal-Mart’s years of success, the future looks even more favorable for
the company.

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4. K-MART

4.1 INTRODUCTION
Kmart (often spelled as "K-Mart") is a chain of department stores in the United States, Puerto
Rico, the U.S. Virgin Islands, and Guam. The chain merged with Sears in 2005, creating the
Sears Holdings Corporation. Kmart also exists in Australia and New Zealand (see Kmart
Australia), although it now shares no current relation with the American stores except in name
after US equity in the Australian business was purchased in the late 1970s. It is the third biggest
discount store chain in the world, behind Wal-Mart and Target.

Kmart's world headquarters was located in Troy, Michigan in a sprawling complex which, since
Kmart's relocation to Illinois, has been slated for demolition.

Kmart became known for its "Blue Light Specials." They occurred at surprise moments when a
store worker would light up a mobile police light and offer a discount in a specific department of
the store. The phrase "attention Kmart shoppers" also entered into the American pop psyche.

47
4.2 BUSINESS MODEL & VALUE CHAIN OF K-MART
Kmart's information systems and its business processes and business strategy were not in
alignment. Kmart's systems do not support its strategy. One of the problems is that its supply
chain management system could not easily accommodate the sharp increases and decreases in
demand. The distribution center's outdated technology led to supplies sitting on pallets for 24
hours until they were recorded in the central tracking system. When reordering popular
products, the employees would hand sift through previous purchasing receipts.

Kmart has numerous problems with its value chain. This is evident from the suppliers sending
items that the suppliers want to sell, shelves remaining unstocked, the "hand shifting" reordering
process for popular items, products being allocated by central planners and not based on
individual store demand, excess inventory stored in 15,000 truck-trailers behind its stores,
shrinkage, and having to choose to either ship toothpaste or Christmas trees. Since its entrance
as the first discount store in the 1960s, Kmart has not been able to ward off new entrants into the
discount chain business. The new entrants, such as Wal-Mart and Target, have come on strong
and surpassed Kmart. Kmart's suppliers seem to be calling the shots with the retailer, since they
are promoting the items that they can sell and not helping Kmart address its mounting problems.
Kmart's customers are voting with their pocketbooks and shopping at its competitors' stores.

Kmart uses a promotions-drive business model. The company uses advertising circulars to
promote its "blue-light" specials. It appears that Kmart management is inconsistent with its
implementation of the company's strategy. Management is unable to use data to forecast
demand; it has lost sight of its core competencies, and is unable to change Kmart's image.
Although management wanted to restructure its supply chain, it continued to expand its product
offerings, as opposed to focusing on the fastest selling items.

Although the company uses a promotions-driven strategy, the company reduced its advertising
circulars. No other alternative for achieving the strategy is provided. From an organizational
perspective, the suppliers, central planners, business processes, individual stores, warehouses,
and distribution center have definite communication problems and are not sharing data as
efficiently as possible. One could argue that very little data sharing is going on. Central

48
planners are making the stocking decisions for the individual stores, but what needs to be stocked
at each store is not being effectively communicated.

Supply chain management is very important to Kmart. Kmart has been unable to successfully
manage its inbound logistics, operations, sales and marketing, service, and outbound logistics.
Unfortunately, the company's inability to effectively manage its supply chain led to ineffective
advertising, lots of items being overstocked, popular items being under stocked, a large product
offering, poor communication with suppliers and its business units, items sitting on pallets
waiting to be entered into the central tracking system, and shipping problems.

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4.3 COMPARISON BETWEEN THE MANAGEMENT OF WAL-
MART & K-MART

Known to all customers, inventory is the key to going to any store. If the supplies are not there,
customers lose faith in their supplier and look elsewhere for the merchandise. Perhaps the
biggest problem K-mart has is its ability to keep stock on the shelves. K-mart in 2001 was able to
keep its goods fully stocked on shelves only 86% of the time. In the industry, anything less than
90% is considered unacceptable. Wal-Mart, however, runs close to 100%. Wal-Mart and others
have emphasized "everyday low price" selling, which is more predictable for both customers and
the distribution system. Inventory, for such retailers as K-mart is having a negative effect. On the
average, K-mart's inventory swells up as sales fall. In the beginning of 2002, for example,
inventories rose by 5.6% as sales fell for K-mart. It is estimated that K-mart's cash flow would
drop by $40 million for each 1% increase in inventory if this problem persisted. The bottom line
is that in the third quarter of 2001, Wal-Mart raked in $52.7 Billion Dollars while K-mart only
made $8 Billion (Saporito, Buamohl, Szczesny).

Wal-Mart is the power house it is today because of its readiness to share information with its
suppliers. As the store chain saw the benefits of sharing data with suppliers, they moved the
information online on its Retail Link Web site. Rena Granofsky, a senior partner at J.C. Williams
Group Ltd., a Toronto-based retail consulting firms says that Wal-Mart approached its suppliers
as if they were partners and not adversaries, and by implementing such a collaborative planning,
forecasting and replenishment program, they have began a just-in-time inventory program that
reduced carrying costs for both the retailer and its supplier. Therefore there is a lot less excess
inventory in the supply chain because of this system. This type of efficiency is a key in
maintaining low price leadership amount retailers as well as allowing for far lower cost margins
due to the supply chain. The company's cost of goods is estimated 5% to 10% less than most of
its competitors (Johnson). Basically Wal-Mart is better at obtaining better terms from suppliers
and having lower overhead. Due to this, Wal-Mart sales rose 15.5% in the third quarter of 2001.
K-mart's problems stem from poor marketing strategy to lack of innovation. Its management
team has made some very poor choices when it comes to a marketing strategy which

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detrimentally affected its supply chain. Everyone remembers K-mart's famous "Blue Light"
specials, as the retailer used advertising circulars to lure customers. Even though this worked, it
also put a strain on merchandising and distribution systems because particular demand for items
came in sudden waves. It also opened the door to product mistakes leaving K-mart with either
too much of one product or not enough of another. Promotions also forced costs up at K-mart's
suppliers, as they could not reliably predict manufacturing runs. Furthermore, after finding out
that ad circulars did not work as well as they used to because of the massive waves of
merchandise ads, K-mart decided to take itself away from the weekly circulars. However, in the
third quarter of 2001, the company cut back too fast and left loyal ad customers in the cold.
Although management did try to counteract the problem by cutting prices on some $38,000
worth of items, without the ads customers were not informed of the price cut and this resulted in
K-mart sales dropping by 2.2% in the third quarter. At the same time, Wal-Mart management
caught on to the price cuts and followed suit reeling in even more customers than before
(Saporito, Baumohl, Szczesny).

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5. ANALYSES OF METRO CASH & CARRY

5.1 PORTER 5 FORCES MODEL

5.1.1 EXISTING THREATS


METRO-CC is unique because its existing threats are categorized into four distinct sections.
These include general discount stores, specialty discount stores, warehouse clubs, and super
centers. Wal-Mart’s largest general discount store competitors include Wal-Mart, Target, Kmart,
Dollar General and ShopKo. The largest specialty discount store threats include office supply
chains, Office Depot and Staples, Toy merchant, Toy’s “R” Us, and electronics retailer, Circuit
City. In warehouse clubs, the two most dominant are Costco and Wal-Mart owned, Sam’s Club.
Wal-Mart is now the leader in the super centers, followed by Meijer, Fred Meyer, and Super
Kmart centers (Barney 1 – 45).

5.1.2 BARRIERS TO ENTRY


METRO-CC does not have to worry about threat to new entrants because it has economies of
scale in which it spreads the costs of production over the number of units produced. The cost of
product per unit declines as the volume increases. Considering there are so many METRO stores,
the company has the capability to produce more products in order to lower the cost. Other
barriers of entry that favor METRO include its product differentiation, strong brand
identification, customer loyalty, and secure distribution channels for its products. Technology
also plays an important role in helping Wal-Mart create high barriers due to its innovative ways
towards tracking inventories.

5.1.3 THREAT OF RIVALRY


Wal-Mart is in a very intense rivalry market; companies such as Wal-Mart, Target, and Kmart
must sell more products to cover all of their fixed costs, which increase market competition.

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Also, each of these companies sells products that are relatively the same, which results in very
competitive based pricing.

5.1.4 THREAT OF SUBSTITUTES


Substitutes depend on whether or not a customer is looking for one stop shopping. Wal-Mart has
a large number of competitors both in specialty and general discount stores. If the customer is
looking to buy only a desk chair then Wal-Mart would not only have to worry about stores such
as Target, Kmart, and Fred Meyer, but also specialty stores such as Office Depot and Staples.
However, when it comes to this market, there are not many substitutes that offer the convenience
and low pricing of Wal-Mart. The customer has the choice of going to many specialty stores to
get their desired products but will probably not find Wal-Mart’s low pricing.

5.1.5 THREAT OF SUPPLIERS

The size of the company plays the largest factor when it comes to suppliers. METRO is much
larger than its suppliers, and purchases in large quantities, this leads to the supplier having very
little power to negotiate. METRO holds so much of the market share; they offer a lot of business
to manufacturers and wholesalers. This gives METRO a lot of power because by threatening to
switch to a different supplier would create a scare tactic to the suppliers.

5.1.6 THREAT OF BUYERS


Buyers are going to constantly be a threat to METRO largely because there are so many
competitors. The purchasing decisions of a consumer are usually based off of price, convenience,
quality of product, the type of shopping, and also personal values. The first is related to the
customer’s price sensitivity. If each brand of a product is similar to all the others, then the buyer
will base the purchase decision mainly on price. This will increase the competitive rivalry,
resulting in lower prices, and lower profitability. Not many competitors can beat the prices that
METRO offers; however, there are competitors that offer better quality products and some
consumers may want to pay extra to receive better quality goods. The convenience factor ties

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into the type of shopping being accomplished, if a consumer just needs groceries, chances are
they will go to the store nearest to them

Finally, the personal values of consumers typically dictate where their shopping will be done.
Many people enjoy Wal-Mart for its extremely low prices and one stop shopping, and its
manufacturing of goods overseas.

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Positioning Grid

Price

x Sears
x JC Penny x Fred Meyer

Product Offerings

x Office Depot

x Target

x Kmart
x Wal-Mart

5.2 STRATEGIC FACTOR ANALYSIS

5.2.1 VRIO FRAMEWORK


In a dynamic market, it is vital that firms are aware of threats or weaknesses. In many cases
these can be external threats, such as competitors or other economic changes. It is also
imperative that companies are aware of internal resources and capabilities and how to harness the
potential that they possess. In the case of Wal-Mart Stores, a closer look will be taken to
examine the internal ability of Wal-Mart to continue a sustained competitive advantage over
other firms in the same market. This analysis will include looking at Wal-Mart’s supply-chain

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management through technology and distribution, shelf-space, relationships with suppliers, and
pricing strategy.

Valuable Rare Imitability Organizatio Sustainability


n

Supply Chain Yes Yes Yes Yes Sustainable


Management

Shelf Space Yes No Yes Yes Sustainable

Relationship with Yes Yes Yes Yes Sustainable


Suppliers

Price Strategy Yes Yes Yes Yes Sustainable

5.2.2 VALUE
One tool in examining the internal capabilities of a firm is the VRIO framework. This theory
allows individuals and firms alike to measure their performance and the ability to improve. The
first part of the VRIO framework is value. The question of value is: “Do resources and
capabilities enable a firm to exploit an external opportunity or neutralize an external threat?
(Barney 77).” According to the VRIO framework, “In general, firms that use their resources and
capabilities to exploit opportunities or neutralize threats will see an increase in net revenues, or a
decrease in their net costs, or both (Barney 77).” After examining the discount retail industry,
value was not precisely defined but involved price, service, quality, and convenience. From these
perspectives it is apparent that METRO utilizes their resources to increase its competitive
advantage.

Supply chain management is an attempt to coordinate processes involved in producing, shipping


and distributing products, generally with large suppliers. Technology investment is seen as
critically important for all discount retailers when related to supply chain management. .
METRO uses distribution centers to achieve efficiencies in logistics and cross docking allows
them to simply load from one dock to another or even from one truck to another without ever

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sitting in inventory. Because of the close coordination, cross docking requires an information
system that links stores, distribution centers, and manufactures. METRO logistics system also
includes company owned trucks, and can routinely ship goods within 48 hours of receiving an
order. Technology is also useful in managing inventory by accurately forecasting the right
quantity of products and the mix of goods in each store. Because selection of products varied
from one region to another, the company was able to use historical selling data and complex
models to decide what items to sale and how much to stock in each store.

Shelf-space is another resource that allows Wal-Mart to exploit opportunity and neutralize
threats. According to Barney, “Larger firms had an advantage in discount retailing (Barney 1-
18).” This is because large size enables firms to spread their overhead and advertising costs over
more stores and to a broader base. However, the greatest advantage of size is in relationships
with suppliers. Wal-Mart derived considerable purchasing influence because of their immense
size and many of the company’s largest suppliers gained a high proportion of their sales from
Wal-Mart. Therefore, Wal-Mart size gives them considerable value specifically in dealing with
suppliers.

Lastly, Wal-Mart gains significant value from its pricing strategy. Wal-Mart’s everyday low
prices or EDLP helps distinguish themselves apart from their competitors. Wal-Mart
consistently prices their products about 7% below the competition that makes it very appealing to
all consumers.

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5.2.3 RARITY

The second part of the VRIO framework is rarity. The question of rarity is: “Is a resource
currently controlled by only a small number of competing firms? (Barney 78).” After examining
the discount retail market it is clear that there are few competing companies that match Wal-
Mart. Due to Wal-Mart’s relationships with suppliers and philosophy toward every day low
prices Wal-Mart is able to distinguish themselves from their competitors. Wal-Mart has gained
substantial purchasing power from its suppliers. Wal-Mart’s purchasing clout is clearly evident
in the payment terms, where suppliers offer companies 2% discount within 15 days of payment
but offer Wal-Mart 2% regardless of payment date. Wal-Mart also requires suppliers to pick up
an increasing amount of inventory and merchandising costs. Wal-Mart philosophy toward every
day low prices is very rare within the market. Other companies offer sales and discounts for
certain products whereas Wal-Mart prices all their products equal to or below the competition.
Wal-Mart also saves on advertising and labor costs because employees do not have to rearrange
stock before and after sales.

5.2.4 IMITABILITY

The third element of the VRIO framework is imitability. The question of imitability is: “Do
firms without a resource face a cost disadvantage in obtaining or developing it? (Barney 78).”
The discount retail market is very hard to get into. Competitors are faced with extremely high
costs when imitating. Specifically costs associated with information systems that can track
production and inventory levels. One of Wal-Mart advantages is its complex information system
that allows managers to make decisions, communicate with suppliers and use their resources in
the least costly or efficient way. It would also cost a significant amount of money to construct
buildings and warehouses needed to perform operations. According to a 2003 store count, Wal-
Mart had 1,568 discount stores, 1,258 super centers, 525 Sam’s Club, and 49 neighborhood
markets. It would also be very hard and costly to start relationships with a large amount of
suppliers. Another one of Wal-Mart’s advantages is its relationship with its suppliers. This is
because Wal-Mart has significant purchasing clout and influence over their suppliers. Last is

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pricing strategy. In the discount retail market pricing is very important and can distinguish one
company from another. Wal-Mart uses an everyday low price which marks down the price of
every item below their competitors. This is very hard to imitate because it squeezes margins and
if costs are not low then it is extremely hard to make a profit.

5.2.5 ORGANIZATION
The last section of the VRIO framework is organization. The question of organization is: “Are a
firm’s other policies and procedures organized to support the exploitation of its valuable, rare,
and costly to imitate resources? (Barney 78).” One unique aspect of Wal-Mart is that they have
no regional offices. Rather, regional vice presidents operate out of their offices at company
headquarters in Bentonville, Arkansas. Regional managers then visit stores weekly and report to
other regional mangers and top managers. From that meeting, regional managers then convey
information to managers in the field via videoconferencing. This organizational structure
signifies Wal-Mart beliefs and core values, everyday low costs. Simply the absence of regional
offices was estimated to save the company 1% of sales. It is clear that Wal-Mart uses their
resources in the most effective and efficient manor. By decreasing costs involved in producing,
shipping and distributing products, while maintaining close relationships with suppliers and
offering low cost products, Wal-Mart is able to control the discount retail market.

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5.3 SWOT ANALYSIS

METRO first strength is their ability to maintain a strong market position in the discount retail
industry. They use a combination of economies of scale and close management of suppliers to
drive costs/prices down. Wal-Mart positions them selves as providing the widest variety of
products at the lowest prices, which has allowed them to penetrate this highly competitive
market.

Superior supply chain management is possibly the greatest strength that METRO possesses.
They use cutting edge technology such as shop-keeping units (SKUs); electronic data
interchange (EDI), point of sale scanning (POS). By using such technologies METRO can
electronically notify suppliers immediately when inventory is getting low. Often times this step
was done by human intervention, which is now eliminated and subsequently drives costs down.

These strengths can provide several opportunities for METRO, the first being the ability to
capitalize on their strong market position. Because METRO has such command of this industry
they have the ability to take some chances and expand into other profitable markets. If they want
to offer new products they have the ability to run it through their already world class supply
chain which would drive implementation costs, and retail prices down.

Wal-Mart’s decline in sales growth has presented itself as the main weakness of METRO. They
have been unable to replicate their high sales growth percentages from previous years the
weaknesses could be turned into strengths through increases in global expansion in markets such
as India and China. These areas show the greatest areas for global growth in the retail industry.
The major threat to METRO is competition. METRO competes against several companies
(Target, K-Mart) and industries (grocery, clothing). Target and K-Mart and Wal-Marts are
closest competitors of METRO within the discount retail market. To maintain their strong
market position and competitive advantage Wal-Mart will need to offer new product offerings in
convenient ways while still maintain every day low prices. This will allow Wal-Mart put up a
barrier between itself and the competition.

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