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WalMart Competitive Analysis Post 1985_EOS

WalMart Competitive Analysis Post 1985_EOS

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Published by John Aldridge Chew

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Published by: John Aldridge Chew on Jan 23, 2012
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08/13/2013

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Wal-Mart Post-1985 Case Study
 
www.csinvesting.wordpress.comStudying/Teaching/Investing
Page 1
Wal-Mart Stores
N
otes from Greenwald 3/31/03
 
Wal-Mart Competitive AdvantageRegional Economies-of-Scale(Percentage of Sales)Wal-Mart Other Stores GAP Pct. of GapInbound Logistics
2.8 4.0 1.2
30%
Advertising
0.9 2.3 1.4
60%
Other Overhead
5.3 7.6 2.3
30%
Total
9.0 13.9 4.9
35%
Total Operating Margin
 
8.6 5.9 2.7Wal-Mart makes money in monopoly stores. But WMT does not gain its advantage through purchasingpower because this type of advantage should increase as size and scale increases but ROE, ROIC andROA are decreasing
as growth continues
into new markets.
WMT KMTMonopoly Location ROE
33% 12%
Price gain
6% 9%
Total gain
2% 1.1%
Gap (WMT
 – 
K-mart)
0.9%Two possible stories:1.
 
Effective operation2.
 
Regional Economies of Scale. WMT started in Ark. And moved tangently into other regions.
Wal-Mart Stores Competitive AdvantagesWal-Mart History-Post 1985YEAR Operating Margin Return on Sales Return on Capital Return on Equity1985
7.8% 3.9% 18.7% 25.6%
1992
6.4% 3.7% 18.2% 23.0%
1997
5.4% 2.9% 14.3% 17.8%
2002
5.5% 3.1% 14.5% 19.0%
Slower growth-fewer openings Price gap: Kmart is 1.5% higher than WMTWMT Stores Competitive Advantage WMT vs. Target Operating MarginsYear WAL-MART TARGET1984 8.6 5.5 (EST)1992 6.4 5.51997 5.4 6.32001 6.0 7.8
Target
s better profitability has been at greater geographic concentration.
 
Wal-Mart Post-1985 Case Study
 
www.csinvesting.wordpress.comStudying/Teaching/Investing
Page 2
If you compete with Wal-Mart, you can copy technology, store lay-outs, product mix, but you can NOTreplicate location and grab regional share.WMT and Target have economies of scale reinforced with some small customer captivity
DIVISIONAL MARGIN (2000-2002)Division Operating Margins2002 2001 2000Basic Stores 7.4% 8.0% 8.0%(ROA) (47.1%)SAM
S CLUB 3.5% 3.5% 3.4%(ROA) (26.0%)OVERSEAS 4.1% 3.5% 3.6%(ROA) (15.5%)Here is evidence AGAINST WMT as a big, efficient juggernaut.Competitive advantage is
relative
to competition.WALMART STORESCOMPETITIVE ADVANTAGESREGIONAL ECONOMIES OF SCALE 2002Drug Stores Operating Margin Ret. On Capital Ret. On EquityWalgreens
6.7% 16.3% 16.3%
CVS
6.3% 12.5% 14.0%
Rite Aid
3.0% NMF NMF
GROCERY STORES Ret. On Capital Return on EquityWinn-Dixie
13.3% 19.2%
Kroger
13.0% 32.0%
Safeway
12.0% 26.0%
Albertson
9.5% 14.0%
OTHER GEOGRAPHIC CONCENTRATION HISTORIESEthan AllenNebraska Furniture MartBest Co.

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