INTERNATIONAL

RETAILING

Dr. Sumeet Gupta, BE, MBA, PhD, (National Univ. of Singapore)

CARREFOUR

FRANCE BASED RETAILER

METRO

GERMANY BASED RETAILER

TESCO

UK BASED RETAILER

WAL-MART STORES INC

US BASED RETAILER

SEIYU

JAPAN BASED RETAILER

BEST PRICE

INDIA BASED RETAILER

OBJECTIVES
International marketing
Marketing analysis and foreign
market entry strategies
International retail environment
Selection of retail market
Methods of international retailing
Role of IT in international retailing

WAL-MART STORES INC

DOMINATING GLOBAL RETAILING

OUTLINE
The Humble Beginnings
Expansion and Growth Strategy
International Expansion
Mexico
Europe
Asia

Problems and Issues

Lessons Learned

THE HUMBLE BEGINNINGS

Founded by Sam Walton 1962

Waltons Initial Learning

The First Store

Where
was the
store
located
and why?

The First Store

 Volume and Inventory-turn

velocity define competitive
advantage in the discount
retail business
What was
Concept works in small towns
their
With population that were
Basic
scratching a subsistence level of
Strategy?
living
Few employment alternatives
Walmart could provide jobs at
decent wages

The Concept

 Steady jobs at decent wage

required to staff the store
Small Operations in Rural
Areas with minimal
competition in retail thus
allowing flexibility in pricing
merchandise
Low local real estate costs
Stores were decidedly
austere in appearance

Low Operating Costs

What
were the
Challenge
s?

 Walmart developed its own

large warehouses to fulfill
its needs
Developed large logistics
What
operations, complete with a were the
fleet of truck and a private Challenge
s?
satellite system as well
Thus costs were kept low

Capitalizing on Challenges

EXPANSION AND GROWTH

 Cheerful greeting by the senior citizens

of the company
Fully Stocked shelves with a wide range
of products
No backroom inventory
Employee bonuses linked to
departmental level performance
Prices set as low as possible and
variable from store to store reflecting
the prevailing competition
Very limited advertisements (barebones approach) featuring their own
associates as models

Operating Philosophy and Culture

 Flat organizational structure

Frugality (Economy class travel, Stay at
Budget motel on a sharing basis, not hiring
taxis as far as possible, minimalist dcor at
the warehouse)
Visitors had to pay for a cup of coffee even at
headquarters
Customer centric dictum (10-feet rule)

Development opportunities to associates

Promotions from within
Equal opportunity for being promoted into
management ranks and moved to headquarters
Job enrichment and job rotation as a means of
developing HR
360 degree feedback and performance appraisal
system

Operating Philosophy and Culture

 Centrally managed from its offices at

Bentonville
Group of buyers who negotiated discounts
directly with manufacturers
Negotiations carried out in a small windowless
office
Buyers were tough negotiators and demanded
a wide array of price and service concessions
Walmart was the largest single revenue generator
for Hollywood (35% of all pet food sold in US, 24%
of all toothpaste, largest volume of groceries,
DVDs, CDs, toys, gunsm etc.)
Its purchase volumes were very-very high and the
supplier became rich quickly by supplying to them
Suppliers needed Wal Mart more than Wal Mart
needed them

Supplier Management

 National Brand Strategy

Well known brands at
relatively lower prices thus
demonstrating superior value
to its customers
Brands self-advertised and
hence Wal Mart could reduce
its advertising budget
Wal-Mart could price Mattel Toys
22% below Toys R Us

Supplier Management

 Private labeling Strategy

Began with Ol Roy Dog Food
Its brands competed with
National brand
Manufacturers started
manufacturing store brands
for leading retailers

Supplier Management

Supplier Management

 Suppliers Credentials
Very stringent requirements in terms of
product quality, shipping, stocking, and
in-store displays
Transactions to be conducted through
Retail Link, a proprietary EDI (IS that
allowed the electronic tracking of
purchase orders, invoices, payments
and inventories)
RFID required imposed on its suppliers
that would enable enhanced capabilities
in tracking sales of individual items
within its stores, a potential gold mine of
inventory and customer preference data

Supplier Management

 Tangible payoffs to suppliers in

terms of inventory monitoring and
management
Jack Welch, the former CEO of
General Electric, once observed that
he learned more about the customers
who bought GE light bulbs from WalMarts supplier reports than he did
from his own marketing department.
After all, the relationship between the
manufacturer and the end user was
no longer a direct one. It increasingly
went through Wal-Mart.

Supplier Management

 Suppliers could not raise their prices

Walmart continued to compensate at old
rates
Billed its suppliers for missed or delayed
deliveries
Paid suppliers when their items was
scanned upon sale to a customer
E.g., Rubbermaid Newell merger

Supplier score card to keep track of the

performance metrics of its suppliers
Suppliers were required to uphold quite
stringent standards of employment and fair
labor practices at all their manufacturing
worldwide (Wal-Mart Code of standards
being displayed at suppliers facilities)

Supplier Management

 Passive submission
Active engagement in maximizing ones own
piece of Wal-mart Pie (Shelf capture approach)
Newell-Rubbermaid offered a wide variety of
largely non-seasonal, low technology, highvolume essentials that were relatively low
priced.
Positioned itself as a very responsive, highly
flexible supplier
It became the benchmark for supplier performance

Rayovac began with offering 20% lower prices

than Duracell and Energizer
It gained a heavy market share (>80%) in its high
margin products
Wal-Mart accounted for 26% of Rayovac revenue in
a relationship

Suppliers Strategies

 Private satellite network that worked in

conjunction with the EDI system and a
point-of-sales system
Own logistics through a central huband-spoke system of warehouses and
distribution centers.
Little inventory storage in these centers
and active practice of cross-docking
Mandatory usage of Retail link system
to keep logistics planner in Bentonville
informed about the availability of cargo
for shipping to warehouses, thus
enabling backhauling.

Use of Technology

Different Stores for Different Folks

INTERNATIONAL EXPANSION

 Market potential based on

economic and political risk,
growth potential, and
availability of real estate for
development.
Saturated Markets: Acquisition
strategy
Easy availability of Land:
Organic Growth
Unknown territories: Joint
Venture

Evaluation Criteria

Wal-Marts Mode of Entry

 Joint Venture with Cifra and later on increase its

equity to 62%
Bodega Aurrera stores targeted at lowest income
strata
Superama stores targeted at middle and high
income customers
26% of all international revenues
Leveraged location specific advantages in
Mexico to grow a supplier base at relatively low
cost and augment needs in other parts of the
world (300 suppliers exported to its US based
stores)
Copied the template to Brazil (Todo Dia) and
Puerto Rico
Opportunistic product expansion (money
transfer service from Mexico to US)

Mexico

 Victim of price war due to its

close rival Carrefour
Price Comparison flyers
distributed in Wal-Mart
parking lots
Carrefour was a leader in
South American market and
has strong merchandising
experience as compared to
Wal-Mart

Brazil and Argentina

 In Germany through acquisition of Wertkauf (a

German retailer that had fallen on bad times
in 1997)
Acquisition of Interspar
Imported its own management team to covert
the acquired stores into Wal-Mart stores
Wal-Mart rural culture did not blend well with
German sensibilities
Language difference, distinctive market
preferences, Prohibitive German laws
Competition with Metro A.G., which was a
formidable competitor and very good at
merchandising
Failure to actually implement their everyday
low price strategy

Europe-Germany

 Oligopolistic Market structure (Key Players: Metro19.7, Rewe-13.6, Edeka/AVA-12.7, Aldi-10.1,

Tengelmann-7.6)
Ultra-low profitability in the industry (0.8% of sales)
Family owned retailers (Principle of doing business is
not maximization of shareholder value)
Zoning regulations imposing sever restrictions on
the construction of large-scale stores
Euro Conversion caused confusion and Aldi was able
to exploit its reputation for great value (high quality
products at very low prices)
Price and value more important than service and
quality
Retail legislation
80-84 hours/week store opening hours, Saturday and
Sunday closed
One cannot be a loss leader

WalMart-Failure in Germany

 Flawed entry by acquisition

strategy
21 Wertkauf stores (1997)
74 Spar hypermarkets at
exceptionally high cost
Euro560 million (1998 )
Organic growth was not
possible

WalMart-Failure in Germany

 Management by hubris and clash of cultures

approach to labor relations
Not able to understand or adapt to the specific
conditions of doing business in Germany
CEOs (e.g., Rob Tiarks) were US citizens who
were unwilling to learn German
Ignorance with regard to the manifold
complexities and the legal and institutional
framework of the German retail market
Executives looking for switching to other
retailers because of Wal-Marts frugal approach
Union had strong influence in Europe and
therefore staff-cuts and firing was difficult
(Strong labor protection regulations)
Wage-bargaining was refused with labor union
in Germany

WalMart-Failure in Germany

 Balatant failure to deliver its legendary

we sell for less-always, EDLP,
Excellent services value proposition
Aldi was undisputed cost and price leader in
Germany. Wal-Mart could not systematically
undercut Aldi and the other hard
discounters
Its assortment was not even substantially
cheaper than the traditional retailers
10 feet rule or the concept of greeters did
not meet with enthusiasm in Germany
German customers are accustomed to selfservice formats and additional staff only
adds to labor costs
Restrictive shopping hour regulations

WalMart-Failure in Germany

 Bad publicity due to repeated

infringement of some important German
laws
German anti-trust legislations ban all
undertaking with superior market power from
selling a range of goods below costs price
without any objective justification
All corporations must disclose their basic
financial information including a balance
sheet and an annual Profit and loss statement
Obligatory deposit regulation requires
retailers to provide a deposit-refund system
for certain types of plastic and metal
beverage containers or to refrain from selling
any product bottled or canned in containers

WalMart-Failure in Germany

 UK (Acquisition of Asda which

worked the Wal-Mart way at
6.7billion pound in 1999)
Local Managers were given leeway
ASDA was already a successful
venture
Strategies from ASDA were
imported to reform German
venture and import fashion
clothing into US to compete with
Target (Up-market retailer in US)

Europe-UK

 Korea: Acquisition of Makro (High

real estate cost lead Wal-Mart to
design stores encompassing 6-8
stories)
Exercise its option to increase its
holdings to become a majority
partner
Chains owned by the Korean
Chaebols had better supplier links
and long-term relationships (works
on the principle of GuanXi)

Japan: Joint venture with Seiyu

Asia-Korea and Japan

 Could roll out many of its

strategies successfully
Local purchases of 95% of its
products
Leveraged its Chinese supply
network to export products worth
$12 20 billion to its US
operations
Moved to Beijing and later into
rural heartland of the country
Promising but difficult markets

Asia-China

LESSONS LEARNED

OBJECTIVES
International marketing
Marketing analysis and foreign
market entry strategies
International retail environment
Selection of retail market
Methods of international retailing
Role of IT in international retailing

Wal-Mart in India. Will it Succeed?