WAL-MART’S COST

LEADERSHIP STRATEGY
HISTORY OF WALMART
 1962, Sam Walton starts WAL-MART
 In 5 years expanded to 24 stores
revenue more than 12.6 million in
sales
 1972, listed in New York Stock Exchange
MARKETS OF WAL-MART
(2003)

o Total Sale of Wal-mart US $ 313 Billion

o Total Retail Area 663 Million Sq.ft.

o Total Employers 1700,000

SALES & INCOME GROWTH COMPANY INDUSTRY
(PAST 12 MONTH)

SALES GROWTH 12.00% 11.50%

INCOME GROWTH 5.20% 5.90%

NET PROFIT MARGINS (%)

COMPANY 3.6%
COMPANY 5YEAR AVG. 3.5%
INDUSTRY 3.6%
WAL-MART TODAY
 Operates 6,500 stores in 15 countries
 Serves more than 176 million
customers around the globe
 Employs 1.8 million worldwide
 Health plans insure more than 1 million
people
 Saves the average American household
more than $2,300 per year
Let us start the journey….
1960’s…..
The Success Term was
EDLP
 EVERY DAY LOW PRICING

 To provide customers – a wide variety

of high quality, branded and unbranded
products at the lowest possible price,
offering better value for their money
EDLP : The strategy
 To procure products in bulk at the
lowest possible prices from the
manufacturers
 Sharing the savings with customers
 Wal-Mart’s products were usually priced
20% lower than its competitors
Wal-Mart’s advertisement describing
EDLP said:
“Because you work hard for your
every dollar, you deserve the
lowest price we can offer every
time you make a purchase. You
deserve our Every Day Low Price.
It’s not a sale; it’s a great price
you can count on every day to
make your dollar go further at
WalMart ”
Explaining his pricing strategy
Mr. Sam Walton said:

“ By cutting your price, you can boost

your sales to a point where you earn
far more at the cheaper retail price
than you would have by selling the
item at the higher price. In retailer
language; you can lower your markup
but earn more because of the increased
volume”
EDLP : WAS A HIT
 This led to increase loyalty from price-
conscious rural customers.
 The surplus generated was re-invested
in
- Building facilities of an efficient scale
- Purchasing modern business related
equipment
- And employing the latest technology
Other areas where the
cost was checked
 The stores were set up in large buildings, while
ensuring that the rent paid was minimal
 Not much emphasis was laid on the interiors of the
store
 Did not invest in standardized ordering programmes
 Did not even have a standard distribution system in
place
 Accounting data were manually written-up
 There was a high check in recruiting the staff
1970’s….
 Wal-Mart became public-held company
 Equipped with funds, it started
reorganizationing its business activities.
 The foremost challenge was to put in
place a standard distribution and inter-
store communication system
 So it came up with the most popular
Hub And Spoke Structure
The Hub And Spoke
Structure
 Goods were centrally ordered
 Assembled at the distribution center (hub)
 From where they were dispatched to the individual
stores (spokes) as per the orders received from
stores.
STORE

STORE D.C. STORE

STORE
 The benefits of Hub and
Spoke structure
 Centralized purchase of goods in
huge quantities
 Distribution of them through its
own fast and responsive logistics
infrastructure to the retail stores
 By passing all intermediaries, they
managed to get the goods at
lowest price
 The company was able to
replenish the store twice a week
 In 1978, Wal-Mart became the first
company to establish a fully-
automated distribution center
Claude Harris once stated
that :
“Don’t ever feel sorry for a vendor. He
always knows what he can sell, and we
want his bottom price. We would tell
the vendors ‘ don’t leave in any room
for a kickback because we don’t do it
here.”
Massive expansion strategy

 Strategy was to build stores around the

distribution centers
 That is to be effectively served by the
center and controlled by district
managers and to management at
Bentonville
 The store needs to be a maximum of a
day’s drive away from the center
Benefits of massive
expansion strategy
 Wal-Mart was able to accelerate its revenue
growth and reap significant economies of
scale
 As the number of store increased the
popularity of the company increased
 Since the company generated tremendous
word of mouth publicity, it was able to
minimize spending on advertising and
promotion activities
1980’s…..
Maintaining cost through
re-investment
 In 1983, Wal-Mart ventured into the
membership club business – called
Sam’s Club
 Installed the Point of Sale (POS)
scanning system to further reduce the
cost
Maintaining cost through
re-investment (contd.)

 In 1987, it installed a Satellite

Communication System (SCS)

 In December 1987, Wal-Mart opened its

first hyper-mart in the US
1990’s…..
 Supercenters and Sam’s club were
more focused to fuel the growth

 In 1994, Wal-Mart bought 99 Pace

membership warehouses
 Wal-Mart’s store count (1991-2003)
Format________ Discount Sam’s club Super Neighbourhood
year stores center markets
1991 1573 148 3 -
1992 1720 208 6 -
1993 1850 256 30 -
1994 1953 419 68 -
1995 1990 428 143 -
1996 1995 433 219 -
1997 1960 436 344 -
1998 1921 443 441 1
1999 1869 564 451 1
2000 1801 721 463 7
2001 1736 888 475 19
2002 1647 1066 500 31
2003 1568 1258 525 49

Source : Wal-Mart Annual Report 2003

 Employed improved inventory
management practices and upgraded
its IT systems

 Electronic Data Interchange (EDI)

AND THE RESULTS WERE
GOOD….
 Amount of inventory reduced by an
estimated $ 2 billion

 Savings of $ 150 million on interest

cost were generated
2000’s…..
 Wal-Mart launched a programme
called ‘Store of the community’

 ‘Global Sourcing’ was initiated

(2002)
Strengths of Wal-Mart
Wal-mart’s
SUBSIDIARIES

Discount stores Neighbourhood market

Sam’s Club Super center

Yearly sales $244.5 billion
Total employees across the globe (approximately) 1.3 million
Number of stores worldwide 4,688
Number of new stores opened in 2003 (worldwide) 274
Total number of suppliers 65,000
Wal-Mart’s rank/position among all retailers across the 1
globe (in terms of sales)
Number of pallets shipped by Wal-Mart truck every 50 million
week (2002)
Total occupied floor area of Wal-Mart (2002) 18.3 square
miles
Yearly advertising expenditure (2002) $498 million
Highest one-day sales record till date (November 28, $1.52 billion
2003)
Number of customers every week at Wal-Mart stores 138 million
worldwide (approximately)
Estimated market capitalization of Wal-Mart in 2020 $11.1 trillion
Source : Wal-Mart Annual Report 2003
Revenue (%) of the major consumer goods
companies in the US through Wal-Mart

Company % Share
(As a % of total sales)
P&G 17 %
Tandy Brand’s 39 %
Accessories
RJR Tobacco 20 %
Dial’s 28
Del Monte Foods’ 24 %
Clorox’ 23 %
Revlon’s 23 %
Source : BusinessWeek, October 2003
…. and the journey still
continues …
PRESENTED BY :~
o Prashant Wankhede
o Prajakta Sane
o R. Maruthi Yeshwanth
o Vikram Gharmalkar
o Mehul Chheda
o Nitin Agrawal