A Project Report on

Walmart Retail

Strategy

Group Members –
 Sharmeen Khan (97)
Falak Zarin (94)
Souradipa Kanjilal (81)
Labanya Dutta Ray (37)
Sadhana Tiwari (64)

History
 In 1945 Sam Walton opened the first Ben Franklin franchise in Newport Arkansas and
operated them with his wife, Helen and brother, Bud.
 These were small chains that were very successful.
 In November of 1962 Wal-Mart was opened.
 Wasn’t until mid-1970 that Wal-Mart began to grow.
 1st IPO in 1970.
 Then 100 shares were worth $1,650 dollars and now the same 100 shares are worth
more than $6 million dollars.
 In 1999 named #1 stock on the Dow.

Walmart’s Business Model was Different

Walmart prefer to operate wholesale cash and carry stores. Large retailers like WALMART
engage in both wholesaling and retailing.
• Located stores in small towns since big retailers such as Kmart and Sears
dominated large towns
• Kept overhead low
• Offered incentives - Profit-sharing for staff
• Partnerships for suppliers
• Large investment in IT- To keep inventory low
• Customers got friendly service
AND, “Everyday Low Price”

Walmart's Modern Operations

Walmart continues to offer very low prices and this is possible due to

(1) its huge volume of sales that's possible due to the spread of its operation and its
wide customer base,

(2) a supply chain management system that maximizes efficiencies and reduces outlays,
(3) minimization of overhead and operational costs and

(4) leveraging of its bargaining power to force suppliers to lower prices:

1. Sales volume, scope of operation and wide customer base: Walmart has been able to
capture a huge market share by selling almost everything and being almost everywhere.
It has endeavored to meet the demand of various segments of the market, and to
present a huge swath of buying opportunities, compressed into single locations. It
actually has a multiple-store format that extends its market reach, and it sells goods
through four types of stores: discount stores, Walmart Supercenters, Sam's Club
warehouses (which sell bulk items), and neighborhood markets.

2. Supply chain management based on electronic product information, vendor role in

distribution, and layout of warehouses:  Walmart has a supply chain system that is
regarded in multiple quarters as one of the most technologically advanced and efficient.
Whether in the case of barcodes or RFID tags (radio frequency identification
technology), WalMart was a pioneer in getting detailed product information
electronically attached to products so that such information could be relayed to its
database and could inform its inventory management system.

Another key strategy by Walmart to deal directly with manufacturers.

Walmart has the largest private satellite system that enables the easy transfer of this
information Information such as point-of-sales data, as well as warehouse inventory and
real-time sales are all sent to, and stored in, a centralized database that is shared with
suppliers who know when to ship more products.

Also key to the cost-effectiveness of Walmart's supply chain strategy and distribution

network is the positioning of its nearly 160 distribution centers, which cover almost 120
million square feet and are all within 130 miles of the stores they supply. This in turn has
resulted in reduced costs for inventory storage and has lowered transportation costs.

What amplifies the effectiveness of all of this is that in its early years Walmart followed
a backward expansion strategy, opening stores in small, rural towns first before entering
metropolitan areas. This resulted in lower operating expenses, and ensured that all
stores' locations were within just over a hundred miles of their distribution centers. It
became cost-prohibitive for competitors which had focused on large towns to enter
regions Walmart had already saturated later on. This constituted a barrier to entry.

3. Minimization of overhead and operational costs: Continuing the model Walton

established for a low-cost operation, Walmart still keeps its overhead low. Its executives
reportedly fly coach and share hotel rooms with colleagues. Its meager wages and low-
benefit healthcare plans which are offered to rank-and-file employees have been
publicized and protested against.

4.  Leveraging of Its bargaining power to force suppliers to lower prices: Many well-
known companies rely on Walmart for more than 20% of their revenue. Walmart, as the
number one supplier-retailer of most of our consumer goods, wields considerable
power over their bottom line. Walmart is constantly pushing its suppliers to cut prices.

The pressure on suppliers to lower prices has resulted in layoffs at certain factories,
changes in manufacturing inputs and processes, and even the transfer of manufacturing
processes to foreign countries like China where labor is cheap.
Walmart- The Corporate Force
Porter’s Value Chain Analysis

Support Activities
Firm

Infrastructure:
o High store volume
o No regional HQ
o IT support systems for managerial decisions

Human Resource Management:

 o Introduction of senior manager with background outside retailing (IT)
o Lower wages than competitors
o Less people employed/store
o Higher sales volume / employee
o “Associates”
o Management Technique

Technology Development:
o Cutting-edge technology always used in order to maintain CA
o Benchmark of competitors successful measure
o IT

Procurement:
o High bargaining power with suppliers
o Long period for Account Payables

Primary Activities
Inbound Logistics:
o One of first users of EDI to communicate with suppliers
o Disintermediation
o High bargain power
o Example of flags after 9/11

Operations:
o They uniquely operate each store
o Better in-store execution than competitors

Outbound Logistics:
o Wal-Mart Distribution Centres
o Distribution costs 2-3% compared with 4-5% of competitors
o Inventory Turns (7.6 compared with 6.1 – 5.4 from competitors

Marketing & Sales:

o Unbeatable prices

Services:
o People Greeter
Distribution Network
 Economies of Scale
 Hub and spoke model ; 84 distribution centres in United States & Each centre
serves 150 stores within a 150 mile radius
 Cut out the middle man
 Inventory Turnover
 High Store Volume

Distribution Network Sustainability

 Sustainable due to size and relationship with suppliers
 However difficult to replicate due to necessary capital and size
 Some aspects can be replicated by competitors : Hub and spoke model & Buying
directly from the manufacturer

Information Systems
 Electronic Data Interchange (EDI)
 “Retail Link” : Operating efficiencies Ex: partnership with Procter and Gamble
Inventory turnover
Unique merchandise in stores -Local adaptation

Information Systems Sustainability

 Partly sustainable
 The technology system itself can be replicated or purchased
 Capabilities difficult to replicate : Partnership & Superior supply chain
management

Cost Control
 Bargaining power with suppliers
Disintermediation lower cost lower prices
Longer accounts payable periods
 International Trade e.g. China
 Fewer Employees Lower labour cost
 Management techniques
Exclusion of union

Cost Control Sustainability

 Sustainable
 Bargaining power difficult to replicate
Influence
Disintermediation
 Ability to keep indirect cost low
Culture of frugality -Difficult to imitate
Labour cost -Exclusions of union

Strategies of Wal-Mart that help them market

 Reducing Cost By Efficient Use of Supply Chain

Managing cost is one of the most effective tools used by Wal-Mart to gain business success. It has
to compete in this low cost war with all the other retailers. Cost may be categorized as: Fixed cost,
which includes- rent, property tax, pay role etc. these remain unaffected by the sale of the store,
and variable cost, which includes- Investment in technology, travel cost etc. are reduced for
effective utilization.

Mal-Mart manages to reduce cost by budgeting payroll. The store managers at Wal-Mart are
required to maintain a budget of the turnover of the store. They are required to see to it that the
payroll cost doesn’t exceed the budget under any circumstances. If under any circumstance the
payroll cost exceeds the budget, immediate steps must be taken to reduce it.

Wal-Mart save a handsome amount of money by cutting down on the business travel cost. It does
this by ensuring that all the managers and executives travel by the economy class and not first class.
Also employees are made to stay 2 in a room when on business visit. Only those meals which are at
regular restaurants are reimbursed.

All unnecessary cost are eliminated in Wal-Mart. Any cost investment by Wal-Mart or by one of its
suppliers must add value to the product. If does not then that cost is eliminates. Eg- Wal- Mart
proposed to eliminate cardboard packing from powder fresh and other unscented product. Now
suppose that one nickel was saved on every box sold. Now suppose if Walmart was able to push
100 million boxes then 5 million dollars would be saved.

Wal-Mart invests in technology to minimize cost. Technology in Wal-Mart is not implemented for
the sake of it. It is first assessed as how would it enrich the customer’s experience or how will it
help them reduce cost. If any technology can sail through these two questions then it gets a green
flag for implementation. Investing in computer systems which was originally Sam Walton’s Idea, has
helped Wal-Mart improve its supply chain by reducing data processing time, improve customer
service and gathering data from all divisions. Also, Wal-Mart has made investment in solar power
generation to reduce the cost of electricity in the long run. Also Wal-Mart stores are equipped with
sawtooth roof, radient heat melt snow, light powered infrared sinks and evaporative cooling help to
maintain the temperature at the stores at low cost. To reduce inventory cost Wal-Mart has invested
in technologies like RFID- Radio Frequency Identification which helps to control the flow of
products.

All these steps have helped Wal-Mart to not only to create a more effective management system
but also to reduce cost which then enables it to give discount to its customer.

 Pricing

The pricing at the retail store is low as compared to other retail shops in the area. It is common to
find commodities costing up to 15% less in the Wal-Mart store as compared to the other retail
shops in the area. This serves as an advantage to this particular stores and leads to a constant
inflow of customers seeking to save money during their shopping sprees. The store occasionally
offers discounts to customers on a variety of items in order to increase sales. These discounts often
attract a large number of customers to the store and new orders to refill empty shelves have to
keep coming. According to the manager, this is strategy that has helped the Wal-Mart store to
develop a lasting relationship with customers such that they tend to be loyal to the store.

 Communication mix

The Wal-Mart store is committed in ensuring that information regarding its products is effectively
disseminated to the public. In this respect, the retail store makes use of TV advertisement and
newspaper insert ads. TV is an effective media to transmit information because it is likely to reach a
considerable audience (Zoltan, 1998). Information regarding products, prices and discounts is often
provided on TV during the evening hours when people are expected to be at home. This ensures
that a significant number of potential customers can see the advertisement hence maximize the
efficiency of the advert (Pettigrew, Thomas & Whittington, 2002). Newspaper advertisements by
the enterprise are mostly placed in the classifieds corner. People are more likely to visit the
classifieds pages when they are looking for places to shop. This therefore provides a convenient
place to place an advertisement. Occasionally, the retail store may secure a big space on the
newspaper to advertise an oncoming sale or to sensitize customers on discounts available at the
store. The use of vouchers is also a common method of advertising. Vouchers given to customers
have information regarding the company’s products such that customers are well acquainted with
the store’s products. Banners and posters placed in conspicuous places around Winnipeg also help
to popularize the store with an objective of increasing the sales.

 Consumer-centric Sales

The first customer centric policy that Wal-Mart follows is Every Day Low Pricing Policy. This delivers
products at lowest cost possible offering them a value of money proposition. It uses captions like-
“We sell for less” and “Satisfaction Guaranteed”. Also, every item if proven defective is returnable.
Also, they have photo and gift services. Sam Walton has asked his employees to follow the 10 foot
rule which states that the employee must offer the customer his/her services if a customer passes
with in 10 foot of the employee. He/She must look customer in the eye, greet them and ask if they
can be of any assistance.

 Location

Location plays a very important role for a giant retail store like Wal-Mart. It looks for best possible
site for the store. The criteria for a good location range from- geography to other factors like
distance from the distribution center and the cost. By doing this the cost of delivery of product is
greatly reduced. Also the location of the store must close to the community so that people are
easily able to access it. Also, parking for the customer has to be arranged at the store in a manner
so he/she may easily drive in or away.

 Co-operated Suppliers

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Wal-Mart runs a very tight inventory when it comes to suppliers. It believes in JIT. And ensures that
its suppliers are able to fulfill all their demands on time. They make efficient and effective use of
ERP, CRM and other technologies.

 Retail-tainment & Shop-ability: Aisles, Lighting & Signs

Wal-Mart is one of the pioneers in the field of retail-tainment. Retail-tainment events engages
customers in a variety of event like game shows, contests etc to drive the customer traffic to a
specific location in the store. This would generally be a location where a particular product is
stocked.

Wal-Mart pays a lot of attention to Shop-ability of a product. Promotion of a product is the job of
the store manager. Stating an instance – Phil Green an early Wal-Mart manager , once bought 3500
giant cases of Tide detergent. To promote this he ran a statement saying $1.99 a box, off from the
usual $3.97. Then he built a pyramid of these boxes that ran 12 to 18 boxes high, it was 12 feet wide
and one could hardly get past it. Not to mention all the boxes were sold easily.

 Store-manager Autonomy

The position of a store manager is a very lucrative post in today’s scenario of retail industry. At Wal-
Mart the store manager get a full autonomy in the manner he/she wants to handle the store. They
just have to meet the budget requirements in the stipulated time.

 One- Stop Shopping

Wal-Mart has majorly been promoted as a one stop shop. All the products from utility items to
portrait studio to bank are present here. It’s a complete mall where everything is available (in
reference with Wal-Mart Supercenter). Also there are eateries that have been opened in here the
cater to the various needs of the people.
  Complete Product Line

Wal-Mart ensures a complete product line of all the brands, i.e. all product in all packaging
according to the volume. This Ensues a better shopping experience in terms of availability of
product. Also, during an emergency need when a customer just wants to pick up a particular item,
he/she comes in the store with an assurance that his demand will be fulfilled.

 Private Branding

Wal-Mart offers store brands they are also referred to as home brands, or generic brands. They are
low price alternatives to other name brands. It consists of Sam’s Choice – which is a premium retail
brand for food and selected hard goods. Great Value plays a role in helping walmart brand grocery
items. Equate brands beauty and Pharma products. Ol’Roy brands dog food.. There are various
other brands. Wal-Mart derives various advantages from this- They get the freedom to price the
product , may get a higher margin and it eliminates manufacturers cost spent on promotions.

 Store design and display

The store layout is moderately attractive with special display for certain products being highly
eminent. Shelves are well arranged and the prices well displayed. Selected products, depending on
the suppliers, are arranged in well designed displays that make their locations appealing and
inviting. As a matter of fact, one can easily note more people checking the products displayed on
these displays. While these customers may not buy the products at that particular time, they may
come to buy it in future, given that they are aware of the product, the price and use. The design of
the store leaves wide aisles between shelves which allow customers to easily push their shopping
carts as they collect the goods that they require. Spacious aisles make the store desirable especially
for shoppers with children because they can easily move around without blocking the way for other
shoppers. Staircases are broad and moderately steep which gives customers comfort during their
shopping experience at the store. Accordingly, they are able to explore all areas of the store in
search of what they desire to buy.

 Customer service

The customer care service at this Wal-Mart store is excellent. Service attendants are very friendly
and willing to assist shoppers with whatever information they need. You will even find customer
service representatives whose sole responsibility is to ensure that customers are okay and that they
are not encountering any challenges such as lack of information on price, quality and availability of
products stocked at the store. There is a customer care representative at proximities of less than 3
meters such that any queries and assistance required by the customers can be provided as quickly
as possible. Interestingly, these customer care representatives are well conversant with the store’s
products such that they are very efficient in helping customers.