WAL-MART STORES IN 2003 CASE STUDY

PGPM-22-015 Ashish Kumar

PGPM-22-029 Gyanendra Tripathy
PGPM-22-066 Somesh Kumar
PGPM-22-067 Somya Jain

INTRODUCTION

Wal-Mart is a leading discount retailer, ranking as the second largest in the world, with its headquarters
located in Bentonville, United States. Sam Walton founded the company who opened the first Wal-Mart
store in Rogers, Arkansas in 1962. Wal-Mart sells its products through its discount stores, super centres, and
neighbourhood markets. It is also the largest private employer globally, with a vast number of stores
worldwide, including 1568 discount stores, 1258 supercentres, 49 neighbourhood markets, 525 SAM's
Clubs, and 1288 international locations, as of 2003. Furthermore, Wal-Mart was Fortune’s top -ranked
company in the same year.

Wal-Mart offers three types of stores to cater to different needs. Firstly, their discount stores are essentially
discount department stores that offer a variety of products at lower prices. Secondly, the supercentre
market is a comprehensive store that includes a full-line grocery store but also specialty departments for
different categories. Finally, the neighbourhood market is a convenient store for daily essential goods, ideal
for quick and easy shopping trips.

The major players in the retail industry include Wal-Mart, K-mart, and Target.

Source: www.statista.com

WAL-MART STRATEGIES

Wal-Mart's primary corporate strategy focuses on four key objectives: dominating the retail market,
expanding into both domestic and international markets, building a positive brand image and recognition,
and diversifying into new sectors of the retail industry.

Wal-Mart's success can be attributed to several factors that have been meticulously crafted and executed
over time. The primary reason for Wal-Mart's success is its low prices and low expenses. The company has

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been able to keep its prices low and reduce the cost of goods by working directly with manufacturers and
cutting out the middleman.

Wal-Mart's efficient supply chain management system is another key factor in its success. The company has
established strong partnerships with manufacturers and utilizes its own distribution centres to optimize the
supply of goods.

Another factor that has contributed to Wal-Mart's success is the variety of retail layouts it offers. Whether
it's a big-box store or a neighbourhood market, the company has a retail format to suit every customer's
needs.

Finally, Wal-Mart's private satellite network is another key factor in its success. The network has allowed the
company to communicate in real time with suppliers and distribution centres, resulting in efficient and
faster deliveries.

All these factors combined have helped Wal-Mart become one of the world's largest and most successful
retailers.

WAL-MART STRATEGY USING PORTER’S GENERIC STRATEGY

Wal-Mart has always focused on maintaining a cost leadership strategy. It has been offering products at
lowest prices among the other retailers, which is one of the key advertising factors for the company which
attracts customers. The company's strong supply chain network and stores and distribution system are
highly efficient, which makes it a leader among the retailers enhancing its bargaining power to achieve a
lower price from suppliers and helps in selling low priced products to customers. Additionally, Wal-Mart has
achieved economies of scale keeping its costs low, which helps in maintaining its low-price position in the
market.

Wal-Mart's bulk purchasing strategy enables the company to

 Work directly with manufacturers and suppliers, eliminating intermediaries
 For more stable and predictable supply, Wal-Mart establish long-term agreements with suppliers.
 Due to larger volume, Wal-Mart is able to negotiate substantial discounts with suppliers
 Enforce agreements that prohibit suppliers from undercutting prices to other customers.

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 WAL-MART VALUE CHAIN ANALYSIS ALIGNED WITH ITS STRATEGY (USING PORTER’S VALUE CHAIN ANALYSIS)

Porter’s Value Chain Analysis for Wal-Mart:

Primary activities:

 Inbound logistics: Wal-Mart has enabled direct relationship with suppliers and manufacturers by bypassing
the intermediate representatives. This disintermediation has helped in improving product quality and also
gave a strong bargaining power over suppliers.
 Operations: Wal-Mart gives a cheerful ambience to its customers. Starting with all customers are welcomed
by a “People Greeter”, and all stores are streamline and standardized to ensure improved customer
experience. They use advanced technology such as electronic UPC scanners, satellite network to ensure
faster authorization up-to less than 3 sec etc to enhance productivity and reduce the cost of operations.
 Outbound logistics: Wal-Mart has a wide distribution network of approximately 150 stores within an
average radius of 150 miles. The distribution cost accounted for an estimated 2-3% of revenues for
Walmart, compared to 4-5% for other retailers. Also, Walmart focuses on inventory turns as a key for the
overall performance of supply chain. It has managed to improve its inventory turns to 7.6 vis-à-vis 6.1and
5.4 respectively for Target and Kmart.
 Marketing and Sales: Wal-Mart actively manages its product mix by reviewing in detailed the sales data and
also focusing on multiple parameters such as ease of instore display, exclusive product and destination
purchasing. In terms of pricing Walmart keeps up its slogan of “Always the lowest price” and brand itself as
everyday low-price retailer against its competition. Because of its brand image, it invests very minimum in
its advertisement. The advertising to sales ratio for Walmart is 0.3% compared to 2.2% at Target and 1.2% at
Kmart.
 Service: Wal-Mart has a very strong customer service for its in-store experience, warranty and returns.

Support Activity:

 Infrastructure: Walmart operates 4,688 stores with a total area of 561 million square feet. Approximately
73% of stores and 81% of square footages are located in US. With this vast network, enhanced logistics and
also strong online network and IT support Walmart enables a wide presence across the globes.
 Human resource management: Walmart offers more training than any other retailer. It also accounts for
30% of the retail workforce of US. Majority of the workforce are hourly paid (94%) and 6% are salaried
employees. Walmart has a very diverse culture.

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  Technology development: Walmart stays ahead of the competitor in terms of its technology adaptation to
enhance its productivity and customer experience. They have a massive data base of customers and their
buying pattern which they leverage to enhance their supply chain and logistics. In house operations and
inventory are also managed by digital inventory management system and electronic scanners.
 Procurement: Walmart commands a dominant position on its suppliers due to the large volume it deals
with. This gives them bargaining power and procure at the cheapest price. They also ensure enhanced
quality and strict supplier selection to maintain just in time inventory management.

SUSTAINABILITY OF WAL-MART STRATEGY IN FUTURE

Bargaining Power of Suppliers: Low

• Walmart had numerous

suppliers.
• Wal-Mart procured large
amount of goods from its
suppliers
• Low Switching cost
• Prices that Wal-Mart requires
from its suppliers are extremely
low, to the point where it is no
longer negotiation

Threat of New Entrants: Low Threat of substitutes: High

Industry Rivalry: High
• Extensive capital investment  The switching cost was very • Intense competition based
low. on quality & Price.
• challenging to establish the • Substitutes served
 Very high fixed cost.
distribution channel comparable function.
 Exit Barriers were very high.
• lack of product differentiation  where it is no longer  Switching cost was minimal.
negotiation

Bargaining Power of Buyers: Low

•As buyers were individual
customers, they lacked
bargaining power against
massive corporation
•Customer consistently made
small purchases
•Extensive customer base

Using Five Forces Framework applied for Walmart, we can infer that the company has a strong position
due to its size and scale, bargaining power over suppliers, and established supply chain network.
However, it faces significant competition from other large retailers and the threat of online substitutes.
Walmart must continuously innovate to maintain its competitive position and provide value to
customers.

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Below is the analysis for the future sustainability for Wal-Mart.

Wal-Mart's and Competitors' Store Locations by Lifestyle Region

1227

673
544 535
465414 411 458
375
216 217 197 247 218
159 123
67 8 274925 44 2 1215 0 61 5 20 8 4 5 2760 6 461813 2
0
Affluent/ Elite Mid/Downscale Subs Inner City Small-Town Living Rural America

Wal-Mart Discount Stores Wal-Mart Supercenter Wal-Mart Neighborhood Market Kmart Discount Stores Target Discount Stores Super Kmart Meijer

Super Target

Exhibit 8 : Wal-mart has large no of Discount stores in Rural America and Small-Town Living Region.

Wal-Mart Net Sales- retaIl stores

-Discount Stores -Supercenters -Neighborhood Markets
SAM's Club International Other (McLane, Internet)

100%
80%
60%
40%
20%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Exhibit 2: Percentage Net Sales for supercentres are increasing and discount stores are decreasing, which
in turn leads to a sustainable future for Wal-Mart.

Revenue Breakup- Wal-mart and 5 Year CAGR

191,838
competitors
Sales Net Income Assets Equity
Cost of goods sold Gross Margin 50.0%
15.6% 17.9% 15.8% 16.3% 9.8% 17.1% 15.0% 16.2%

0.0%
Wal-Mart Target -0.9% Kmart
-50.0% -3.7%
-42.4%

-100.0%
54,687
-150.0%
29,260 26,258
14,657 -200.0%
4,504
-250.0%
Wal-Mart Target Kmart -254.2%
-300.0%

Exhibit 5: Gross margin and COGS are high for Wal-Mart compared to its competitors.

Looking at all the above data, we can say that Wal-Mart long term business strategy is sustainable.

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