Sams Clubs

GLOBAL INDUSTRY ANALYSIS - CASE STUDY

Wal*Mart Stores, Inc.
a presentation
Anthony, Crystal, Sandy From YZU university
1

Sam Walton
Founder of Wal*Mart Stores,
Inc.
Performance of Wal*Mart
20-year average return on
equity of 33%
Compound average sales
growth of 35%
Market value = $57.5 billion
Sales per
square foot

Wal*Mart

Industry
average

$300

$210

WALMART

Background
2

Year 1988
CEO: David Glass
COO: Don Soderquist
How to sustain the companys
phenomenal performance?
1987
Net sales
Net Income

1993

15,95
9

67,34
5

628

2,333

1,114

1,953

84

419

Number Of
Stores
Discount Stores
Sams Wholesale
Clubs
Supercenters

N.A.
68
WALMART

Background
3

Number of Stores (1994)

WALMART

Background
4

Where
Emerged in the U.S.
When
Mid-1950s
Top 10 discounters in 1962
Wal*Mart remained only
The industry became more
concentrated
Discount store companies
operated 5 or more stores
accounted for 62%

WALMART

Discount Retailing
5

WALMART

Discount Retailing
6

Comparative Pricing Study, 1993

WALMART

Discount Retailing
7

Overall Performance of Discounters

WALMART

Discount Retailing
8

Year 1945
Ben Franklin franchise store
In 1950s
15 stores
Year 1962
Wal*Mart Discount City store
Year 1969
18 Wal*Mart stores
15 Ben Franklin franchise
stores

WALMART

Wal*Marts Discount Stores

and History of Growth
9

Year 1970
30 discount stores in rural
states
South and Midwest
Cost of good sold
Build its own warehouse
Buy in volume at
attractive prices
Store the
merchandise
Year 1972
Took the company public
Raised $3.3 million

WALMART

Wal*Marts Discount Stores

and History of Growth
10

Year 1993
West coast and
northeastern states
Year 1994
Operated in 47 states

WALMART

Wal*Marts Discount Stores

and History of Growth
11

Key strategies for growing

Locate store in isolated
rural areas and small towns
(population 5000~25000)
Pattern of expansion
Always push from inside
out
Mid-1980s
One third were located in
areas that were not served
by any of its competitors

WALMART

Wal*Marts Discount Stores

and History of Growth
13

Year 1993
Wal*Mart faced 55%
(Kmart), 23% (Target)
Kmart 82%, Target 85% from
Wal*Mart

WALMART

Wal*Marts Discount Stores

and History of Growth
14

Philosophy
Keep prices below everybody else
Trip expenses cant exceed 1% of the
purchases
Spent lots of time in his own store and
observe competitors
Culture
Do not show off buying luxury goods
Success
The way it treated its associates

WALMART

Wal*Marts Discount Stores

and Sams Legacy
15

Management style
Maintain an open-door policy
Empowering associates
Maintain technology superiority
Build loyalty among associates,
customers, and suppliers

WALMART

Wal*Marts Discount Stores

and Sams Legacy
16

Tailor to individual market or individual

store
Information system
A process which indexed product movements
in the store to over a thousand store and
market traits
Using inventory and sales data

WALMART

Wal*Marts Discount Stores

and Merchandising
18

Promotional strategy
Everyday-low-prices
Few promotions
13 major circulars per year
1993

Satisfaction guaranteed policy

WALMART

Wal*Marts Discount Stores

and Merchandising
20

Marketing slogan
Lower price
Store managers set up prices
2-4% pricing differential between Wal*Mart
and its best competitors in most markets in
early 1990s

WALMART

Wal*Marts Discount Stores

and Merchandising
21

 Transportation
cost

22

National brand strategy

Private label apparel
25% of apparel sales
Other private label
26% price advantage
Also sold in Sams Clubs and supercenters

Buy American program

WALMART

Wal*Marts Discount Stores

and Merchandising
23

Strength

Weakness

Cost advantage
Low price & customer-oriented
Strong supply chain
People are key to success

Ignore store decoration

Since Wal-Mart sell products
across many sectors (such as
clothing, food, or stationary), it
may not have the flexibility of
some of its more focused
competitors.

Opportunity
Build its own brand
Put efforts on social welfare
better image
New locations and store types
Overseas markets

Threat
Other competitors
Intense price competition

WALMART

Wal*Marts Discount Stores

and SWOT Analysis

WALMART

Wal*Marts Discount Stores

and Store Operation
25

WALMART

Wal*Marts Discount Stores

and Store Operation
26

Electronic scanning of
uniform product code
(UPC) at the POS
Ensure accurate pricing
Improve efficiency
Reduce Shrinkage
Improve communications

WALMART

Wal*Marts Discount Stores

and Store Operation
27

Satellite system
Data collected and analyzed
Observing Merchandise flow,
overstock, discount
Video transmissions, credit
card authorizations, and
inventory control

WALMART

Wal*Marts Discount Stores

and Store Operation
28

Phenomenal
distribution
network
Two step
hub-andspoke

WALMART

Wal*Marts Discount Stores

and Distribution
29

Phenomenal
distribution
network
Crossdocking
technique

WALMART

Wal*Marts Discount Stores

and Distribution
30

Phenomenal
distribution
network
Distribution
center
Cost
advantage
Stable
price

WALMART

Wal*Marts Discount Stores

and Distribution
31

Phenomenal
distribution
network
Computeriz
ed pick to
light system

WALMART

Wal*Marts Discount Stores

and Distribution
32

WALMART

Wal*Marts Discount Stores

and Distribution
33

Backward integration
No nonsense negotiator
Economies of scale
Maintain long term
relationship with supplier,
as powerful partner (RSP)

WALMART

Wal*Marts Discount Stores

and Vendor Relationships
34

WALMART

Wal*Marts Discount Stores

and Vendor Relationships
35

Backward integration
Electronic data interchange
(EDI)
CPFR
Forecasting
Planning
Replenishing
Shipping applications

WALMART

Wal*Marts Discount Stores

and Vendor Relationships
36

The CPFR Process

Seller

FRONT END AGREEMENT

Collaborative
Planning

JOINT BUSINESS PLAN

CREATE SALES FORECAST

Collaborative
Forecasting

IDENTIFY EXCEPTIONS
RESOLVE EXCEPTIONS

CREATE ORDER FORECAST

Collaborative
Replenishment

IDENTIFY EXCEPTIONS
RESOLVE EXCEPTIONS
GENERATE ORDER

Buyer

37

Backward integration
Vendor-managed inventory
(VMI) system
Wrangler
GE

WALMART

Wal*Marts Discount Stores

and Vendor Relationships
38

Backward integration
From EDI to Retail link

WALMART

Wal*Marts Discount Stores

and Vendor Relationships
39

Whole Supply chain

Economies of scale
Cost leadership competitive
advantage
JIT inventor
POS and retail link
CRS & VMI
EDI
CPFR

WALMART

Wal*Marts Discount Stores

and Vendor Relationships
40

Non-unionized
Decentralized: full autonomy
Profit sharing program
Yes we can Sam
Store within store
Shrink incentive
Stock sharing
Administrative style
Frugality
No hierarchy in organization

WALMART

Wal*Marts Discount Stores

and Human Resource Management
42

Firm
Infrastructu
re

Human
Resource
Management

Technology
Developme
nt
Procureme
nt

Inferior fixtures standardization, Trucks, Average store

size 84,000 square feat
Non-unionized, Full autonomy to associates,
Decentralized,
profit sharing program, Job rotation, Stock purchase
UPC
plan at POS, EDI, Information system, VMI ,Cross
ducking , Satellite system, CPFR
Maintain long-term relationship, No single supplier
accounting for more than 2.4%, Selective suppliers ( P&G
& GE), NO nonsense policy

Primary
Activities

Inbound
Logistics

Six days
a
week(9~21
)
Monday
(12:30~17:
30)

Operations

Two step
hub and
spoke
distributing
system

Outbound
Logistics

Everyday
low price
Always
low
price,
always
Self
service
Cash and
carry
Save
money,
Marketing
live
&
Sales
better
credit
card,
Layaway
plan

ECR
Satisfacti
on

Margin

VMI
system
Retail
link
EDI
CPFR

guarantee
policy
Quick
response
(QR)

After Sales
Service

WALMART

Wal*Marts Discount Stores

and Value Chain

Historical Time Series

Wal*Mart opened the first
three Sams clubs in 1983
Sams sales surpassed Price
Clubs, making it the largest
wholesale club in 1987
In 1987, Wal*Mart
introduced its first
supercenter
In 1991, Wal*Mart acquired
The Wholesale Club with
28 outlets in the Midwest

WALMART

Diversification
44

 In 1993, Sales at Sams Club

rose 19.5% as the highest in
national warehouse club
chains, which Sams was
nearly twice the size of
Price Club
Sams Club acquired 99 of
Kmarts 113 Pace club in
1993

WALMART

Diversification
45

Comparison

WALMART

Diversification
46

Backward Integration
Acquire McLane Company
Texas retail grocery supplier
To service both Sams Clubs
and supercenters

WALMART

Diversification
47

Warehouse clubs

WALMART

Diversification
and Sams Clubs
48

Operating philosophy
To offer a limited number of
SKUs in pallet-size
quantities in a no-frills,
warehouse-type building
Location
Often locate next to a
Wal*Mart
Sams chose to cannibalize
its own sales rather than
give competitors any
openings

WALMART

Diversification
and Sams Clubs
49

Payment
Discover card
Cash- and-carry
Membership Free
$25 annually
Business Hour
Seven days a week
Supply
Direct shipment from
supplier - 70%
Companys distribution
centers - 30%

WALMART

Diversification
and Sams Clubs
50

Top Warehouse Clubs by 1993

WALMART

Diversification
and Sams Clubs
51

 Operating margins within the

industry were extremely lowa typical supermarkets was
lucky to squeeze out a 2 %
profit margin.
Industry trend

Motivation

WALMART

Diversification
and Supercenters
52

 A supercenter is a combination
supermarket and discount
store averaging 120,000 to
130,000 square feet in size
It contains bakeries, delis and
convenience shops

Definition

WALMART

Diversification
and Supercenters
53

 Familiarity
Low-price image

Operating
Philosophy
WALMART

Diversification
and Supercenters
54

Layout

WALMART

Diversification
and Supercenters
55

Staff

450 associates
Full-time
- 70%
Part-time
- 30%

WALMART

Diversification
and Supercenters
56

 24 hours
Seven days a
week

WALMART

Diversification
and Supercenters
57

WALMART

Diversification
and Supercenters
58

 1994, March
Acquire 122 Woolco
stores
Woolworth Corp.

WALMART

Diversification
and International Expansion
59

 Year 1992
Joint venture
Cifra S.A. (Mexicos largest
retailer)
63 stores (22 Sams Clubs, 11
Wal*Mart supercenters)

WALMART

Diversification
and International Expansion
60

South America
Plan to enter in
1995
Brazil &
Argentina

WALMART

Diversification
and International Expansion
61

Discount Store
Kmart
Target
Caldor
Warehouse Clubs
Price Club
Costco
Pace
Supercenter
Meijer
Fred Meyer

Competitors
High degree of concentration
High industry growth
Have excess capacity
Cost structure of firms:
sensitive to cost
Buyers switching cost is low
Firm can adjust prices quickly
Price elasticity of demand

WALMART

Diversification
and Five Force Analysis

Supermarket
Kroger
Safeway Stores

Potential Entrant
They have distribution
channels
Access to raw materials
Allocate favorable locations

WALMART

Diversification
and Five Force Analysis

Key players
Procter & Gamble
GE
Wrangler

Suppliers
Industry is concentrated
Many suppliers
No-nonsense

WALMART

Diversification
and Five Force Analysis

Target Market
??????

Customers
Low switching cost
Transportation cost

WALMART

Diversification
and Five Force Analysis