Professional Documents
Culture Documents
Logistics
Case Study
Wal-Mart
June 4th 2012
Abstract
Wal-Mart is the number one retailer in the world and operates stores in numerous countries. In
this paper, the Wal-Mart country portfolio is analyzed and evaluated. Not only the development
in the single countries is reviewed but also recommendations for future expansions are proposed.
Special attention is given to the different store formats present in the countries.
MBA Course - Retailing and Logistics
Table of Contents
1. Overview and Company Strategy ............................................................................................ 1
2 Country Market Portfolio ......................................................................................................... 1
2.1 United States of America – The Home Market ................................................................. 2
Store Formats ........................................................................................................................... 2
Development and Future .......................................................................................................... 3
3 International Operation ............................................................................................................ 4
3.1 Mexico ............................................................................................................................... 4
3.2 United Kingdom ................................................................................................................ 6
3.3 Canada ............................................................................................................................... 6
3.4 Brazil ................................................................................................................................. 7
3.5 Central America ................................................................................................................. 7
3.6 Latin America .................................................................................................................... 8
3.7 Africa ................................................................................................................................. 8
3.8 China .................................................................................................................................. 8
3.9 India ................................................................................................................................... 8
4. Development of country portfolio ............................................................................................ 9
5. Evaluation of Wal-Mart’s International activities .................................................................. 10
6. Critical review ........................................................................................................................ 11
7. Further improvement .............................................................................................................. 12
Works cited..................................................................................................................................... IV
Table of Figures ............................................................................................................................... V
Page II
Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
1
Wal-Mart Annual Report 2012
2
http://www.businessdictionary.com/definition/Wal-Mart.html
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
Store Formats
The company is present in several different store formats and under different names to fully
exploit the market potential:5:
Discount Stores: Discount stores represent the original store concept. Wal-Mart discount stores
are discount department stores with sizes between 5,000sqm and 20,000sqm. In those stores,
general merchandise like clothes, toys and decoration is sold beside a selection of groceries. Many
of the stores offer additional services and products like outdoor equipment, pharmacies or bank
branches.
Wal-Mart Supercenters: Wal-Mart Supercenters are hypermarkets with sizes between 9,000sqm
and 25,000sqm. More than half of the supercenter building is devoted to general merchandise
sales. Garden centers are often placed beside the store. Only around 20% of the total floor area
sells groceries, including fresh produce and meat. In most centers, food service areas and various
service stores, including banks, vision centers, pharmacies and salons, are found at the front of the
store.
3
Walmart annual report 2012
4
http://vinodp.com/documents/investing/Wal-MartValuation.pdf
5
http://www.walmartstores.com/AboutUs/7603.aspx
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
Neighborhood Stores: Neighborhood stores serve as smaller stores to fit in the already saturated
market. The Neighborhood stores have an average size of 4,000sqm and offer a limited assortment
of general merchandise but a full supermarket. The stores are located in smaller cities and in rural
areas.
Marketside: An even smaller format is the Marketside store format. It is currently only present in
Arizona and offering just groceries. The brand Marketside is also used for many of the own brands
of the Wal-Mart corporation.
Wal-Mart Express: Wal-Mart Express is a concept faced on small towns or cities where either
purchasing power or space is limited. It offers a reduced assortment of groceries.
Supermercado de Wal-Mart: This store format can be found near Hispanic communities. It is
built like one of the neighborhood stores, but offers many Hispanic products, which are not sold in
general Wal-Mart stores.
Sam’s Club: Wal-Mart is operating Sam’s Club, which has a particular business concept. Sam’s
Club sells groceries and merchandise in large quantities in a membership club to customers and
small business. Membership has to be bought either on a daily or yearly basis. The business model
found a niche as a supplier for small businesses. The stores open early and provide products such
as office equipment and restaurant interior in addition to groceries and merchandise.
The company has and will keep a number of competitive advantages on the US retail market.
1. Economies of scale: Wal-Mart is by far the biggest retailer in the US. This is the basis for
the sustainability of Wal-Mart’s US business. The size alone results in many advantages
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
such as bargaining power, which allows Wal-Mart to purchase its goods at a lower cost
compared to other retailers.
2. Non union workforce keeps employee costs lower compared to other grocery chains that
compete with Wal-Mart.
3. A highly efficient and innovative IT and logistic system gives an advantage over the
competitors. It keeps costs down and allows running the operations smoothly.
All the above mentioned advantages enable Wal-Mart to offer lower prices to its customers, which
serves as a significant barrier to competitors seeking to compete on basis of price. This creates a
virtuous feedback loop where low costs attract more customers, which increases its ability to
negotiate lower prices and process efficiencies from its suppliers, which leads to lower prices and
more customers.
3 International Operation
Wal-Mart is present in 26 countries around the world,
covering all continents except Australia.
3.1 Mexico
Mexico is by far Wal-Mart’s largest foreign presence, and the
Latin American market makes up for almost 60% of Wal-
Mart’s international business.6 7 Figure 2: Wal-Mart Worldwide presence
Wal-Mart started its international operations in 1991 with its entry into Mexico. The company
entered Mexico through a joint venture with the Cifra group, a leading Mexican retailer. Wal-Mart
later consolidated its position in Mexico by acquiring a major stake in Cifra. Because there are
significant income and cultural differences between the US market and the Mexican market, Wal-
Mart saw a high risk in a wholly-owned subsidiary and chose the way of a Joint venture. Wal-Mart
wanted to learn the specific needs of the Mexican market and tailored its operations to the local
market requirements and overcome the startup difficulties.8
6
Walmart Fact Sheet Mexico
7
http://www.globalpost.com/dispatch/news/regions/americas/mexico/120424/wal-marts-international-reach-
infographic
8
http://www.gurufocus.com/news/129746/the-international-business-of-walmart
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
In Mexico, Wal-Mart is operating under the name of WalMex and offers several different store
formats:
• Discount stores and Discount warehouses, similar to the Discount stores in the US. They
offer basic merchandise, food and household items at discount prices under different store
formats like Bodega Aurrera, Despensa Familiar, Maxi Bodega and Maxi Pali.
• Hypermarkets, similar to the Supercenters, which operate under the Wal-Mart brand.
• Clubs, which are supermarkets that are similar to the Sam’s Club concept, offering large
quantities of goods.
• Apparel, which distributes and sells apparel and accessories for women, men and children
through a network of stores, which operate under the Suburbia name9.
9
http://topics.nytimes.com/topics/news/business/companies/wal-mart-de-mexico-sab-de-cv/index.html
10
http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-
silenced.html?_r=1&ref=walmartdemexicosabdecv
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
realized by new store concepts like suburban ASDA, home Figure 4: ASDA market share in the UK
3.3 Canada
Canada has been one of Wal-Mart’s most successful international expansions. It entered the
market through the purchase of Woolco stores in 1994. Wal-Mart renovated the stores, upgraded
the distribution systems and was able to deliver the same low prices it did in the U.S. Wal-Mart is
operating under the name Wal-Mart in Canada and offering Discount stores as well as
11
Walmart Fact UK
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
supercentres. The supercenters were first introduced in 2006 and were a great success. Wal-Mart
managed to increase Woolco’s market share from 15% to nearly 50% market share in their target
segment.12
3.4 Brazil
Wal-Mart Brazil began its operations in 1995 with two supercenters and three Sam’s Clubs in the
state of São Paulo. Since then, the company has become the third largest retailer in Brazil. The
company did not only grow in an organic way, it also conducted two big acquisitions: Bompreço’s
118 stores in the northeast region of Brazil and Sonae’s 140 stores in the south region. With these
acquisitions, Wal-Mart Brazil grew from a two brand company to a nine brand company and
added many different store formats to its portfolio.
Wal-Mart is offering its Supercenter and Sam’s Club format in the well developed cities. It is
using the smaller neighborhood concept gained through the acquisitions in the rural areas of the
country to serve the population with an even lower income. Still large portions of the population
continue to buy from street vendors and other small untaxed businesses. But with an increasing
income the Brazil market offers many opportunities for Wal-Mart.13
12
Walmart Fact Sheet Canada
13
Walmart Fact Sheet Brazil
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
offering Wal-Mart supercenters in the developed cities and many smaller stores under the prior
local name in the countryside and rural area.14
3.7 Africa
In 2011, Wal-Mart acquired a majority stake in Massmart Holdings Limited. The brand is offering
general merchandise, home improvement equipment and supplies. The group runs several
wholesale and retail chains in one big buying group. Wal-Mart now has access to 13 Sub-Saharan
African countries. The group is offering its products in the known store formats: Supermarkets,
Hypermarkets, Discount stores, Cash and Carries and neighborhood stores.16
3.8 China
The retail operations of Wal-Mart in China started in 1996, offering Supercenter and Sam’s Club
shops. Neighborhood markets soon followed. In 2007, Wal-Mart China invested in the
hypermarket chain Trust-Mart pushing the concept of large retail units in well developed areas of
the country. The operation is a JV with a Chinese partner due to legal restrictions.17
3.9 India
In 2007, Wal-Mart started a joint venture with Barthi Enterprise in India offering a wholesale cash
and carry with a back-end supply chain. Due to legal restrictions and the purchase behavior of the
Indian population, this was is at the time the only possibility to step into the growing market.18
14
Walmart Fact Sheet Mexico
15
Walmart Fact Sheet Argentina
16
Walmart Fact Sheet SubSahara Africa
17
Walmart Fact Sheet China
18
Walmart Fact Sheet India
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
Mexico, being on the south border of the US, was developed by a joint venture (JV) first. Later it
was completely consolidated. They decided on the JV to reduce the risk on a market that was
different to the home market. After first positive experiences and adjustments to the portfolio and
store design in Mexico, Wal-Mart further increased their involvement on the Central and South
American market. The market potential in China was seen very early and the first investments
have been made in 1996.
In the mid 90ies Wal-Mart tried to enter Europe. Germany was chosen as a stable market and to
serve as Bridgehead to the rest of Europe and Eastern Europe. The stability of the German market
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
was important to balance the risky investments in China, Brazil and Korea at that time. The
entrance was done by full acquisition and failed due to several reasons, among them cultural
differences and competition. The German investment was followed by the entrance on UK market
to increase market presence on stable and big markets in Europe.
In recent years, Wal-Mart has further increased their market presence in Central and South
America, regions in which they have been successful for many years now. To ensure presence on
all emerging markets, Wal-Mart has started a JV in India in 2007. In 2011, Wal-Mart also entered
the Sub-Saharan, African market with a big acquisition.19
19
Wal-Mart Stores, Inc. Data Sheet - Worldwide Unit Details January 2012
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
In South Korea Wal-Mart failed because it retained to Western marketing strategies that
concentrated on dry goods and merchandise ranging from electronics to clothing, while their local
rivals focused on food and beverages, a segment that attracts South Koreans to hypermarkets. The
Wal-Mart outlets were simpler in appearance than those of other competitors. Wal-Mart tried to
sell its products by the box, while competitors built eye-catching displays and hired clerks who
hawked their goods with megaphones and hand-clapping.
As for the main reason for Wal-Mart’s failure on the Germany market, one can say that they were
not able to draw a competitive advantage from their low price strategy. Due to the high
competition, many other companies have used a similar low price strategy. In addition, Wal-Mart
did not consider any cultural differences, neither for the employees or their customers.20
As a critical review on all international activities, one can conclude that Wal-Mart was successful
whenever the market was similar to their home market in the US or they had a partner on their side
and could learn the cultural singularities from the partner. Every time they tried to enter a new,
different market on their own, they failed.
6. Critical review
The basis and the core business of Wal-Mart still is the US market. The core business in the home
market has been unchanged for the past 20 years and is likely to remain so for the foreseeable
future. It is unlikely that any competitor can challenge Wal-Mart for dominance in low costs as
well customer reach within the near future. With stable sales of around $300bn from a home
market, the expansion policy is laid on a solid foundation.
The current country portfolio covers almost all continents and markets. It includes saturated,
growing and emerging markets. The risks being involved in emerging and growing markets are
insignificant compared to the total sales figures. The last expansions made in the growing South
American market are investments in a “known” market, since the company can build on previous
experience and success in the region.
Growing into new markets and regions, Wal-Mart’s strategy had been to acquire companies and to
integrate and convert them into the Wal-Mart stores. It has to be considered that European retailers
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
like Carrefour and Ahold, have more than 20 years more of international experience, since Wal-
Mart started only in the 90’s to internationalize.
Wal-Mart must be careful about the speed and the number of acquisitions they make. They grew
very fast in the recent years and must ensure that the integration and conversion of those chains
into the Wal-Mart group and system works out.
7. Further improvement
Early market entrants seem to have an advantage, but also often make costly initial mistakes,
making life easier for disposed second-wave competitors. Having the market power and capital, it
could be helpful for Wal-Mart not to be present on every market from the beginning. They can
concentrate on their current markets and carefully observe the “new” markets. If the new markets
turn out to be stable, Wal-Mart can enter the markets via acquisition.
21
http://retailsails.com/monthly-sales-summary/wmt/annual/
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
Successful market entry involves more than just finding available real estate or a local partner. The
brands and the strategy must fit markets. In its internationalization strategies Wal-Mart has to
consider more features to focus on for competitive advantage. Cost leadership is not the only
success factor as many other retailers also focus on this point.
As Wal-Mart sees emerging markets as a significant source of growth, it could expand into Russia
as Russia makes a perfect target for Wal-Mart because of its economic progress in recent years.
Australia would be another perfect market for Wal-Mart as Australia has had one of the most
outstanding economies of the world in recent years. Also, the Australian culture has the same
Anglo-Saxon roots.
The cultural value is the main factor that influences the success of a market entry on an
international basis. Wal-Mart has to realize and analyze the countries’ singularities and adjust its
strategy and business operations accordingly. If they do so, Wal-Mart has the market power and
size to keep and increase their number one position in the world.
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Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
Works cited
Page IV
Case Study – Prof. Dr. Morschett Dominik Jäkle
MBA Course - Retailing and Logistics
Table of Figures
Page V
Case Study – Prof. Dr. Morschett Dominik Jäkle