WAL-MARTS 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

Their strategy was to established discount stores in small towns and capturing significant market share.

MARKETS OF WALMART (2003)

o Total Sale of Wal-mart o Total Retail Area o Total Employers

US $ 313 Billion 663 Million Sq.ft. 1700,000

SALES & INCOME GROWTH (PAST 12 MONTH)

COMPANY

INDUSTRY

SALES GROWTH

12.00%

11.50%

INCOME GROWTH

5.20%

5.90%

WAL-MART TODAY
Operates 6,500 stores in 15 countries Serves more than 176 million customers around

the globe Employs 1.8 million worldwide Saves the average American household more than $2,300 per year

1960s..

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-Marts products were usually priced 20% lower than its competitors

Wal-Marts 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. Its not a sale; its 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

1970s.

 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 fullyautomated distribution center

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 days 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

1980s..

Maintaining cost through re-investment

In 1983, Wal-Mart ventured into the membership club business called Sams 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

1990s..

Contd
Supercenters and Sams club were more focused to fuel the growth In 1994, Wal-Mart bought 99 Pace membership warehouses

Wal-Marts store count (1991-2003)

Format________ year
1991
1992 1993 1994 1995

Discount Sams club stores

1573
1720 1850 1953 1990

Super center
3
6 30 68 143

Neighbourhood markets
-

148
208 256 419 428

1996
1997 1998 1999 2000 2001

1995
1960 1921 1869 1801 1736

433
436 443 564 721 888

219
344 441 451 463 475

1 1 7 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

AND THE RESULTS WERE Good.

Amount of inventory reduced by an estimated $ 2 billion Savings of $ 150 million on interest cost were generated

2000s..

 Wal-Mart launched a programme called Store of the community Global Sourcing was initiated (2002)

Wal-Marts suBsidiaries

Discount stores

Neighbourhood market

Sams Club

Super center

Yearly sales Total employees across the globe (approximately)

$244.5 billion 1.3 million

Number of stores worldwide

Number of new stores opened in 2003 (worldwide) Total number of suppliers Wal-Marts rank/position among all retailers across the globe (in terms of sales) Number of pallets shipped by Wal-Mart truck every week (2002) Total occupied floor area of Wal-Mart (2002) Yearly advertising expenditure (2002)

4,688
274 65,000 1 50 million 18.3 square miles $498 million

Highest one-day sales record till date (November 28, 2003)

Number of customers every week at Wal-Mart stores worldwide (approximately) Estimated market capitalization of Wal-Mart in 2020 Source : Wal-Mart Annual Report 2003

$1.52 billion
138 million $11.1 trillion

Revenue (%) of the major consumer goods companies in the US through Wal-Mart
Company P&G Tandy Brands Accessories RJR Tobacco Dials Del Monte Foods Clorox Revlons % Share (As a % of total sales) 17 % 39 % 20 % 28 24 % 23 % 23 %

Source : BusinessWeek, October 2003

BCG analysis

SWOT ANALYSIS

Strength Efficient supply chain management Service innovation and technology Growth through adaptability. Least cost of packaging Efficient Inventory management Strong penetration strategies Infrastructure (financial strength)

Weakness Late entrant in international market. Unable to adapt to different countries Strict labor laws Were unable to handle media High law suits against the company. Low penetration in European union

Opportunity Many countries are still left Unorganized retail Cold Storage market Increase in consumer purchasing power Emergence of E-business Unemployment

Threats Competitors Negative publicity International laws against anti dumping Campaign against anti competitive practices

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