Wal-Mart Stores Discount Operations

Batch 2 PGP, UAE

Introduction
Sam Walton Man behind Wal Mart Major Areas Discounting accounts for 91% of the sales in 1985 and 96% of sales from pretax profits Analyst opinion Wal Mart would overtake competitor K Mart but remain divided over stock Case Analysis Overview about Discount Retailing and the distinctive features of discount operations in Wal Mart and the areas of diversification in mid 80s

Discount Retailing
Emerged in US in mid 1950s

Sold merchandise by charging gross margins that were 10 15% lower than conventional departmental stores
Costs are compensated in unluxurious fixtures, scarce ancillary services Discounters sales grew from $2 billion in 1960 to $68 in 1985 (expected to climb to $98 billion dollar in 2000) Too many players had gotten into discount Retailing at local and National Level During 70s number of stores increases by 64% and sales by 144%, but in 1985 there was a net increase of just 8% in the number of stores

Purchasing and Distribution

Centralized purchasing Orders for most SKUs are not based on centralized sales forecast

Vendor s (3000) In-store Terminals Merchandise requests Central Computer Distribution Center

Stockin g Levels

Low

Reorder Merchandise

Purchasing and Distribution Contd.

Walmart took no more than a fifth of its volume from any one vendor. In 1985, no vendor accounted for more than 2.8% of company`s total purchases Distribution centers were opened to serve stores with in radius ranging from 250-400 miles Cost of inbound logistics had averaged 2% of sales. Savings fed directly into gross margins. Rapid Expansions had nudged these costs upwards.

Store Operations
All but 47 out of 859 stores leased, with a tenure of 5 to 15 years Store Hours 12 hours( 9 AM to 9PM), 7 days a week 36 merchandise departments, with considerable autonomy of store managers in allocating spaces, setting up displays and ordering stocks 29% of sales on soft goods which constituted 35% of industry, was less emphasized compared to 28% of sales on hard goods which constituted 29% of the industry Other important product category were: stationary and candy, sporting goods and toys, health and beauty aids, gifts, records and electronics, shoes, pharmaceuticals and jewelry. Included 70,000 SKUs, with an average of 35,000 SKUs, for which number increased with store size Continuous technological up gradation like computerized system to track inventory(1971), satellite network (1986), electronic scanning of the UPC

Marketing
Wal Mart marketing theme We sell for Less, which people could connect Branded merchandise, nationally advertised accounted for majority(95%) Consumer shopped for price-sensitive goods categories of health and beauty aids, house wares and appliances More latitude in setting prices Wal Mart promotional strategy philosophy Everyday low prices with 13 promotions per year with 10 - 20% reduction in prices compared to everyday prices Heavy promotional activities and advertising at introductory phase in a market and then would back out Increased diversification across communities served by computer aided program

Human Resource Management

Over 1 lakh employees at the end of 1985 None unionized Managers wore buttons said we care About our people Employees polled for their views on what merchandise to include and how to display it Incentives profit sharing, Employee stock options Tangible program dealt with shrinkage shoplifting

Wal - Mart was named one of the 100 best companies to work in US
Salary and wage expenses accounted for roughly 11.5 % of sales in 1970`s declined to 10.1% by 1985. Capital investments like UPC Scanning were one of the major reasons for drop

Administration

Emphasized Frugality Corporate offices were cramped High emphasis on communication with in the company Daily collection of data and weekly performance reviews to discuss the week`s results and settle on directions for the coming weeks

Sam Walton continued to play very active role

Diversification

1983-84 3 new ventures : dot Discount Drug, Helen`s Arts and Crafts, and Sam`s wholesale clubs. By the end of 1985 2 dots and 3 Helen`s had been opened Analysts did not think that dots would significantly contribute to investment, sales or earnings in the coming decade Analysts excited in Sam`s a warehouse club High turnovers, located in areas with populations 400k-500k Target : owners of small businesses and low risk group of individual customers Only 2 companies had yet seen return on investment : price company and Sam`s By 1985 Sam`s had built up a national presence than any of its competitors. Projections for Sam`s : By 1990 : locations would expand to 100, sales to $6.5 billion, and its pretax income to $260 million

Key Strategies
Locate Stores in isolated rural areas and small towns( 5000 25000 population) Pattern of expansion : Inside Out 1/3rd of the locations were placed where there was no competition in mid 1980s

Problem Statement
Not clear whether 2 or more competitors can exist profitably in a single market, or how severely profitability is affected Year on year growth in net income has not kept in pace with year on year growth in sales. People perception: Shopped for price sensitive categories of Health and beauty aids, house wares and appliances. Not influenced by it in apparel, hardware and consumer electronics.