Corporate Strategy

Case Study:
Wal-Mart Stores Discount Operations

Company Background

Discount stores emerged in US in mid 50s

Wal-Mart stores was incorporated in 1969
By 1970 Walton expanded his chain to 30 discount stores.
In just 40 years Wal Mart stretched its roots to small towns
with population less than 50,000 in Arkansas to become the
largest retailer in the world
After 1970 Wal-Mart's discount operations multiplied, by end
1985 they had 859 discount stores
Wal-Mart's strategy was primarily built on local focus and a
compelling example of a company that has dominated both its
original market and neighboring ones to wherever it expands.
Sam Walton had the insight

Stores
Net Income

1970
30
16 Million

1985
859
328 Million

Industry
Attractiveness

Threat of New Entrants: Medium

Margins are Low
Industry growth is slow.
Entry & Exit barriers are high.
Grocers could potentially enter into the retail side.

Industry
Attractiveness

Bargaining Power of Buyers: Low

Individual buyer has very little bargaining power
Consumer advocate groups have complained about Wal-Marts
pricing techniques.
Consumer could shop at a competitor who offers at times
comparable products at comparable prices, but the convenience is
lost.
Bargaining Power of Suppliers: Low
Huge Volume business resulting in low bargaining power for
suppliers.
Wal-Mart could vertically integrate.
Wal-Mart does deal with some large suppliers like Proctor & Gamble,
Coca-Cola who have more bargaining power than small suppliers.

Industry
Attractiveness

Substitute Products: Low

Not many substitutes that offer
convenience and low pricing.
The customer has the choice of going to
many specialty stores to get their desired
products but are not going to find WalMarts low pricing.

Competitive
Advantage

Cost efficiencies arising from purchases from

vendors, low distribution costs, efficient inventory
management due to Information Technology
integration and effective communication network
Location of Wal-Marts stores More than half
of their stores were located in towns with
populations between 5000 to 25000 and not
served by any competitors, thus providing barrier
to entry to other stores and commanding higher
sales 10%-20% of total retail sales

Competitive
Advantage

Low cost of purchases from vendors Wal-Mart used to bargain very hard
with the vendors and thus purchase costs were low. Also Wal-Mart took no
more than 1/5th of its volume from one vendor and no vendor accounted for
more than 2.8% of the total purchases. This resulted in low bargaining
power of vendors.
Low Distribution costs and increased responsiveness 80% of the inbound
merchandise was passed through the hub-and-spoke distribution
network which utilized cross docking, catered to multiple stores
requirements reducing delivery times and transportation costs. Wal-Marts
cost of inbound logistics was 2% of sales which was half the industry
average
Wal-Mart Difference: The geographic concentration allows Wal-Mart to get
lower distribution costs, lower supervisory costs, and lower advertising costs.

Competitive
Advantage

Wal Mart had centralized purchasing. Used instore sales forecasts. Stores were closely
packed together in a geographic area so
distribution was more efficient. One truck
could resupply two or three stores on a single
trip. Trucking back hauls had 60% occupancy
better than industry average

Generic Strategy of Wal-Mart

Locating the stores in such a way that it is easier for people to

reach and where there is high population base. This was the
strategy taken for growth in spite of the competition they faced
in those areas.
Had their own warehouse where they could buy goods in huge
volume, store the merchandise and hence sell it for attractive
prices
Company was taken public when it seemed to increase the
running cost
Centralized purchasing system. They used in-store terminals to
wire merchandise requests to a central computer. They never
filled out-of-stock areas with different merchandise.
Wide distribution of vendors which gave them huge bargaining
power
Had many distribution centers to do on-time delivery to

Generic Strategy of Wal-Mart

Some of the stores were given for lease in-order to cut down on
rentals
The distribution of merchandise in Wal-Mart stores where based
on customer needs and preferences and fast moving goods.
Computerized system to track inventory and perform
accounting functions
Strategy of price-sensitivity. Charge lower prices where
competitors are spread. Charge comparatively higher prices
where Wal-Mart is the sole retailer.
Not much importance was given to promotion through
advertising during the initial years. Advertising through
circulars, newspapers & spot TV had been done later on.
Save money through more of Cash & Carry than credit
transactions
No unionization of employees in Wal-Mart.

What Should Wal-Mart do?

Enter markets not served by competitors

Enter markets with lower population to capture the market
Stay Competitive in terms of price
Emphasis on human resource management
Get into Sams Wholesale Club

Sams wholesale club

Yes, Wal-Mart should get into Sams wholesale club as this

brings in a differentiation
Exciting retail format with significant volumes to tap and
noteworthy sales to be generated
Can leverage on Wal-Marts existing infrastructure and supply
chain operations
Although there is immense competition and close to 100
metropolitan areas in the US, Wal- Marts competitive
advantages can be leveraged to gain leadership position