Professional Documents
Culture Documents
Stores
Product & Marketing Low price-cost margins with 91% of products priced below market average
Low advertising expenses at 1.5% of sales compared to 2.1% of direct competitors
Merchandise tailored to individual markets
Strategies Always low prices---Always
Low Inventory turnover since store managers priced products to meet local demand and rental expense lower than
Operations direct competitors at 3% of sales
Only 10% inventory footage compared to industry average of 25% and operating expense were 18% of discount store
sales versus industry average of 24.6%
Strategies A hub and spoke distribution strategy with the Introduction of Cross Docking ensured Walmarts cost of inbound
logistics to be only 3.7% compared to 4.8% of competitors
Spent over $700 million to set up satellite communications network, computers and related network used for credit
card authorizations, video transmissions and inventory control
R&D Strategies Analysis of sales data collected through the satellite helped store managers avoid overstocking and deep discounting
Installation of UPC two years ahead of Kmart to ensure accurate pricing and improve efficiency
Employed 52800 full and part time staff consisting of 30% part time employees
Organization & Incentive Compensation based on store profits for store managers and rotation policy of assistant managers to meet
companys growth demand
Control Strategies Associate stock ownership plans
Glass emphasized on a frugality and since Walmart didnt have regional offices it saved the company 2% of its sales
Competitive Strategy
Analysis
Activity Analysis- Value Chain
Support Activities
Technology Development Use of UPC, EDI lead to lower inventory costs and increased sales
despite higher expenses
Higher bargaining power over suppliers
Procurement Sharing expectations from suppliers & soliciting recommendations for better performance
Test of durability- Medium: Wal-Mart possesses a strong and durable brand image with a robust IT system to support store operations and other
value chain processes.
Test of appropriability High: Wal-Mart has a centralised value system with decentralised operations. It maintained a strong attitude with vendors
and distributors, while providing information to them for performance improvements. Though suppliers, consumers, distributors etc. had minimal
control, strong strategic partnerships were established.
Test of Substitutability-Medium: Several discount store chains existed and could substitute Wal- Mart but their Operational Expenses were much
higher and Sales were quite low compared to Wal- Mart.
Test of competitive superiority -High:Wal- Mart has the lowest operating expenses and highest operating income in the industry. Apart from this, the
stores are large in number and spread out across geographies
By Analysing these factors It can be inferred that Wal-Mart's competitive advantage is sustainable
SuperCenter chain Industry analysis
Threat of
new entrants
Overall (3.15)
Attractiveness -2.8
Industry
Suppliers Rivalry Buyers
(2.6) (3.0) (2.35)
Substitutes
(3.1)
Challenges for SuperCenters
Numerous substitutes and Competitors - Supermarkets, Independent food stores, discount retailers and warehouse
clubs
Ability of supermarkets to undercut small markets was reduced by 1-2% margins on which the industry operated.
All the competitors from Discount retail industry are also expanding in Supercenter industry
Existing grocery-store chains were defending market share and expanding aggressively Ex. Krogers IT investment
of 300 million USD
Most chains had private label brands, which carried higher margins and also priced lower than name brands
Will Wal-Mart succeed in this format?
Limited scope of Value creation with already low Operating margins
May lead to cannibalization of Sams clubs as well as discount stores; Value added by supercenters should
compensate this loss
Walmart can leverage its technical expertise and distribution strategies to reduce operational inefficiencies to
become more profitable
Overall, Wal-mart may succeed in this format but would be difficult in current scenario to reach its scale and
profitability of discount retail industry.
Transferable benefits in
Leverage superior technology in running store processes
Internationalization
Implement easy-to-adopt IT technology methods
Technology