Sam’s Clubs GLOBAL INDUSTRY ANALYSIS - CASE STUDY Wal*Mart Stores, Inc. a presentation Anthony, Crystal, Sandy From YZU university

WAL  MART Background Sam Walton Founder of Wal*Mart Stores, Inc. Performance of Wal*Mart 20-year average return on equity of 33% Compound average sales growth of 35% Market value = $57.5 billion Wal*Mart Industry average Sales per square foot $300 $210

Sam Walton

Founder of Wal*Mart Stores, Inc.

Performance of Wal*Mart

20-year average return on equity of 33%

Compound average sales growth of 35%

Market value = $57.5 billion

$210

WAL  MART Background Year 1988 CEO: David Glass COO: Don Soderquist How to sustain the company’s phenomenal performance? 1987 1993 Net sales 15,959 67,345 Net Income 628 2,333 Number Of Stores Discount Stores 1,114 1,953 Sam’s Wholesale Clubs 84 419 Supercenters N.A. 68

Year 1988

CEO: David Glass

COO: Don Soderquist

How to sustain the company’s phenomenal performance?

WAL  MART Background Number of Stores (1994)

WAL  MART Discount Retailing Where Emerged in the U.S. When Mid-1950s Top 10 discounters in 1962 Wal*Mart remained only The industry became more concentrated Discount store companies operated 5 or more stores accounted for 62%

Where

Emerged in the U.S.

When

Mid-1950s

Top 10 discounters in 1962

Wal*Mart remained only

The industry became more concentrated

Discount store companies operated 5 or more stores accounted for 62%

WAL  MART Discount Retailing

WAL  MART Discount Retailing Comparative Pricing Study, 1993

WAL  MART Discount Retailing Overall Performance of Discounters

WAL  MART Wal*Mart’s Discount Stores and History of Growth Year 1945 Ben Franklin franchise store In 1950s 15 stores Year 1962 Wal*Mart Discount City store Year 1969 18 Wal*Mart stores 15 Ben Franklin franchise stores

Year 1945

Ben Franklin franchise store

In 1950s

15 stores

Year 1962

Wal*Mart Discount City store

Year 1969

18 Wal*Mart stores

15 Ben Franklin franchise stores

WAL  MART Wal*Mart’s Discount Stores and History of Growth Year 1970 30 discount stores in rural states South and Midwest Cost of good sold Build its own warehouse Buy in volume at attractive prices Store the merchandise Year 1972 Took the company public Raised $3.3 million

Year 1970

30 discount stores in rural states

South and Midwest

Cost of good sold

Build its own warehouse

Buy in volume at attractive prices

Store the merchandise

Year 1972

Took the company public

Raised $3.3 million

WAL  MART Wal*Mart’s Discount Stores and History of Growth Year 1993 West coast and northeastern states Year 1994 Operated in 47 states

Year 1993

West coast and northeastern states

Year 1994

Operated in 47 states

WAL  MART Wal*Mart’s Discount Stores and History of Growth Key strategies for growing Locate store in isolated rural areas and small towns (population 5000~25000) Pattern of expansion Always push from inside out Mid-1980s One third were located in areas that were not served by any of its competitors

Key strategies for growing

Locate store in isolated rural areas and small towns (population 5000~25000)

Pattern of expansion

Always push from inside out

Mid-1980s

One third were located in areas that were not served by any of its competitors

WAL  MART Wal*Mart’s Discount Stores and History of Growth Year 1993 Wal*Mart faced 55% (Kmart), 23% (Target) Kmart 82%, Target 85% from Wal*Mart

Year 1993

Wal*Mart faced 55% (Kmart), 23% (Target)

Kmart 82%, Target 85% from Wal*Mart

WAL  MART Wal*Mart’s Discount Stores and Sam’s Legacy Philosophy Keep prices below everybody else Trip expenses can’t exceed 1% of the purchases Spent lots of time in his own store and observe competitors Culture Do not show off buying luxury goods Success The way it treated its associates

Philosophy

Keep prices below everybody else

Trip expenses can’t exceed 1% of the purchases

Spent lots of time in his own store and observe competitors

Culture

Do not show off buying luxury goods

Success

The way it treated its associates

WAL  MART Wal*Mart’s Discount Stores and Sam’s Legacy Management style Maintain an open-door policy Empowering associates Maintain technology superiority Build loyalty among associates, customers, and suppliers

Management style

Maintain an open-door policy

Empowering associates

Maintain technology superiority

Build loyalty among associates, customers, and suppliers

WAL  MART Wal*Mart’s Discount Stores and Merchandising Tailor to individual market or individual store Information system A process which indexed product movements in the store to over a thousand store and market traits Using inventory and sales data

Tailor to individual market or individual store

Information system

A process which indexed product movements in the store to over a thousand store and market traits

Using inventory and sales data

WAL  MART Wal*Mart’s Discount Stores and Merchandising Promotional strategy Everyday-low-prices Few promotions 13 major circulars per year 1993 Satisfaction guaranteed policy

Promotional strategy

Everyday-low-prices

Few promotions

13 major circulars per year

1993

Satisfaction guaranteed policy

WAL  MART Wal*Mart’s Discount Stores and Merchandising Marketing slogan Lower price Store managers set up prices 2-4% pricing differential between Wal*Mart and its best competitors in most markets in early 1990s

Marketing slogan

Lower price

Store managers set up prices

2-4% pricing differential between Wal*Mart and its best competitors in most markets in early 1990s

Transportation cost 圖

Transportation cost 圖

WAL  MART Wal*Mart’s Discount Stores and Merchandising National brand strategy Private label apparel 25% of apparel sales Other private label 26% price advantage Also sold in Sam’s Clubs and supercenters “ Buy American” program

National brand strategy

Private label apparel

25% of apparel sales

Other private label

26% price advantage

Also sold in Sam’s Clubs and supercenters

“ Buy American” program

WAL  MART Wal*Mart’s Discount Stores and SWOT Analysis Strength Weakness Cost advantage Low price & customer-oriented Strong supply chain People are key to success Ignore store decoration Since Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors. Opportunity Threat Build its own brand Put efforts on social welfare  better image New locations and store types Overseas markets Other competitors Intense price competition

Cost advantage

Low price & customer-oriented

Strong supply chain

People are key to success

Ignore store decoration

Since Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

Build its own brand

Put efforts on social welfare  better image

New locations and store types

Overseas markets

Other competitors

Intense price competition

WAL  MART Wal*Mart’s Discount Stores and Store Operation

WAL  MART Wal*Mart’s Discount Stores and Store Operation

WAL  MART Wal*Mart’s Discount Stores and Store Operation Electronic scanning of uniform product code (UPC) at the POS Ensure accurate pricing Improve efficiency Reduce Shrinkage Improve communications

Electronic scanning of uniform product code (UPC) at the POS

Ensure accurate pricing

Improve efficiency

Reduce Shrinkage

Improve communications

WAL  MART Wal*Mart’s Discount Stores and Store Operation Satellite system Data collected and analyzed Observing Merchandise flow, overstock, discount Video transmissions, credit card authorizations, and inventory control

Satellite system

Data collected and analyzed

Observing Merchandise flow, overstock, discount

Video transmissions, credit card authorizations, and inventory control

WAL  MART Wal*Mart’s Discount Stores and Distribution Phenomenal distribution network Two step hub-and-spoke

Phenomenal distribution network

Two step hub-and-spoke

WAL  MART Wal*Mart’s Discount Stores and Distribution Phenomenal distribution network Cross-docking technique

Phenomenal distribution network

Cross-docking technique

WAL  MART Wal*Mart’s Discount Stores and Distribution Phenomenal distribution network Distribution center Cost advantage Stable price

Phenomenal distribution network

Distribution center

Cost advantage

Stable price

WAL  MART Wal*Mart’s Discount Stores and Distribution Phenomenal distribution network Computerized pick to light system

Phenomenal distribution network

Computerized pick to light system

WAL  MART Wal*Mart’s Discount Stores and Distribution

WAL  MART Wal*Mart’s Discount Stores and Vendor Relationships Backward integration No nonsense negotiator Economies of scale Maintain long term relationship with supplier, as powerful partner (RSP)

Backward integration

No nonsense negotiator

Economies of scale

Maintain long term relationship with supplier, as powerful partner (RSP)

WAL  MART Wal*Mart’s Discount Stores and Vendor Relationships

WAL  MART Wal*Mart’s Discount Stores and Vendor Relationships Backward integration Electronic data interchange (EDI) CPFR Forecasting Planning Replenishing Shipping applications

Backward integration

Electronic data interchange (EDI)

CPFR

Forecasting

Planning

Replenishing

Shipping applications

The CPFR Process Buyer Seller FRONT END AGREEMENT JOINT BUSINESS PLAN Collaborative Planning CREATE SALES FORECAST IDENTIFY EXCEPTIONS RESOLVE EXCEPTIONS Collaborative Forecasting CREATE ORDER FORECAST IDENTIFY EXCEPTIONS RESOLVE EXCEPTIONS Collaborative Replenishment GENERATE ORDER

WAL  MART Wal*Mart’s Discount Stores and Vendor Relationships Backward integration Vendor-managed inventory (VMI) system Wrangler GE

Backward integration

Vendor-managed inventory (VMI) system

Wrangler

GE

WAL  MART Wal*Mart’s Discount Stores and Vendor Relationships Backward integration From EDI to Retail link

Backward integration

From EDI to Retail link

WAL  MART Wal*Mart’s Discount Stores and Vendor Relationships Whole Supply chain Economies of scale Cost leadership competitive advantage JIT inventor POS and retail link CRS & VMI EDI CPFR

Whole Supply chain

Economies of scale

Cost leadership competitive advantage

JIT inventor

POS and retail link

CRS & VMI

EDI

CPFR

WAL  MART Wal*Mart’s Discount Stores and Human Resource Management Non-unionized Decentralized: full autonomy Profit sharing program Yes we can Sam Store within store Shrink incentive Stock sharing Administrative style Frugality No hierarchy in organization

Non-unionized

Decentralized: full autonomy

Profit sharing program

Yes we can Sam

Store within store

Shrink incentive

Stock sharing

Administrative style

Frugality

No hierarchy in organization

WAL  MART Wal*Mart’s Discount Stores and Value Chain Non-unionized, Full autonomy to associates, Decentralized, profit sharing program, Job rotation, Stock purchase plan UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite system, CPFR Maintain long-term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy Inferior fixtures standardization, Trucks, Average store size 84,000 square feat Everyday low price Always low price, always Self service Cash and carry Save money, live better credit card, Layaway plan Outbound Logistics Marketing & Sales After Sales Service Inbound Logistics Primary Activities Firm Infrastructure Human Resource Management Technology Development Procurement VMI system Retail link EDI CPFR Six days a week(9~21) Monday (12:30~17:30) Two step hub and spoke distributing system ECR Satisfaction guarantee policy Quick response (QR) Operations Margin

Everyday low price

Always low price, always

Self service

Cash and carry

Save money, live better

credit card,

Layaway plan

VMI system

Retail link

EDI

CPFR

Six days a week(9~21) Monday (12:30~17:30)

Two step hub and spoke distributing system

ECR

Satisfaction guarantee policy

Quick response (QR)

WAL  MART Diversification Historical Time Series Wal*Mart opened the first three Sam’s clubs in 1983 Sam’s sales surpassed Price Club’s, making it the largest wholesale club in 1987 In 1987, Wal*Mart introduced its first supercenter In 1991, Wal*Mart acquired “The Wholesale Club” with 28 outlets in the Midwest

Historical Time Series

Wal*Mart opened the first three Sam’s clubs in 1983

Sam’s sales surpassed Price Club’s, making it the largest wholesale club in 1987

In 1987, Wal*Mart introduced its first supercenter

In 1991, Wal*Mart acquired “The Wholesale Club” with 28 outlets in the Midwest

WAL  MART Diversification In 1993, Sales at Sam’s Club rose 19.5% as the highest in national warehouse club chains, which Sam’s was nearly twice the size of Price Club Sam’s Club acquired 99 of Kmart’s 113 “Pace club” in 1993

In 1993, Sales at Sam’s Club rose 19.5% as the highest in national warehouse club chains, which Sam’s was nearly twice the size of Price Club

Sam’s Club acquired 99 of Kmart’s 113 “Pace club” in 1993

WAL  MART Diversification Comparison

WAL  MART Diversification Backward Integration Acquire “McLane Company” Texas retail grocery supplier To service both Sam’s Clubs and supercenters

Backward Integration

Acquire “McLane Company”

Texas retail grocery supplier

To service both Sam’s Clubs and supercenters

WAL  MART Diversification and Sam’s Clubs Warehouse clubs

Operating philosophy To offer a limited number of SKUs in pallet-size quantities in a no-frills, warehouse-type building Location Often locate next to a Wal*Mart Sam’s chose to cannibalize its own sales rather than give competitors any openings WAL  MART Diversification and Sam’s Clubs

Operating philosophy

To offer a limited number of SKUs in pallet-size quantities in a no-frills, warehouse-type building

Location

Often locate next to a Wal*Mart

Sam’s chose to cannibalize its own sales rather than give competitors any openings

WAL  MART Diversification and Sam’s Clubs Payment Discover card Cash- and-carry Membership Free $25 annually Business Hour Seven days a week Supply Direct shipment from supplier - 70% Company’s distribution centers - 30%

Payment

Discover card

Cash- and-carry

Membership Free

$25 annually

Business Hour

Seven days a week

Supply

Direct shipment from supplier - 70%

Company’s distribution centers - 30%

WAL  MART Diversification and Sam’s Clubs Top Warehouse Clubs by 1993

WAL  MART Diversification and Supercenters Motivation Operating margins within the industry were extremely low- a typical supermarkets was lucky to squeeze out a 2 % profit margin. Industry trend

Operating margins within the industry were extremely low- a typical supermarkets was lucky to squeeze out a 2 % profit margin.

Industry trend

WAL  MART Diversification and Supercenters Definition A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000 square feet in size It contains bakeries, delis and convenience shops

A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000 square feet in size

It contains bakeries, delis and convenience shops

WAL  MART Diversification and Supercenters Familiarity Low-price image Operating Philosophy

Familiarity

Low-price image

WAL  MART Diversification and Supercenters Layout

WAL  MART Diversification and Supercenters Staff 450 associates Full-time - 70% Part-time - 30%

450 associates

Full-time - 70%

Part-time - 30%

WAL  MART Diversification and Supercenters 24 hours Seven days a week

24 hours

Seven days a week

WAL  MART Diversification and Supercenters

1994, March Acquire 122 Woolco stores Woolworth Corp. WAL  MART Diversification and International Expansion

1994, March

Acquire 122 Woolco stores

Woolworth Corp.

Year 1992 Joint venture Cifra S.A. (Mexico’s largest retailer) 63 stores (22 Sam’s Clubs, 11 Wal*Mart supercenters) WAL  MART Diversification and International Expansion

Year 1992

Joint venture

Cifra S.A. (Mexico’s largest retailer)

63 stores (22 Sam’s Clubs, 11 Wal*Mart supercenters)

South America Plan to enter in 1995 Brazil & Argentina WAL  MART Diversification and International Expansion

South America

Plan to enter in 1995

Brazil & Argentina

WAL  MART Diversification and Five Force Analysis Discount Store Kmart Target Caldor Warehouse Clubs Price Club Costco Pace Supercenter Meijer Fred Meyer Competitors High degree of concentration High industry growth Have excess capacity Cost structure of firms: sensitive to cost Buyer’s switching cost is low Firm can adjust prices quickly Price elasticity of demand

Discount Store

Kmart

Target

Caldor

Warehouse Clubs

Price Club

Costco

Pace

Supercenter

Meijer

Fred Meyer

Competitors

High degree of concentration

High industry growth

Have excess capacity

Cost structure of firms: sensitive to cost

Buyer’s switching cost is low

Firm can adjust prices quickly

Price elasticity of demand

WAL  MART Diversification and Five Force Analysis Supermarket Kroger Safeway Stores Potential Entrant They have distribution channels Access to raw materials Allocate favorable locations

Supermarket

Kroger

Safeway Stores

Potential Entrant

They have distribution channels

Access to raw materials

Allocate favorable locations

WAL  MART Diversification and Five Force Analysis Key players Procter & Gamble GE Wrangler Suppliers Industry is concentrated Many suppliers No-nonsense

Key players

Procter & Gamble

GE

Wrangler

Suppliers

Industry is concentrated

Many suppliers

No-nonsense

WAL  MART Diversification and Five Force Analysis Target Market ?????? Customers Low switching cost Transportation cost

Target Market

??????

Customers

Low switching cost

Transportation cost