Case Study of Wal-Mart Store Inc.

Sam’s Clubs GLOBAL INDUSTRY ANALYSIS - CASE STUDY Wal*Mart Stores, Inc. a presentation p 1

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 $ Industry Wal*Mart average Sales per $300 $210 square foot WAL MART Background 2

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 Number Of Stores Discount Stores 1,114 1,953 Sam’s Wholesale Clubs 84 419 Supercenters N.A. 68 WAL MART Background 3

Number of Stores (1994) 0 500 1000 1500 2000 Hypermarkets Warehouse Outlets Warehouse Clubs Wal*Mart Stores WAL MART Background 4

Where CR5 (1986) Emerged in the U.S. g When 38% Mid-1950s Top 10 discounters in 1962 62% Wal*Mart remained only The industry became more CR5 (1993) concentrated Discount store companies p 29% operated 50 or more stores accounted for 82% 71% WAL MART Discount Retailing 5

Discount Retailing Industry 30 wth 25% ales Grow 20 11.2% 10 9% 7% Sa 0 WAL MART Discount Retailing 6

Comparative Pricing Study, 1993 WAL MART Discount Retailing 7

Overall Performance of Discounters WAL MART Discount Retailing 8

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 9

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 $3.3 WAL MART Wal*Mart’s Discount Stores and History of Growth 10

Year 1993 West coast and northeastern states Year 1994 Operated in 47 states WAL MART Wal*Mart’s Discount Stores and History of Growth 11

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 13

Year 1993 55% of Wal*Mart faced competition from Kmart 23% from Target 82% of Kmart faced competition from Wal*Mart 85% of Target faced competition from Wal*Mart WAL MART Wal*Mart’s Discount Stores and History of Growth 14

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 b tit Culture Do not show off buying luxury goods Success The way it treated its associates y WAL MART Wal*Mart’s Discount Stores and Sam’s Legacy 15

Management style Maintain an open-door policy Empowering associates Maintain technology superiority Build loyalty among associates, customers, and suppliers t d li WAL MART Wal*Mart’s Discount Stores and Sam’s Legacy 16

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 18

Lower price Promotional strategy Everyday-low-prices Maximize sales Minimize volume Few promotions expenses and industry turnover 13 major circulars per year 1993 Satisfaction guaranteed policy WAL MART Wal*Mart’s Discount Stores and Merchandising 20

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 l 1990 WAL MART Wal*Mart’s Discount Stores and Merchandising 21

National brand strategy Private label apparel 25% of apparel sales Other i t label Oth private l b l 26% price advantage Also sold in Sam’s Clubs and supercenters Sam s “Buy American” program WAL MART Wal*Mart’s Discount Stores and Merchandising 22

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

WAL MART Wal*Mart’s Discount Stores and Store Operation 24

WAL MART Wal*Mart’s Discount Stores and Store Operation 25

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 26

Satellite system Data collected and analyzed Observing Merchandise flow, overstock flow overstock, discount Video transmissions, credit card authorizations, and inventory control WAL MART Wal*Mart’s Discount Stores and Store Operation 27

Phenomenal distribution network Two stepp hub-and- spoke WAL MART Wal*Mart’s Discount Stores and Distribution 28

Phenomenal distribution network Cross- docking technique WAL MART Wal*Mart’s Discount Stores and Distribution 29

Phenomenal distribution network Distribution center Cost advantage Stable price WAL MART Wal*Mart’s Discount Stores and Distribution 30

Phenomenal distribution network Computeriz p ed pick to light system WAL MART Wal*Mart’s Discount Stores and Distribution 31

WAL MART Wal*Mart’s Discount Stores and Distribution 32

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 33

WAL MART Wal*Mart’s Discount Stores and Vendor Relationships 34

Backward integration Electronic data interchange (EDI) CPFR Forecasting Planning Replenishing Shipping applications WAL MART Wal*Mart’s Discount Stores and Vendor Relationships 35

The CPFR Process Seller Once FRONT END AGREEMENT Collaborative Planning Qtr. JOINT BUSINESS PLAN CREATE SALES FORECAST Collaborative Wk Mo IDENTIFY EXCEPTIONS Forecastingg k, RESOLVE EXCEPTIONS Collaborative CREATE ORDER FORECAST Replenishment Wk, Mo IDENTIFY EXCEPTIONS W RESOLVE EXCEPTIONS GENERATE ORDER Buyer 36

Backward integration Vendor-managed inventory (VMI) system t Wrangler GE WAL MART Wal*Mart’s Discount Stores and Vendor Relationships 37

Backward integration From EDI to Retail link WAL MART Wal*Mart’s Discount Stores and Vendor Relationships 38

Whole Supply chain Economies of scale Cost leadership C t l d hi competitive titi advantage JIT inventor POS and retail link CRS & VMI EDI CPFR WAL MART Wal*Mart’s Discount Stores and Vendor Relationships 39

Non-unionized Decentralized: full autonomy Profit sharing program Yes Y we can S Sam Store within store Shrink incentive Stock sharing Administrative style Frugality No hierarchy in organization WAL MART Wal*Mart’s Discount Stores and Human Resource Management 41

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

Historical Time Series Wal*Mart opened the first p 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 1987, Wal Mart introduced its first supercenter p In 1991, Wal*Mart acquired “The Wholesale Club” with 28 outlets in the Midwest l h d WAL MART Diversification 43

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 44

Comparison WAL MART Diversification 45

Backward Integration Acquire “McLane Company McLane Company” Texas retail grocery supplier To service both Sam s Clubs Sam’s and supercenters WAL MART Diversification 46

Warehouse clubs WAL MART Diversification and Sam’s Clubs 47

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 48

Payment Discover card Cash- and-carry Membership Free $25 $ annually Business Hour Seven days a week Supply Direct shipment from p supplier - 70% Company’s distribution centers - 30% WAL MART Diversification and Sam’s Clubs 49

Top Warehouse Clubs by 1993 WAL MART Diversification and Sam’s Clubs 50

Operating margins within the Definition industry were extremely low- y y A supercenter is a combination supermarket and b k d a typical supermarkets was lucky to squeeze out a 2 % discount store averaging 120,000 to 130,000 profit square feet in size margin. margin f Industry trend It contains bakeries, delis and convenience shops Operating philosophy Familiarity Motivation Low‐price image WAL MART Diversification and Supercenters 51

A supercenter is a combination Definition supermarket and discount p A supercenter is a combination supermarket and b k d store averaging 120,000 to 130,000 square feet in size discount store averaging 120,000 to 130,000 It contains bakeries delis and bakeries, square feet in size f convenience shops It contains bakeries, delis and convenience shops Operating philosophy Familiarity Definition Low‐price image WAL MART Diversification and Supercenters 52

Definition Familiarity A supercenter is a combination supermarket and b k d Low-price image discount store averaging 120,000 to 130,000 square feet in size f It contains bakeries, delis and convenience shops Operating philosophy Operating Familiarity Philosophy Low‐price image WAL MART Diversification and Supercenters 53

Definition A supercenter is a combination supermarket and b k d discount store averaging 120,000 to 130,000 square feet in size f It contains bakeries, delis and convenience shops Operating philosophy Familiarity Layout Low‐price image WAL MART Diversification and Supercenters 54

450 associates Full-time - 70% Staff Part-time - 30% WAL MART Diversification and Supercenters 55

Business Hours 24 hours Seven days a week WAL MART Diversification and Supercenters 56

Comparison WAL MART Diversification and Supercenters 57

Year 1992 Joint venture Cifra S.A. (Mexico s largest S A (Mexico’s Mexico Mi retailer) 63 stores (22 Sam’s Clubs, 11 Wal*Mart supercenters) WAL MART Diversification and International Expansion 58

1994, March Acquire 122 Woolco stores Woolworth Corp. p Canada WAL MART Diversification and International Expansion 59

South America Plan to enter in 1995 Brazil & Argentina WAL MART Diversification and International Expansion 60

Discount Store Competitors Kmart High degree of concentration Target High industry growth Caldor Have excess capacity Warehouse Clubs Cost structure of firms: sensitive to cost Price Club Buyer’s switching cost i l B ’ it hi g t is low Costco Firm can adjust prices quickly Pace Price elasticity of demand Supercenter Meijer Fred Meyer WAL MART Wal*Mart and Five Force Analysis

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

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

Discount Store Customers Supercenter Low switching cost Transportation cost General public Warehouse clubs Own business Retailer WAL MART Wal*Mart and Five Force Analysis

Please discuss the differences among discount stores, superstores, Supermarkets, Sam’s club, Hypermarket? p ,p , , yp Discount store −grocery wholesale Supermarkets k −fresh product wholesale Superstores −discount store + supermarkets Sam’s club −warehouse for grocery and fresh p g y product, with , membership fees, the customers are business and retailers Hypermarket −huge warehouse including clothing, grocery, good, for one stop shop like a department store run by one company WAL MART Wal*Mart and Case Discussion

What pricing strategies that Wal-Mart discount stores adopted to avoid p p price competition with other p discount stores? What actions that Wal-Mart had done to cope with this pricing strategy? Based on cost advantage −Always low prices---Always −Stable price Stable −Spent less on ad. −Operating expenses are low Store managers set up prices S i Locate store in isolated rural areas and small towns Buy its own warehouses Buy at a best price (backward integration) WAL MART Wal*Mart and Case Discussion

What the information system had helped Wal-Mart’s business? Please list the functions and how these f functions had helped Wal-Mart’s cost reduction? Electronic scanning of uniform product code (UPC) at the POS −Ensure accurate pricing −Improve efficiency p y −Reduce Shrinkage −Improve communications Satellite system −Data collected and analyzed −Observing Merchandise flow, overstock, discount −Video transmissions credit card authorizations Video transmissions, authorizations, and inventory control Electronic data interchange (EDI) CPFR WAL MART −CPFR −Forecasting Wal*Mart −Planning and Case Discussion −Replenishing −Shipping applications

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Case Study of Wal-Mart Store Inc.

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