Country was not happy with the slow economy in ‘76 and elected Carter to replace Ford, but country was even more unhappy with Carter’s handling of economy and replaced him with Reagan in 1980.
Reagan inherited a weak economy, with unemployment at 7.8%. This became a recession and unemployment peaked tat 10.8%. The recession especially affected farming and therefore the price of food increased.
Reagan signed the economic recovery act of 1981. Dramatically reducing income taxes, this was followed by a huge increase in tax revenue and economic expansion.
The economy strengthened during 1980-1985 from its state in 1974-1979.
Coming out of a recession in ’75, unemployment had peaked at 9%, GDP had declined 3.4%, the oil embargo had caused inflation, the budget deficit grew, and foreign competition made inroads importing cheaper goods.
Real economic growth increased to an average of 3.2% from 2.8%. Median income grew at an average of $4k from 1980-1985 after remaining the same from 1974-1979. This was followed by a rise in median income, falling unemployment, lower interest rates, and lower inflation.
In-store terminals used to wire merchandise requests to a central computer.
Central computer transmit requests to distribution center, or if stock levels were too low, reorder the merchandise
Wal-Mart’s central computer was linked directly to its 3000 vendors to expedite delivery.
Merchandise delivered distribution center then to store within 48 hours
1971 installed a inventory tracking system.
1985 each store had a computer that tracked sales and performed accounting functions.
Full inventory of all stores were kept in central computer at headquarters and updated weekly.
SKU Management (1986)
$20 M satellite network was to be set up to ease real-time communication between all store and headquarters.
Industry observers considered this to be superior to competitors
Improve Productivity by switching to electronic scanning of UPC’s at point of sale
Speed Checkout, bypass paperwork, simplify inventory management and reorders.
1 store cost up to $500k
25 stores by 1983
91 stores by 1984
235 stores by 1985
200 more stores in 1986 plus every new store
1985: Wal-Mart used computer-aided design to develop a program that created a merchandise mix for each store, based on more than 100 factors
Climate, customers’ recreational preferences, ethic mix, etc.
Increasingly better informed consumers since WWII.
TV had intensified advertising by manufacturers.
Government standards also bolstered consumers’ self-confidence.
Better communication: 12 regional vice presidents lived in Bentonville, traveled to stores on Monday, gather feedback Thursday, merchandising meeting on Friday, directions on Saturday, implement on Sunday
Warehouse clubs imply prices 20% lower than other discounters and supermarkets
Broader national presence
Sam’s Club more viable in smaller areas because of company’s discounting experience
Timing: Consumers better informed, TV advertising, gov’t standards boosted confidence. Ready to try cheaper products.
Towns with lower populations, without a major discounter
Build own warehouses: buy volume, low prices, storage
Increasing populations in the Sunbelt and non-metropolitan areas.
Lease stores: low cost, renew lease, make specifications, 1.8% of sales (high sales/sq.ft. and acquisition in 1980’s of 120 Kuhn’s Big-K and Woolco stores)
Store improvement programs to move slightly upscale
Hard goods generated more sales/sq.ft., more traffic, fewer markdowns (28% of sales vs. 22% of industry)
License shoes, pharmaceuticals, and jewelry departments
$20 million satellite in 1986 to ease real-time communications and cap telephone costs
Switch to electronic scanning of UPC at POS to improve productivity
Computer aided design program to suggest merchandise mix based on 100+ factors
Diversification: Sam’s Wholesale Clubs (high volume, fast inventory turnover)
Memberships: first warehouse to introduce concept gains major competitive advantage
Regional entry by discount stores threatened Ben Franklin
Cost of goods sold = 3/4 of revenues
Cost of inbound logistics = (reduced to 2% of sales)
13 promotions a year: customers deferred purchases at higher everyday prices in anticipation of sales
Strategic Planning Framework
Best Strategic Decisions…
Creating warehouses and centralized
Diversification into Sam’s Club blocked
Frugality, everyday low prices
Many stores with few distribution systems
First to rural populations
Great technology at the time, UPC barcode scanning and the satellite