1. CLASS: STRAT – WAL-MART PAGE 1 2/24/11
Background
• 2003, WM worlds largest company, 245B rev, 8b income, largest employer w 1.4M employees
• Discount retailing
• 1970s – consolidation of market
• 1981 – Kmart 5 times size WM
• 1980s – developed into supercenters w groceries + gen merchandise
• 2002 Kmart bankrupt
• early investment in IT to support inventory management and efficiency
• Sam Walton:
o actively learnt/copied best practice from others
o strong relationship/culture between management and employees
o very cost conscious
• Growth 1988-2000: 20 -> 200B
• Strategy:
o See what others doing, integrate into WM
Questions
1. How attractive is the discount retailing industry in the United States?
• Consolidate industry with supercenters developed in 1980s
• 2003 average margins 6.6%
• 2001 growth sources: 7% new shoppers, 21% increase from existing shoppers, 72% from other channels
• It is not an attractive industry to WM:
• New Entrants: high barriers to gain scale and likely to receive strong opposition from big and established players
• 320B industry – Ex 3 – add Revenues
• Ex 3: 5yr CAGR Sales – 15.6% WM, 9.8% Target; Net Income 17.9% WM, 17.1% Target;
2. Wal-Mart has a large competitive advantage in the discount retailing industry and, as a result, has been far more profitable than the average competitor. What are
the sources of Wal-mart’s competitive advantage?
5 forces:
• Buyers: hold a lot of power as they are typically price biters and hence will easily switch to cheaper alternatives. Increasing number of chanels to buy products (eg. online).
However, some WMs located in rural areas may not face competition in which case buyers will have few alternatives.
• Suppliers: hold little power as they receive lot of revenue from WM because of its scale. WM is a major route to end consumers and hence suppliers can be squeezed on price
and payments terms (see Procurement, Merchandising and Pricing)
• Substitutes: Market is consolidating. Kmart bankrupt in 2002. Major competition Target. However, also compete with supermarkets on food items. Also other chanels, eg
online.
• Competition: as per above
Procurement:
• Private labels
• Deal straight with manufacturers
