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Wal-Mart Case Study Analysis BACN
PEST ANALYSIS
Political & Economical 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.
Economical 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.
Technological Centralized Purchasing 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
Technological Deliveries 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
Technological  SKU Management 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.
Technological 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
Technological  UPC Codes 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
Technological Merchandise Mix 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.
Socio-Cultural Increasingly better informed consumers since WWII. TV had intensified advertising by manufacturers. Government standards also bolstered consumers’ self-confidence. Wanted  cheaper ,  self-service retailers  (ie. discount chains). Discounters’ sales grew to $68B in 1985.
Socio-Cultural GDP Real gross national income per capital rose from $20k to $25k. Share of GDP going to the bottom 99th, 95th, 90th percentiles decreasing steadily. SOME MORE INFO
Wal-Mart Demographic Between 1970 – 1985 Wal-Mart operated 859 stores (mostly in middle America)‏ 5 distribution locations. Populations between 5,000 and 25,000. 1/3 of Wal-Mart stores located in metropolitan areas. Made smaller stores for towns with populations between 1,000 and 5,000 in 1985.
Strengths Charge gross margins 10-15% lower than department stores Better inventory tracking: in-store terminal -> central computer -> distribution center -> vendor Better stocking with hub and spoke distribution network: many trucks, many deliveries, increased efficiency “ Everyday Low Prices”
Strengths Terms of sale: low credit transactions and “no questions asked” return policy No unionized employees: “We care about our people”. Best place to work Employee incentives: profit sharing, stock purchases, bonus if exceed corporate targets, shrinkage 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
Strengths 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
Opportunities 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)‏
Opportunities 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
Opportunities 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
Threats 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  inventory control Diversification into Sam’s Club blocked  threats Employee incentives Diversified vendors 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

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Walmart T1

  • 1. Wal-Mart Case Study Analysis BACN
  • 3. Political & Economical 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.
  • 4. Economical 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.
  • 5. Technological Centralized Purchasing 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
  • 6. Technological Deliveries 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
  • 7. Technological SKU Management 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.
  • 8. Technological 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
  • 9. Technological UPC Codes 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
  • 10. Technological Merchandise Mix 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.
  • 11. Socio-Cultural Increasingly better informed consumers since WWII. TV had intensified advertising by manufacturers. Government standards also bolstered consumers’ self-confidence. Wanted cheaper , self-service retailers (ie. discount chains). Discounters’ sales grew to $68B in 1985.
  • 12. Socio-Cultural GDP Real gross national income per capital rose from $20k to $25k. Share of GDP going to the bottom 99th, 95th, 90th percentiles decreasing steadily. SOME MORE INFO
  • 13. Wal-Mart Demographic Between 1970 – 1985 Wal-Mart operated 859 stores (mostly in middle America)‏ 5 distribution locations. Populations between 5,000 and 25,000. 1/3 of Wal-Mart stores located in metropolitan areas. Made smaller stores for towns with populations between 1,000 and 5,000 in 1985.
  • 14. Strengths Charge gross margins 10-15% lower than department stores Better inventory tracking: in-store terminal -> central computer -> distribution center -> vendor Better stocking with hub and spoke distribution network: many trucks, many deliveries, increased efficiency “ Everyday Low Prices”
  • 15. Strengths Terms of sale: low credit transactions and “no questions asked” return policy No unionized employees: “We care about our people”. Best place to work Employee incentives: profit sharing, stock purchases, bonus if exceed corporate targets, shrinkage 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
  • 16. Strengths 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
  • 17. Opportunities 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)‏
  • 18. Opportunities 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
  • 19. Opportunities 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
  • 20. Threats 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
  • 21. Strategic Planning Framework Best Strategic Decisions… Creating warehouses and centralized inventory control Diversification into Sam’s Club blocked threats Employee incentives Diversified vendors 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