<ul><li>Went from just over 100 stores to 859 by end of 1985 </li></ul><ul><li>Average store size from 47,000 to 63,000 in 1985 </li></ul><ul><li>Highest sales per square foot amongst discount stores </li></ul><ul><li>Lowest inventories and highest inventory turnover in industry </li></ul><ul><li>Successful entry into warehouse clubs in 1983 </li></ul>
PEST Analysis Nature of Change Impact Opportunities Threats Strategic Response POLITICAL Establishment of Standards i.e. Fair Packing and Labeling act, 1970 Customers were interested in lower priced goods from Self Service Retailers Sell branded products through discount stores 95 % of non clothing merchandise was branded and nationally advertised ECO-NOMIC Stagflation, Oil Crisis of 1973, Stock Market Crash, 1973 – 1974, Recession, 1980 -1982 Rise in price of products because of Cost push inflation ; Consumers looking for Cheap products (following Oil Crisis) Earn profits by opening discounted stores in less populated areas Highly volatile USD (1973-1985) could raise the price of goods imported by Wal-Mart, Decrease in household demand on account of listed economic events Opening Discount stores throughout South west US, Use of Inexpensive fixtures to keep fixed costs lower
S OCIAL Rise in population in Sunbelt, Better informati0n, TV advertising Increased demand Increased demand , Customers would try the product with right to return the product Increased population means overall increase in demand More competition from other discount stores, including K - Mart Large no. of discount stores in less populated areas, Use of “No questions asked return policy” TECHNOLO-GICAL Birth of Modern Computing, Micro processor was launched in 1970 Use of modern Technology to reshape operations Improve efficiency in purchasing & distribution, Reduce labor costs & overheads by investing in technology In store terminals linked to Central computer, Central Computer linked to the computers of multiple Vendors. Distribution Center located close to Wal-Mart stores, Electronic Scanning of Uniform Product code, Use of computer program to generate relevant merchandise mix for different stores
Threat of New Entrants Power of Buyer Intensity of Competitive Rivalry Threat of Substitutes Power of Supplier High Medium Low <ul><li>Other discount stores: </li></ul><ul><li>- Dayton-Hudson </li></ul><ul><li>- Heck’s </li></ul><ul><li>- K-Mart </li></ul><ul><li>- Ross’s Stores </li></ul><ul><li>Zayre </li></ul><ul><li>Potential of Supermarkets </li></ul>In this market, there are not many substitutes that offer low pricing. <ul><li>Require high capital investment: </li></ul><ul><li>- Warehouse ($5M) 1970 </li></ul><ul><li>- UPC ($500K/store) 1983 </li></ul><ul><li>- Real Time Communication ($20M) 1986 </li></ul><ul><li>IT infrastructure: Inv, Sales, Central Comp 1971 </li></ul><ul><li>Distribution Centre ($5M) 1971 </li></ul><ul><li>- Opened 3 more in next 7 years </li></ul>Wal-Mart bargained very hard with its suppliers. Took no more than a fifth of its volume from any one vendor. In 1985, no vendor accounted for more than 2.8% of the company’s total purchases. No buyer controls the major supply of Wal-Mart.
Competitive Analysis Wal-Mart Competition Store Mgmt orders product based on store forecast Centralized Sales Forecasts Executives are located at HQ with wkly presence in geo. locations Executives are located in geographic regions across the country Store Mgmt set prices Centralized pricing Advertising was scheduled 13 times per year Advertising was sporadic to drive sales Focused on volume of hard goods Focused on volume of soft goods Lowest pricing Low pricing Proactive in marketing Reactive in marketing Low in-store inventories High in-store inventories Direct shipping form vendors Smaller portion was shipped directly from vendors
Architecture Routines Culture 859 stores, 5 distribution centers Entered markets where no competition existed Tightfisted pay scales One third of stores in areas with no competition Kept minimal inventory Store managers have considerable autonomy Product orders based on store needs rather than centralized forecasts Emphasized branded hard goods “ Our people make the difference” Two-step hub and spoke distribution with cross-docking Adopted new technology early Executives spent most of their week in the individual stores
<ul><li>Lowest cost structure </li></ul><ul><li>Highest sales per square foot of store space </li></ul><ul><li>Unmatched efficiency in distribution and communications </li></ul><ul><li>Margins on hard goods not as high as soft goods </li></ul><ul><li>Employee compensation not aligned with emphasis on “people” </li></ul><ul><li>95% of all stores leased </li></ul>