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Sams Clubs

GLOBAL INDUSTRY ANALYSIS - CASE STUDY Wal*Mart Stores, Inc. a presentation Anthony, Crystal, Sandy From YZU university
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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
Wal*Mart Sales per square foot $300 Industry average $210

WALMART
Background
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Year 1988 CEO: David Glass COO: Don Soderquist How to sustain the companys phenomenal performance?
1987 Net sales Net Income Number Of Stores Discount Stores Sams Wholesale Clubs Supercenters 1,114 84 N.A. 1,953 419 68 15,959 628 1993 67,345 2,333

WALMART
Background
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Number of Stores (1994)

WALMART
Background
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Where Emerged in the U.S. When Mid-1950s Top 10 discounters in 1962 Wal*Mart remained only The industry became more concentrated Discount store companies operated 5 or more stores accounted for 62%

WALMART
Discount Retailing
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Sales Growth

WALMART
Discount Retailing
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Comparative Pricing Study, 1993

WALMART
Discount Retailing
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Overall Performance of Discounters

WALMART
Discount Retailing
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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*Marts Discount Stores and History of Growth


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WALMART

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

Wal*Marts Discount Stores and History of Growth


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WALMART

Year 1993 West coast and northeastern states Year 1994 Operated in 47 states

Wal*Marts Discount Stores and History of Growth


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WALMART

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*Marts Discount Stores and History of Growth


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WALMART

Year 1993 Wal*Mart faced 55% (Kmart), 23% (Target) Kmart 82%, Target 85% from Wal*Mart

Wal*Marts Discount Stores and History of Growth


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WALMART

Philosophy Keep prices below everybody else Trip expenses cant exceed 1% of the purchases Spent lots of time in his own store and observe competitors Culture Do not show off buying luxury goods Success The way it treated its associates

Wal*Marts Discount Stores and Sams Legacy


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WALMART

Management style Maintain an open-door policy Empowering associates Maintain technology superiority Build loyalty among associates, customers, and suppliers

Wal*Marts Discount Stores and Sams Legacy


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WALMART

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*Marts Discount Stores and Merchandising


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WALMART

Lower price

Promotional strategy Everyday-low-prices Few promotions 13 major circulars per year 1993

Minimize expenses

Maximize sales volume and industry turnover

Satisfaction guaranteed policy

Wal*Marts Discount Stores and Merchandising


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WALMART

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

Wal*Marts Discount Stores and Merchandising


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WALMART

Transportation cost

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National brand strategy Private label apparel 25% of apparel sales Other private label 26% price advantage Also sold in Sams Clubs and supercenters

Buy American program

Wal*Marts Discount Stores and Merchandising


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WALMART

Strength
Cost advantage Low price & customer-oriented Strong supply chain People are key to success

Weakness
Ignore store decoration Since Wal-Mart sell products across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

Opportunity
Build its own brand Put efforts on social welfare better image New locations and store types Overseas markets

Threat
Other competitors Intense price competition

Wal*Marts Discount Stores and SWOT Analysis

WALMART

Wal*Marts Discount Stores and Store Operation


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WALMART

Wal*Marts Discount Stores and Store Operation


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WALMART

Electronic scanning of uniform product code (UPC) at the POS Ensure accurate pricing Improve efficiency Reduce Shrinkage Improve communications

Wal*Marts Discount Stores and Store Operation


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Satellite system Data collected and analyzed Observing Merchandise flow, overstock, discount Video transmissions, credit card authorizations, and inventory control

Wal*Marts Discount Stores and Store Operation


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WALMART

Phenomenal distribution network Two step hub-andspoke

Wal*Marts Discount Stores and Distribution


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WALMART

Phenomenal distribution network Crossdocking technique

Wal*Marts Discount Stores and Distribution


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WALMART

Phenomenal distribution network Distribution center Cost advantage Stable price

Wal*Marts Discount Stores and Distribution


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WALMART

Phenomenal distribution network Computeriz ed pick to light system

Wal*Marts Discount Stores and Distribution


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WALMART

Wal*Marts Discount Stores and Distribution


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WALMART

Backward integration No nonsense negotiator Economies of scale Maintain long term relationship with supplier, as powerful partner (RSP)

Wal*Marts Discount Stores and Vendor Relationships


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WALMART

Wal*Marts Discount Stores and Vendor Relationships


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WALMART

Backward integration Electronic data interchange (EDI) CPFR Forecasting Planning Replenishing Shipping applications

Wal*Marts Discount Stores and Vendor Relationships


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WALMART

The CPFR Process


Once
FRONT END AGREEMENT

Seller
Collaborative Planning Collaborative Forecasting Collaborative Replenishment

Qtr.

JOINT BUSINESS PLAN

CREATE SALES FORECAST

Wk, Mo

IDENTIFY EXCEPTIONS RESOLVE EXCEPTIONS

Wk, Mo

CREATE ORDER FORECAST IDENTIFY EXCEPTIONS RESOLVE EXCEPTIONS

GENERATE ORDER

Buyer

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Backward integration Vendor-managed inventory (VMI) system Wrangler GE

Wal*Marts Discount Stores and Vendor Relationships


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WALMART

Backward integration From EDI to Retail link

Wal*Marts Discount Stores and Vendor Relationships


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WALMART

Whole Supply chain Economies of scale Cost leadership competitive advantage JIT inventor POS and retail link CRS & VMI EDI CPFR

Wal*Marts Discount Stores and Vendor Relationships


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WALMART

Non-unionized Decentralized: full autonomy Profit sharing program Yes we can Sam Store within store Shrink incentive Stock sharing Administrative style Frugality

No hierarchy in organization

Wal*Marts Discount Stores and Human Resource Management


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WALMART

Support Activities

Firm Infrastructure
Human Resource Management

Inferior fixtures standardization, Trucks, Average store size 84,000 square feat Non-unionized, Full autonomy to associates, Decentralized, profit sharing program, Job rotation, Stock purchase plan UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite system, CPFR Maintain long-term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy
VMI system Retail link EDI CPFR Six days a week(9~21) Monday (12:30~17:30) Two step hub and spoke distributing system Everyday ECR low price Satisfaction Always low guarantee price, policy always Self service Quick response Cash and (QR) carry Save money, live better credit card, Layaway plan Marketing & Sales After Sales Service

Technology Development Procurement

Margin

Primary Activities

Inbound Logistics

Operations

Outbound Logistics

Wal*Marts Discount Stores and Value Chain

WALMART

Historical Time Series Wal*Mart opened the first three Sams clubs in 1983 Sams sales surpassed Price Clubs, making it the largest wholesale club in 1987 In 1987, Wal*Mart introduced its first supercenter In 1991, Wal*Mart acquired The Wholesale Club with 28 outlets in the Midwest

WALMART
Diversification
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In 1993, Sales at Sams Club rose 19.5% as the highest in national warehouse club chains, which Sams was nearly twice the size of Price Club Sams Club acquired 99 of Kmarts 113 Pace club in 1993

WALMART
Diversification
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Comparison

WALMART
Diversification
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Backward Integration Acquire McLane Company Texas retail grocery supplier To service both Sams Clubs and supercenters

WALMART
Diversification
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Warehouse clubs

WALMART
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Diversification and Sams Clubs

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 Sams chose to cannibalize its own sales rather than give competitors any openings

WALMART
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Diversification and Sams Clubs

Payment Discover card Cash- and-carry Membership Free $25 annually Business Hour Seven days a week Supply Direct shipment from supplier - 70% Companys distribution centers - 30%

WALMART
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Diversification and Sams Clubs

Top Warehouse Clubs by 1993

WALMART
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Diversification and Sams Clubs

Operating margins within the Definition industry were extremely lowA supermarkets was a typical supercenter is a combination supermarket and lucky to squeezestore averaging 120,000 to 130,000 discount out a 2 % profit square feet in size margin. Industry trend

It contains bakeries, delis and convenience shops Familiarity Low-price image

Operating philosophy
Motivation

WALMART
Diversification and Supercenters
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A supercenter is a combination Definition supermarket and discount A supercenter is a store averaging 120,000 to combination supermarket and 130,000 square feet in size discount store averaging 120,000 to 130,000 It contains bakeries, delis and square feet in size convenience shops

It contains bakeries, delis and convenience shops Familiarity Low-price image

Operating philosophy
Definition

WALMART
Diversification and Supercenters
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Definition
Familiarity A supercenter is a combination supermarket and Low-price image discount store averaging 120,000 to 130,000

square feet in size It contains bakeries, delis and convenience shops

Operating philosophy
Familiarity Low-price image

Operating Philosophy
WALMART
Diversification and Supercenters
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Definition
A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000 square feet in size It contains bakeries, delis and convenience shops

Operating philosophy
Familiarity Low-price image

Layout

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Diversification and Supercenters
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Staff

450 associates Full-time - 70% Part-time - 30%

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Diversification and Supercenters
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Business Hours

24 hours Seven days a week

WALMART
Diversification and Supercenters
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Comparison

WALMART
Diversification and Supercenters
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1994, March Acquire 122 Woolco stores Woolworth Corp.

Canada

Diversification and International Expansion


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WALMART

Mexico

Year 1992 Joint venture Cifra S.A. (Mexicos largest retailer) 63 stores (22 Sams Clubs, 11 Wal*Mart supercenters)

Diversification and International Expansion


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WALMART

South America Plan to enter in 1995 Brazil & Argentina

Diversification and International Expansion


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WALMART

Discount Store Kmart Target Caldor Warehouse Clubs Price Club Costco Pace Supercenter Meijer Fred Meyer

Competitors High degree of concentration High industry growth Have excess capacity Cost structure of firms: sensitive to cost Buyers switching cost is low Firm can adjust prices quickly Price elasticity of demand

Diversification and Five Force Analysis

WALMART

Supermarket Kroger Safeway Stores

Potential Entrant They have distribution channels Access to raw materials Allocate favorable locations

Diversification and Five Force Analysis

WALMART

Key players Procter & Gamble GE Wrangler

Suppliers Industry is concentrated Many suppliers No-nonsense

Diversification and Five Force Analysis

WALMART

Target Market ??????

Customers Low switching cost Transportation cost

Diversification and Five Force Analysis

WALMART

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