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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
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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
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Background
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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%
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Discount Retailing
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Sales Growth
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Discount Retailing
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Discount Retailing
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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
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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
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Year 1993 West coast and northeastern states Year 1994 Operated in 47 states
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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
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Year 1993 Wal*Mart faced 55% (Kmart), 23% (Target) Kmart 82%, Target 85% from Wal*Mart
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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
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Management style Maintain an open-door policy Empowering associates Maintain technology superiority Build loyalty among associates, customers, and suppliers
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Information system A process which indexed product movements in the store to over a thousand store and market traits Using inventory and sales data
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Lower price
Promotional strategy Everyday-low-prices Few promotions 13 major circulars per year 1993
Minimize expenses
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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
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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
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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
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Electronic scanning of uniform product code (UPC) at the POS Ensure accurate pricing Improve efficiency Reduce Shrinkage Improve communications
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Satellite system Data collected and analyzed Observing Merchandise flow, overstock, discount Video transmissions, credit card authorizations, and inventory control
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Backward integration No nonsense negotiator Economies of scale Maintain long term relationship with supplier, as powerful partner (RSP)
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Backward integration Electronic data interchange (EDI) CPFR Forecasting Planning Replenishing Shipping applications
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Seller
Collaborative Planning Collaborative Forecasting Collaborative Replenishment
Qtr.
Wk, Mo
Wk, Mo
GENERATE ORDER
Buyer
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Whole Supply chain Economies of scale Cost leadership competitive advantage JIT inventor POS and retail link CRS & VMI EDI CPFR
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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
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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
Margin
Primary Activities
Inbound Logistics
Operations
Outbound Logistics
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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
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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
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Diversification
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Comparison
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Diversification
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Backward Integration Acquire McLane Company Texas retail grocery supplier To service both Sams Clubs and supercenters
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Diversification
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Warehouse clubs
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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
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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%
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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
Operating philosophy
Motivation
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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
Operating philosophy
Definition
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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
Operating philosophy
Familiarity Low-price image
Operating Philosophy
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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
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Diversification and Supercenters
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Business Hours
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Diversification and Supercenters
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Comparison
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Diversification and Supercenters
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Canada
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Mexico
Year 1992 Joint venture Cifra S.A. (Mexicos largest retailer) 63 stores (22 Sams Clubs, 11 Wal*Mart supercenters)
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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
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Potential Entrant They have distribution channels Access to raw materials Allocate favorable locations
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