Walmart History, Strategy and Corporate Overview    Uploaded by walmartian on Jun 4, 2005

Basic History Overview

Wal-Mart's history is one of innovation, leadership and success. It started with a single store in Rogers, Arkansas in 1962 and has grown to what is now the world's largest - and arguably, the most emulated - retailer. Some researchers refer to Wal-Mart as the industry trendsetter. Today, this retailing pioneer has annual revenues of over $100 billion, 3,000 stores and more than 750,000 employees worldwide. Wal-Mart operates each store, from the products it stocks, to the front-end equipment that helps speed checkout, with the same philosophy: provide everyday low prices and superior customer service. Lower prices also eliminate the expense of frequent sales promotions and sales are more predictable. Wal-Mart has invested heavily in its unique cross-docking inventory system. Cross docking has enabled Wal-Mart to achieve economies of scale which reduce its costs of sales. With this system, goods are continuously delivered to stores within 48 hours and often without having to inventory them. This allows Wal-Mart to replenish the shelves 4 times faster than its competition. Wal-Mart’s ability to replenish theirs shelves four times faster than its competition is just another advantage they have over competition. Wal-Mart leverages its buying power through purchasing in bulks and distributing the goods on it’s own. Wal-Mart guarantees everyday low prices and considers them the one stop shop.

Case Overview

The case study starts off with quotes from Wal-Mart executives with their thoughts of how employees/consumers should feel about the arguably most innovative retailer. “Wal-Mart employees who do not think globally are working for the wrong company.” “Wal-Mart must think and act as if it’s a global company. Otherwise, it cannot grow enough in the United States to maintain its stock price. It needs to be in South America. It needs to be in Asia. It needs to be in Europe.”

Wal-Mart has taken their mind and cash over the last 20 years to become the world’s largest retailer. Wal-Mart had a base of 2,200 stores in the 80’s, closing out of the 90’s with a bang of 3,600 stores and $4.4 billion in net income. Spurred by NAFTA, Wal-Mart took advantage foreseeing potential growth in the foreign markets. Currently they have stories in the following countries: Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, United Kingdom, and in 1998 a controversial Germany. Most analysts believed Wal-Mart would move into eastern European countries however Wal-Mart confounded the analysts when they purchased a 21-unit Werkauf chain in Germany. Why Germany they ask? The Germany countryside was littered with carcasses of other retailers, therefore Wal-Mart new that its non brand name items, service, and low prices would succeed. Analysts believed that Wal-Mart would not buy in Germany for many reasons: first, zoning laws, scarcity of land, and high real estate prices make it almost impossible to find affordable space for new supercenters. Second, the domination of other major retail stores. Next, due to German unions, the workers are very highly paid and unemployment being high. Last, Wal-Mart low price strategy could be hindered due to other manufacturers’ marketing strategies of selling brand name goods.

Of course, Wal-Mart has succeeded in Germany with a “smile” as always advertised. Wal-Mart pushes the limit of hours being opened despite the government regulated operating times. Wal-Mart has also renovated many German stores, restocking them with common shopping practices, wider aisles, and renaming the stores Wal-Mart. Most importantly in a land of pfenning pinchers, Wal-Mart has introduced EDLP (“Every Day Low Prices”). The new low prices have caused many competitors to lower their prices, in turn reducing income.

After the completion of the move to Germany, analysts now started predicting Wal-Mart’s next threat to retailers was going to happen. Wal-Mart landed in Europe, causing many retailers to merge in order to survive.

Questions

1. Describe Wal-Mart’s global strategy? What tactics has it used to become a major global retailer?

Wal-Mart's success is mainly based on its concentration of a single-business strategy. This strategy has achieved enviable success over the last three decades without relying upon diversification to sustain its

growth and competitive advantages. In a sense, Wal-Mart’s low prices, service, and smile are their leading marketing strategies. However, there is risk in this strategy, because concentration on a single-business strategy is similar to "putting all of a firm's eggs in one industry basket". On the business side, Wal-Mart is the country’s most sophisticated retailer in terms of using information systems. Their cross-docking inventory and transportation services able them to have the goods needed by the consumer at all times.

In order for Wal-Mart to become a major global retailer, they have closely examined and utilized tactics to profit from their many stores. One great tactic is starting free-trade-zone distribution centers, in turn, saving almost $500,000 annually. Another tactic includes their service from when you walk in the store to when you leave. Also, their bread and butter is again the technology they utilize. They can track how much of one item has been sold on any giving day, and if not a hot commodity at one store, they will ship it out to another where it is being sold much faster.

2. Can Wal-Mart sustain its competitive advantage in global retailing?

Domestically, Wal-Mart is growing through its Superstores. Traditionally, this business is a very low-margin space, but with Wal-Mart's competitive advantages in distribution and leverage over suppliers, they can make it a big winner. International expansion has been robust and will continue to be an important part of Wal-Mart's future growth opportunities. Certainly the Internet provides a growth avenue as well that will open a new faucet for them to potentially take over an upcoming market.

I really think that the growth opportunities for Wal-Mart are just beginning. Any company that can grow net income to $4.4 billion and yearly sales of $137 billion should make you do a double take. I personally feel that a trillion dollars in sales is not unreasonable.

3. Explain the importance of selling only brand-name merchandise to the Wal-Mart strategy.

The focus that Wal-Mart shares in all advertisements is service, low prices, and quality of goods. Wal-Mart is not a specialty shop focusing on one “good”, they are innovative offering a selection based on consumers overall needs. They do have some brand name merchandise however do not have a specific section set aside for Polo Shirts. Unlike Wal-Mart, brand name stores in most circumstances, only offer their product at a price that is normally above affordable. These retailers rely on their name to sell; Wal-Mart relies on their convenience and low prices.

4. Choosing markets to enter is of major importance in global expansion. If you were in charge of Wal-Mart, what European country would you enter next? Why? Would entering this country require adaptation of Wal-Mart’s marketing strategy and tactics? If so, how?

If I were in charge of Wal-Mart, I would choose to expand into Russia next. The Russian economic structure nine years ago is still struggling from the collapse of USSR. Russia has achieved some economic progress. Inflation is now under control and the ruble is now somewhat stabilized. The economic situation in Russia makes it a perfect target for a Wal-Mart. Wal-Mart’s inventory of heavily discount of brand-name merchandise would offer consumers in this market the quality they desire at prices they can afford. Even though there has been an economic decline, people still seed discounted prices as opposed to high-end goods. Wal-Mart sells reliable merchandise that consumer’s need. Russian consumers are looking for quality goods that they need to sustain life at a price they can afford. The fact remains that people need day-to-day items to get by such as milk, eggs, and meat – things people need, food and clothes for their families. Wal-Mart is the ideal place to purchase these goods; it is your one stop shopping headquarters.

I do not feel that entering Russia would require Wal-Mart to alter their marketing strategy and tactics. Wal-Mart runs its business based on “everyday low prices”, which is just what the Russian population needs.

5. If you were running Wal-Mart, what non-European country in the world would you enter next? Why? Would entering this country require adaptation of Wal-Mart’s marketing? If so, how?

I would choose Australia. Australia is a perfect market for Wal-Mart for much of the same reasons as Russia but from a different angle. Australia has had one of the most outstanding economies of the world in recent years—more competitive, flexible and vibrant than ever before. Although much smaller than

those of the United States and Japan, Australia's economy is larger than those of Sweden, Belgium and Switzerland. Australia is a high-growth, low-inflation, low-interest rate economy with a very competitive business sector, a flexible labor market and an efficient and democratic government.

One of Wal-Mart’s main competitors would be Franklin, which is currently struggling at this time. (I better get my Wal-Mart set up quick.) Many of the Australian retailers such as Aldi, Tesco, and Ahold, who previously relied on specials, would be forced to reduce their daily prices to compete with Wal-Mart’s everyday low price strategy. Low-Prices are the foundation of Wal-Mart’s ideas and strategy and could surely beat out Australia’s smaller end retailers. Another are in which Wal-Mart would prosper is with tourists,. Wal-Mart is well known and trusted , and in high tourism cities such as Sydney, travelers would be more likely to shop at a place they know and trust. Its inevitable that while on vacation for example, people forget to pack or run out of necessities such as toothpaste, shampoo, and deodorant, etc. Why not go to Wal-Mart and get all these things and pick up the few extra goodies you didn’t realize you needed.

I thinks Wal-Mart’s normal marketing strategies are traditional marketing strategies, ideal for the Australian culture. Australians expect the quality they need at the prices they can afford.

Evaluation Of The Business Model For Wal Mart.Com

http://www.oppapers.com/essays/Evaluation-Business-Model-Wal-Martcom/105847

Evaluation of the business model for Wal-Mart.com. Is it a successful model?

Wall-Mart is using the click and mortar business model, it is a multi-channel business model that leverages the best of both online and offline operations.

One of the advantages of this model is that it offers products and services through multiple channels: through its brick and mortar stores and online store. In addition, most of the products offered by Walmart.com have successful e-tailing characteristics. They are relatively inexpensive items, frequently purchased items, commodities with standard specifications and well know packaged items.

The site offers superior service in the form of extensive information:

• Order tracking• Purchase history• Shipping costs and times information• Physical store locator• Product information, comparison and recommendation• Special promotions in physical stores• New product information in physical stores• Wal-Mart events information• Idea center on how to best use purchased products: health, recipes, or personal care and style.

This model also provides benefits of flexibility and convenience: registry services for having a baby or weddings, creating wish lists so others know what you like, and gift cards. It also offers ability to pickup your online orders in-store. Personalized and customized services such as digital photo center.

Most of these benefits would not be feasible with other business models. Wall-Mart's distribution channel is used very effectively to provide such benefits. Established relationships with manufacturers make product management easier and eliminate problems with back end operations such as managing inventory. This helps Walmart.com with managing inventory against product demand and order fulfillment.

Wallmart.com operates as a subsidiary of Wal-Mart which allows Wallmart.com to concentrate on the e-commerce operations such as front-end design, customer support environment and other virtual/e-commerce best practices. Meanwhile it leverages its physical operation's strengths; thus, making click and mortar business model very successful.

In addition, online sales through Wallmart.com already accounted for about 10% of Wal-Mart's (U.S) sales in 2002-2003. This is a great indication that part of this strategy is heading in the right direction.

Strategies for compete in the online marketplace.

First, Walmart.com is not using the first mover advantage. Rather is appears that it tries to be innovative in how it competes online: utilizing best mover advantage. Walmart.com has learned from Kmart.com's mistake and did not offer its customers free access to the internet, in order to attract customers to its website. Instead, Walmart.com partnered with AOL to offer low cost internet access to specific customer group. Then in 2002 Walmart.com started offering order status and tracking, help desk and other proven online benefits. Many proven techniques that are deployed on its web site have been proven by other companies such as Amazon.com or E-Bay. I agree with this approach. Wal-Mart's customer base represents households with relatively low incomes and this group's ability to move to an online environment will take time as internet becomes more affordable and their purchasing behavior changes. The volume of e-business will grow for this group at somewhat predictable pace. Kmart.com's inability to entice profitable volume of online sales indicates that the market for this demographic may not be large enough.

Second, Walmart.com wishes to attract customers who don't live close to a physical store by offering them internet access at low cost so they could have access to Wal-Mart's products. The intent was to lure new market segments and thus prevent the cannibalization of physical stores. There are two reservations that I have about this strategy: First, it is easier to keep current customers then to attract new ones. This is a value-added benefit to customer relationship management. Perhaps the online business unit would be better utilized by being used for loyalty building programs. Wal-Mart's fears of cannibalization are unsubstantiated as current online buying trends and patterns indicate that many customers still prefer to use physical stores. Higher end customers that shop at Futreshop.com still do majority of their shopping at the physical stores.

Regarding the target segment Walmart.com is trying to reach; recent research indicates that profitability is closely related to local strategy. (Harvard Business Review, September 2005) Local environments still have different tastes, business practices, cultural norms and other characteristics. Simply offering internet connection to those customers may not be enough to create consistent online sales form them. Local retailers may server these segments better and offer customized services due to their small customer base. Therefore, Walmart.com is facing two obstacles: local retailers and customer buying habits. Changing them may prove to be a difficult undertaking.

SWOT analysis approach

Strengths:

1. Walmart.com has an alliance with the master of retail process: Wal-Mart. Having the best process and infrastructure when it applies to supply chain is definitely a competitive advantage. Walmart.com can take advantage of back end operations and inventory management processes through its alliance with Wal-Mart. 2. Established knowledge about its customers their needs and demands. Walmart.com realizes that median household income of an online consumer is higher than that of its regular customer – those shopping at its physical stores. Its alliance with AOL helps target those customers that can't access physical Wal-Mart store on regular bases – undiscovered market niche. 3. Its reputation and physical presence creates trust and convenience when it comes to returns. Customers are assured that the business is strong and will not disappear overnight.

Weaknesses:

1. Company is an established leader in the physical world and as such is much more complacent in the online market. For example its web site, although functional, is very common and lacks excitement. The site's design is lacking and does not portray a strong online presence. Walmart.com appears to be a follower, which is not a bad strategy; however, Walmart.com takes too long to adopt innovation. For example, Sears.com uses Macromedia Flash to allow users to play "fun" games with products Sears.com sells: cutting the lawn game is one such example. 2. According to recent published statistics for web traffic, Walmart.com is behind its competition. The company needs to improve its ability to generate more traffic to its website. Is this a management direction or a problem with employee skills?3. The company wants to attract those customers who don't live near a Wal-Mart, but fit the Wal-Mart's profile. This market may not be big enough as other competitors may be occupying those markets and have filled the gap. Thus, shopping online may not be a convenient alternative. This may also limit revenue Walmart.com can generate. 4. Walmart.com offers a variety of services and products hence it may not be flexible enough as its competitor Marksandspencer.com which offers unique clothing line and few other stylish products. Masrksandspencer.com is going after special niche of customer: stylish, upscale, and hip, and time constraint. These are the characteristics of common online shoppers.

Opportunities:

1. Walmart.com needs to identify which of its services and products would appeal to typical online shoppers and try to target this market.

2. Extend Walmart.com as a value added benefit to all its customers; allow customers to check the inventory availability and the price of store merchandise online. 3. Improve its web design and functionality. Make the site more interactive by adopting technology more speedily.

Threats:

1. Its physical reputation as a discount store may not appeal to online buyers and may be difficult to change. 2. Local discount stores (in areas not served by Wal-Mart) are limiting current opportunities for Walmart.com. 3. Problems encountered in physical world, may have negative effect online. For example, Wal-Mart's treatment of its employees resulted in many WalmartSucks.com type of web sites. 4. Not offering the same products online as in its physical stores may be a problem for some customers.

Channel conflict. Walmart.com integrated with the traditional Wal-Mart stores?

It appears that some of the integration is helping Walmart.com and part of its strategy is working against it. Because of fears that Walmart.com will cannibalize its physical store sales, Walmart.com is targeting customers that don't live near a Wal-Mart and can't take advantage of lower prices it offers to its regular customers. Because it needs to compete with other e-retailers Walmart.com needs to offer very competitive online pricing. This means that it can't have one price for products sold at Walmart.com and at Wal-Mart. Walmart.com clearly states this on their web page "But sometimes a price online does not match the price in a store. In our effort to be the lowest price provider in your geographic region, store pricing will sometimes differ from online prices." This contributes to channel conflict. Furthermore, it exacerbates the problem by offering some of the same products in both locations online and in physical stores. It would be better if the companies had consistent distinguishable product offerings through each channel. Regular customers at the physical stores may find same products at Walmart.com at different prices. Wal-Mart states: "But some products at Walmart.com are also in Wal-Mart stores. Online, this is often noted in the item page description. And the Wal-Mart circular notes which featured store items are also at Walmart.com."

On the other hand Walmart.com is adopting few strategies to mitigate other channel conflicts. Walmart.com uses Wal-Mart's distribution channel, logistics, and fulfillment processes. Furthermore, Walmart.com states that its online customer differs from its regular/physical customers and as such they have a separate online vendor and supplier application process. This strategy works well as there is no disintermediation for Wal-Mart's regular suppliers.

The company tries to minimize conflict between itself and its subsidiary in some areas; nevertheless, there are areas that still may cause channel conflict: pricing and product offering.

Overcoming bullwhip effect

Wal-Mart has instituted (Just In Time) inventory system and requires all its suppliers to follow outlined supplier guidelines. Wal-Mart requires information sharing between it-self and suppliers. Therefore every supplier must be EDI enabled. Wal-Mart also requires its suppliers to be connected to its transportation logistics system. Small order batching is now possible and better improved communication along the supply chain.

http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=331

This is a very interesting comment on how solving the bullwhip effect may create headaches for suppliers.

http://www.inventorymanagementreview.org/2006/05/more_on_walmart.html

Wallmart Case Studyhttp://www.oppapers.com/essays/Wallmart-Case-Study/219326

CONSUMER STUDIES

CONSUMER SATISFACTION – WAL-MART STORES INC.

Lecturer Ms. Piyumi Perera

Chameen de MelLevel II

[pic]GLOBLE 5OO - 2008 RANKINGS

About Wal-Mart

Wal – Mart is the retailer or the supermarket brand I have selected on assessing the brand’s Consumer Satisfaction and Consumer Behavior.

Previous page will give you a complete picture of the Wal – Mart stores and its scales of operations and also its economical affect on the small scale retailers.

Wal – Mart is the world’s largest retailer according to the 2008 Fortune Global 500 and was founded by Sam Walton in 1962.

It operates business in Mexico as Walmex, in the UK as ASDA, and in Japan as Seiyu. It has wholly-owned operations in Argentina, Brazil, Canada, Puerto Rico.

Wal-Mart's investments outside North America have had mixed results: its operations in South America and China are highly successful, while it was forced to pull out of Germany when its venture there was unsuccessful.

The story of Saving money at Wal-Mart

Wal-Mart always boasts that they have the cheapest pricing among other competitive retailers.

Wal–Mart vision: “We save people money so they can live better. Find out what we're passionate about, our strengths, and our reason for being.” (www.walmartstores.com)

On 2007, Wal-Mart introduced new advertising with the slogan, “Save Money Live Better," replacing the "Always Low Prices, Always" slogan, which was the original slogan for past 19 years.

A research conducted by the Global Insight supporting Wal-Mart ads, found that Wal-Mart's price level reduction resulted in savings for consumers of $287 billion in 2006, which equated to $957 per person or $2,500 per household (up 7.3% from the 2004 savings estimate of $2,329), which gives the advertising slogan a real meaning.

A discount retail store such as Wal-Mart can provide lower priced goods for consumers at lower prices by accepting lower margins, while selling greater quantities of goods.

But the other side of the story is a complete different one. It’s all about mastering the art of manipulating perceptions. Wal-Mart manipulates the perceptions of consumers and the business world in general.

Comparisons of the price of the other items in each section show that only 15% to 20% of the items Wal-Mart sells are actually priced lower than competing retailers. 80% to 85% of the items Wal-Mart sells are more expensive than at other retailers. This is Wal-Mart’s “price spin” — creating a strong impression of lower prices. (White Paper - Zenith Management Consulting)

This shows an important theory , customers feel their expectations regarding price are met if they see them to be met. It is possible to convince customers that an expectation is being met when it is not.

Wal-Mart consumer

The Wal-Mart consumer is always a value oriented shopper rather than an experience oriented as there are many indecent or bad customer service reported within the shops. So they always look only the value and quality not the service for that extent. A Wal-Mart financial report in 2006 also indicated that their customers are sensitive to higher utility costs and gas prices.

Q 1.1) What creates Consumer Acceptance?

Whatever the real policy of reducing prices in Wal-Mart , customers give low prices as the most important reason for shopping there. The other major point in Wal-Mart strategy in gaining consumer acceptance is separately catering the (segmenting down the consumer base) needs of different customer levels while giving them the value for their money.

e.g.

• Wal-Mart Discount Stores

• Wal-Mart Supercenter

• Wal-Mart Neighborhood Market Wal-Mart Neighborhood Markets are grocery stores Neighborhood Markets are used to fill the gap between Discount Stores and Supercenters. • Sam's Club Sam's Club is a chain of warehouse clubs which sell groceries and general merchandise, often in large quantities. Sam's Club stores are "membership" stores and most customers buy annual memberships Sam's has found a niche market in recent years as a supplier to small businesses. All Sam's Club stores are open early hours exclusively for business members and their slogan is "We're in Business for Small Business." • Wal-Mart International – ASDA ASDA is the Wal-Mart's UK subsidiary, ASDA accounted for 42.7% of sales of Wal-Mart's international. In compare to Wal-Mart's US operations, ASDA was originally and still remains primarily a grocery chain, but with a stronger focus on non-food items than most UK supermarket chains other than Tesco. ASDA has 340 stores, some of which are branded ASDA Wal-Mart Supercentres, as well as ASDA Supermarkets, ASDA Living, George High Street and ASDA Essentials stores.It has modified its stores strategy "one-size-fits-all” to Markets of one. Such as African-Americans, the affluent, empty-nesters, Hispanics, suburbanites and rural residents

Launching its new slogan: "Saving people money so they can live better lives”, Wal-Mart stated the three main groups into which Wal-Mart categorizes its customers:

"Brand Aspirationals" (people with low incomes who are obsessed with names like Kitchen Aid) "Price-Sensitive Affluents" (wealthier shoppers who love deals) "Value-Price shoppers" (people who like low prices and cannot afford much more).

Wal-Mart has also made steps to appeal to more liberal customers, for example, by rejecting the American Family Association's recommendations and carrying the DVD Brokeback Mountain, a love story between two gay cowboys in Wyoming. This initiative can be taken as a Wal-Mart’s concentration on Social/Cultural Factors of consumer buying behavior.

In this way, offering the right value to the right consumers has created the consumer acceptance for Wal-Mart Stores.

Q1.2) What are the consumer expectations?

11

Zen Management Reports

Customer expectations on different attributes shown on above graph.

If a store doesn’t cater to these expectations, customers will fill their needs elsewhere. If prices are very low but so is quality and selection, and the business are only open nine to five, it will fail. Generally, businesses succeed only if they meet all the core expectations to a minimum degree

In Wal-Mart they focus their customer’s minds on what they are good at – Reducing Prices, Because consumers think Wal-Mart’s prices are considerably lower than other stores, consumers have become more sensitive to price and it is the fact more important to them.

If a business meets an expectation very well, consumers excuses that business’s lack of performance in other expectations. This is precisely what happens in Wal-Mart’s case!

11 How well Wal-Mart the consumer expectations are met

[pic]

Q1.3) Is the product competitive on desired attributes?

In North America, Wal-Mart's main competition includes department stores like Kmart, Target, ShopKo, Meijer,

and Canada's Zellers, Winners, and Giant Tiger.Competitors of Wal-Mart's Sam's Club division are Costco, and the smaller BJ's Wholesale Club chain operating mainly in the eastern US.

Wal-Mart also had to face fierce competition in some foreign markets. For example, in Germany it had captured just 2% of German market following its entry into the market in 1997 and remained "a secondary player" behind Aldi with a 19% share. In July 2006, Wal-Mart announced its withdrawal from Germany.

Wal-Mart continues to do well in the UK, and its ASDA subsidiary is the second largest chain after Tesco

Zen Management ReportsThe diagram above shows how well Wal-Mart meets with its consumer expectations in relation to its competitors.(mainly in US)

You can identify that the key marketing factor of Wal-Mart– the Value for Money is emphasized and won the targets better than the competitors. With the above situation, the service or other factors such as social and buying situational factors are not much taken for granted.

Q1.4) Does the product surprises consumers with exciting attributes?

Wal-Mart uses many innovative approaches to consumer within the store as well as consumer protection initiative such as CAN.Wal-Mart's Customer Action Network is a program to keep customers informed about government issues that affect Wal-Mart and its ability to provide good value for consumer’s money. “When government tries to limit your shopping choices, or interfere in Wal-Mart's ability to offer Everyday Low Prices, Customer Action Network members can help by expressing their opinion”

They also believe in surprising customers by exceeding customer expectations with "aggressive hospitality" such as using door greeters. The store also features patriotic display and themes in its US stores. T

These ways Wal-Mart has been able to achieve the other attributes on consumer satisfaction other than the specialized Low Pricing policy.

After saturating its target market of working class, bargain-hunting consumers, Wal-Mart is ratcheting up its low-price strategy to appeal to more upscale shoppers by expanding its merchandise lines to include organic foods, better wines, high-end consumer electronics and new fashion-oriented apparel.

Wal-Mart founder Sam Walton: "You can't just keep doing what works one time. Everything around you is always changing. To succeed, stay out in front of that change."

Q2) Decide if its customers are value oriented or experience oriented.

As the advertising slogan of the Wal-Mart states its main target is value oriented consumers segment and they have successfully attracted that segment. The reason is to decide that is because there are many complaints, blogs or even consumer watch organizations specially questioning Wal-Mart’s practices.

Its customers know its brand, and will shop there because of the price, selection, and size.

Some consumer complaints on Wal-Mart services as published on consumeraffairs.com are shown below and we can see many complaints everywhere like these.

Nevil of Dayton OH (09/19/08) 9/15/ 08 the power was out in lot of the area, mine also. asked the blond in wireless phone to charge my phone. she said that it was not a service dept. quckly returned to talk to a young man. i had no phone all night, reg phone was out it was 8.25pm Brent of West Valley City UT (09/02/08)

I thought what couldn't get worse has!! I am sick of going to walmarts and having to search for one employee that might speak MY language!! I ask for something and all I get is a srug of the shoulders and a blank look. Jada of Shawnee OK (08/29/08) Not enough checkers and management there were not willing to do anything about it but finally did. They were rude. This happens all the time though. There are never enough checkers at the Shawnee Wal-Mart. It' so frustrating!

They sometimes call other people up to check but you have to insist and they realize you won't go away until you get some results. I'm tired of always having to be the bad guy! They should take care of the customers!

Even after many of these experiences, consumers still keep coming to Wal-Mart and that is one thing to be understand, it’s the VALUE they get for their money.

So this explains well why to decide Wal-Mart consumers are value oriented.

Q3) How much emphasis does the brand place on value addition? write a paragraph and quote examples.

By adding value to the products as well as the service provided Wal-Mart is intended to compete against stores that considered being upscale and appealing, such as Target. The new store features wooden floors, wider aisles, a sushi bar, a coffee/sandwich shop (with free Wi-Fi Internet access), a Subway, and higher-end items such as microbrew beer, expensive wines, and high-end electronics.

Adding value to the food products Wal-Mart announced to increase the amount of organic food available in its stores. both conventionally grown and organic versions of certain products would be available.

Wal-Mart provides products which are “exclusively for Wal-Mart’s” through contracts with manufacturers. Wal-Mart began offering those kind of special brands with the launch of Sam's Choice, a brand of drinks produced by Cott Beverages exclusively for Wal-Mart. That is a another scope of value addition for the product available through Wal-Mart.

With these initiatives which Wal-Mart has taken, we can consider it has a satisfactory emphasis on value addition for their products but not a great effort when considered to other brands.

Q4) Is Sri Lankan Manufacturers geared for value addition?

In Sri Lanka, the manufacturers, mainly the apparel sector is well geared in value adding their products in terms of latest technology and resource personnel.

Most of the local garment manufacturers have their own value addition departments or they maintain joint ventures with international manufacturers.

These can undertake product development processes, printing, washing, designing capabilities or even ethical practices in terms of labor and environment. Sri Lanka is looking forward to survive in the industry mainly with this VALUE ADDITION according to what the JAAF says.

Some examples for value addition capabilities are • Brandix Finishing Ltd - over the last 10 years grown into one of the largest players in the field of garment washing, dyeing and finishing – not only in Sri Lanka but the whole of Asia. • Sithro; unlike most washing and finishing plants in the country; is not part of a Garment Factory. Given the growth of the garment industry • MAS Design and eco manufacturing plant to produce exclusively for Marks & Spencer (M&S) at MAS Fabric Park, Thulhiriya • Hirdaramani Industries Seethawaka Washing Plant and Hirdaramani Product Development - geared to meeting customers various needs for innovative design input.

In the need for survival after the MFA was ended Sri Lanka aimed on other aspects of the garment industry other than cutting and stitching. As a result of that, the Fashion design education was encouraged in government and also in private institutions. Now Sri Lanka produces world class designers to cater the needs of moving the industry to high fashion market with value addition.

WALLMARThttp://www.oppapers.com/essays/Wallmart/94785

Overview

When Sam Walton founded the first Wal-Mart in 1962, the idea of bringing in a discount-shopping store into rural America was almost unheard of, except for the local five and dime stores. When Walton noticed that he had a lot of competition from regional discount chains, him and his wife Helen travelled the country to study other new retailing concepts, and were convinced that it was the wave of the future. With Walton's vision, Wal-Mart grew to be a multi-billion dollar, international company, operating about 4,600 stores around the world.

Wal-Mart's milestones began in 1962 when the first Wal-Mart was opened in Rogers, Arkansas. Seven years later the company incorporated as Wal-Mart Stores, Inc. Then a year later they opened the first distribution centre and home office in Bentonville, Arkansas, and also went public on the New York Stock Exchange. Several years later, in 1988, the first super centre was opened. Then in 1991, the first international unit was opened in Mexico City.

By the turn of the century, Discount Store News had named Wal-Mart "Retailer of the Century" and made Fortune magazine's lists of the "Most Admired Companies in America" and the "100 Best Companies to Work For." They were also ranked on Financial Times' "Most Respected in the World" list. In 2002, Wal-Mart became number one on the Fortune 500 list and was presented with the Ron Brown Award for Corporate Leadership, a presidential award that recognizes companies for outstanding achievement in employee and community relations.

Vision satment:

To become the worldwide leader in retailing

Mission Statement

Wal-Mart Stores, Inc. does not have a formal mission statement. This is because Kim Ellis, the Public Relations Coordinator, said that they believe the customers are more interested in other aspects of the business, and they, the company, are focused on meeting their basic consumer needs.

Since Wal-Mart does not have a mission statement I have created a mission statement that they might use. It discusses all nine components of a mission statement. This is the mission statement I have established:

"Our first responsibility is to provide all consumers the best products and services with guaranteed satisfaction under one roof. Wal-Mart provides a wide array of products like toys, electronics, groceries, jewellery, ladies, men, and children's apparel, and hard goods at reasonable prices. We will continue to offer scholarships to deserving high school graduates in hopes of providing students with a well-deserved education. Consumers have been conveniently provided with on-line shopping, but also with the concept of "one-stop shopping." The Wal-Mart team is devoted to everything that Wal-Mart has accomplished as a universal competitor. We are dedicated to recruiting, rewarding, and retaining employees of good moral standing by providing benefits for excellent performance, providing clean environments to work in, and by providing equal opportunity for all individuals. We will continue to offer the highest quality products at the lowest price to strive to be the best in the retail industry."

Components of Mission Statement

In the mission statement we target our customers by saying: "Our first responsibility is to provide all consumers the best products and services." Their customers are their number one priority. Customers keep Wal-Mart in business, so of course they would want to offer them their best products and services. The mission statement targets products or services by saying: "Wal-Mart provides a wide array of products like toys, electronics, groceries, jewellery, ladies, men, and children's apparel, and hard goods." Wal-Mart has so many different types of products and services that a list of the basic departments needed to be listed. These products are their main service.

Their concern for public image is stated: "We will continue to offer scholarships to deserving high-school graduates." Wal-Mart intends to make the future better. They want to see more high-school graduates go on to college and make something of them selves. By offering scholarships, it helps these graduates to pursue their dreams for a better future.

The mission statement mentions technology in that: "Consumers have been conveniently provided not only with the use of on-line shopping." On-line shopping is becoming the main way for a lot of people to do their shopping. Technology is making on-line shopping as easy as possible so people do not have to leave the privacy of their own homes and, in turn, they get to spend more time with their families.

The mission statement aims at markets by saying: "Wal-Mart is accomplished as a universal competitor." Wal-Mart has stores worldwide. They have conquered the international market. They are the number one retail-variety store in the world.

The mission statement shows a concern for employees by saying: "We are dedicated to recruiting, rewarding, and retaining employees of good moral standing." They want their employees to know that they actually have a reason for coming to work.

Without employees, Wal-Mart would not exist. They show their employees that they care about them and their needs.

The mission statement talks about self-concept with the statement: "By providing benefits for excellent performance, providing clean environments to work in, and by providing equal-opportunity for all individuals." Wal-Mart hires anyone who is capable of doing their job. You see this each and every time you walk into a Wal-Mart or see a commercial on television. The mission statement talks about their philosophy in that "We will continue to offer the highest quality products at the lowest prices." Wal-Mart's slogan is low prices everyday. If a competitor has a product at a lower price Wal-Mart will match it, just so they can live up to their philosophy. The mission statement talks about the concern for survival, growth, and profitability in that they "Strive to be the best in the retail industry." Wal-Mart does this each and everyday by opening new stores and having the lowest prices. Hardly anyone goes to a store and buys a product at a higher price when they know they can get it for less. This is how they are striving to be the best.

EXECUTIVE MEMO

http://www.oppapers.com/essays/Wallmart/100395

Wal-Mart's must focus on growth by building a high quality, low price brand in the new markets of South Africa and Australia by using its established retail knowledge capital and expertise.

This strategy is recommended because Wal-Mart is:• Facing increasing competition in local markets where already established• Loosing market share in these new territories due to increasing presence of suppliers (from China and India) in these emerging markets • Not maximizing potential and new revenue from access to these new markets • Not leveraging access to new goods and product raw materials

The priorities are to:• Conduct feasibility study and due diligence in recommended regions to establish mode of entry• Mobilize resources for entry• Execute entry to planTimeframes: 1.5 yearsBudget: 350 Million USD

FIRST STAGE: CASE ANALYSIS

1) Identify the issues/problems

The following issues and potential problems have been identified:

- Managing and coordination across a multinational organization- Competitive pressures of emerging companies, countries and territories (such as China, India, Russia, African states)- Retention of market share and/or customer share of wallet- Store and product branding protection and standardization- Innovation and cross-region pollination of new systems, methods and techniques- Knowledge management retention and development of personnel within regions - Leveraging of executive and business intelligence systems for easier decision making

- Integration of multiple systems and technologies while maintaining technology as a core competitive differentiator - Management of large asset and property base- Growth and creation of presence in emerging countries including risk analysis systems - Staff retention schemes and people management strategic issues- Acquisition and purchasing policy for entry into new countries- Customization and tailoring of products to meet the customs and traditions of customers within countries.

The pros promoting the effectiveness of Wal-Mart include:

• The organizations ability to entrench an awareness, create ownership and build a culture of adding true sustainable value to a countries economy, by generating new opportunities to in turn promote economical growth. • Building an ‘economy of retailers' with regards to Wal-Marts use of conceptual frameworks, intellectual capital, structures and networks of funding possibilities from across regions.• Generating a successful track record in the countries, where established, with successful ventures and remaining entrenched in the country as a dominant player• Promoting itself in building a supportive and loyal ‘customer' base by customizing its offering to the local conditions• Wall-marts ability to generate sustainable revenue streams that allows them to fund new growth.

The cons detracting Wal-Mart from effectiveness include:• Sustainable distribution and supply chains within countries become increasingly difficult to manage and implement• Wal-marts cultural clashes and impacts to promote itself outside of the immediate affiliate network sufficiently to aid in the generation of sustainable funding.• Local conditions, regulations, compliance and traditions are key factors which hamper growth.• Trustworthy and capable existing retail chains able to become Wal-Mart caliber stores seem limited within territories.

2) Analysis of the data (using all the tools remember Dupont financial ratios, "pest" and "swat" "four-factor", "five forces", industrial, product and here in IB nation "life cycles"?)

2.1 PEST AnalysisPolitical• Wal-Mart not always correctly politically aligned creating difficulties in expanding into new territories• Threats from political instability in regions creating losses

• Alignment of partnerships from non-present in-county organizations tends to create greater risk than those that have vested interest of success within the county where they have presence.• Can be very adaptive and inventive to new ventures and entry to new markets• Its people policies can leave much criticism as it prefers having savings in investing in a flexible temporary workforce as opposed to permanent workforce. This practice may not be well received in all political circles although can be argued to create more employment Economic• Certain territories pose greater risk in investment stability due to the nature of the economic climate and conditions• Civil war and political turmoil affects operations and investments• With growth Wal-Mart able to cross subsidize other ventures and assist ailing parts of the business• Competitive pressures and attacks within territories tend to be squashed by ingenious means to place direct and indirect competition Social• Must customize processes to local customs and traditions –tends to be to forceful • Clash of company culture with acquired or partner companies create initial difficulties• Cross sharing of knowledge and information can become really difficult especially with dysfunctional and non-integrated systems

Technology• Technology forms the backbone of Wal-Mart control and ability to coordinate decision making• Drives constant standardization and systems consolidation• Integration across different platforms and regions not always successful• Recently Signed with HP and multimillion dollar deal for HP to standardize its operational platforms and application base. • Applying standardization in technology across multiple regions is very difficult due to different procurement strategies, localization issues and data format consolidation. • Technical support and service availability management across multiple region requires a similar international company to provide the required services or alternatively need to organize such that services are provided locally.• The decision on centralized system control versus decentralized control is significant decision policy as centralized systems allow better control and data mining possibilities for improved business intelligence, where systems unavailability could impact whole regions. Decentralized systems architecture pose greater risk on systems consolidation and standardization but decrease risks on systems availability.SWOT AnalysisStrengths• Recognizing the need to adapt store formats to local customs and needs• Ability to acquire established companies to gain market share• Ability to enter markets through flexibility in strategies of partnerships, acquisitions or going it alone

• Understands where competitive advantage can be maintained through local brand investment instead of re-investing in brands thus building trust and relationship with existing customers while growing a new base of customers• Wal-mart shows a degree of patience in its entry into new markets but does tend to want to over power its status and culture over existing markets• Maintains a degree of power over labour force decision making and prevention of unionization• Seeks to diversify its offerings and product ranges• The product itself is conceptually well defined and the immediate purpose of what Wall-mart attempts to achieve and requirements it intends to fulfill are clear. The products vision for the immediate future is clear and well articulated.• Wall-Mart conceptualizes a full complete product line with diversity in its products to be sold across various industries therefore diversifying the revenue opportunities. The concept is initially portrayed as innovative and of high quality, easy to purchase at cost effective pricing with excellent service and delivery.• Currently fragmented competition in the market addressing the Wal-Mart offering although has Wal-Mart diversifies it enters stiffer competition• Sustainable growth is directly related to the size of the potential and customs of the markets it addresses. • Location of the stores is defined as prime and conducive to receiving more quantities of customers and orders. By diversifying its presence to smaller stores and larger warehouses it covers the spectrum of retailing and wholesaling. • The Wall-Mart name is not entirely known and entrenched in the retail world outside of the USA or Europe to command loyalty to its product. This poses interesting challenge to ensure that the company can produce enough interest to generate profits in other regions without significant investment in marketing.Weaknesses• Although Wal-Mart is renowned as a retailer the product offering and opportunity definition and vision of the distant future is not clear or well described. Wal-Mart therefore flounders in other industries and offerings which may not be suited to Wal-Mart. Wal-Mart by being to much to everyone instead of "sticking to their knitting" could position them as uncompetitive in the future against emerging companies especially from China and India. • The concept is robust and attractive but the expansions of this idea to become truly international such as to areas such as Africa do not portray a sense of product or company sustainability without modifications on its cultural approach.• The opportunity concept hints but does not explore the challenge that the market wants and needs a change and how Wal-Mart intends adding impetus to address this change.• Revenue stream importance and cost-volume-profit analysis is not clear. This is could be mainly due to the company needing to secure significantly large orders so that economies of scale can be reached which could be difficult with trade barriers and taxes. • The distribution and sales channels are dependent on the country trading policies, which could affect number of locations or ability to sell all types of product unless obtained in-country. Then again not all products would be suited to local markets.

• Reaction times to down swings of economies can hurt the company internationally• The number of suppliers in country may not be able to support Wal-Mart due to legal pressures or affinities to other companies driving their price up. This may leave Wal-Mart to have no choice but to import goods increasing costs and needing to customize products to local customs and traditions• Statutory and legal compliance issues for each region vary and create concerns in its abilities to procure land or establish presence.• Preference to launch new stores in new territories by having to acquire existing store chains this could prove difficult in cracking new markets such as Africa where existing bases are rare.• Battles to enter new markets choosing a very difficult competitive path and tends to want to pressure its culture on the new organization to quickly and no adapting to local customs• Increasing overheads required offering service as major investments in equipment and property is required. • Duties, customs VAT and taxes in country can become crippling especially if goods need to be imported. Trade barriers create difficulties in establishing presence therefore needing to create in-country distribution networks and suppliers therefore increasing costs• Systems integration not always successful• Can under estimate the conditions of certain countries with regards to workforce power and suppliers• May not be the best experienced or leaders in certain target markets or products creating unnecessary pressures.Opportunities• Expand into Australia and Africa. Potentially explore South Africa has a new market and entry point into SADC countries• Once established Wal-Mart can allow growth into other market segments instead of the initial targeted retail market space to include various offerings.• Wal-Mart can leverage new technologies to increase its presence internationally such as e-commerce and mobile commerce which can be useful for regions that are internet emerging such as china or telecommunications emergent such as Nigeria. • The principle of growth for the new lines are to be primarily based on the Wall-Mart brand which is hoped to become popular in the market and therefore retain a loyal clientele for new products and services in the future. • If the Wall-Mart brand is able to establish it in the market, a premium price could be requested or extra revenues generated by licensing the name.• Economies of scale can be leveraged if large consignment orders can be obtained and trade barriers overcome.Threats• People traditions and cultural clashes across different regions create workforce pressures• Continuous threats of unionization across different countries typically brought upon its temporary staffing policies.

• Established competitors with stronger brand names can quickly secure a customer and market space and offer similar products and services and therefore attract more customers than Wall-Mart could.• People management strategies and lack of perceived commitment to the workforce may result in further changes in the choices of purchasing altogether in the future, which the current product lifecycle in the short term may not be able to sustain.• The rate of growth of the brand is entirely unpredictable and the company itself cannot determine or project any suitable growth trends.• The product lifecycles are relatively short and linked to seasonal changes and FMCG cycles, which may detract from the revenue opportunities for the initial products unless economies of scale are sought this could prove expensive.• Wal-Mart struggles to obtain the trust of its employees and internal people and efforts should be placed on this as the employee base is also an important component to its retail strategy. Porter's Five Force AnalysisWall-mart is analyzed against the Porter's five force modelBuyers Poweri. Bargaining leverage – • Wall-mart can exhibit significant bargaining leverage as part of the larger international group which can demand and negotiate lower prices for goods and services purchased.• As independent region buyers the bargaining power would be less than as the group.• Leverage can be created by the vast expansion of Wall-mart group which has access to various suppliers and different markets which could be used to service the remaining territories with supplies and goods from cheaper suppliers

ii. Buyer volume• Wall-mart purchasing volumes can be significantly large if goods are purchased from single suppliers for the entire group• As goods are bulk purchases significant cost reductions can be obtained

iii. Buyer information• Through Wall-Marts presence over various industries, regions and countries Wall-Mart has significant information on market conditions, drivers, success factors and policy information which it can easily anticipate impacts of in other regions and therefore apply any necessary plans to avoid detrimental impacts eg. If one territories economy was to be in a downturn Wall-Mart could compensate with support of capital or services from other regions to smooth over the cycle.• Through its acquisition policies and processes Wall-Mart would have acquired significant intellectual capital of market conditions, supplier information, etc which would be helpful for better bargaining and decision making

iv. Brand identity

• Wall-Mart presence and consumer brand affinity will continue to attract loyal consumers and retention of share of wallet revenues. This allows good power over price setting internationally. • Travelers will be such a market that would retain loyalty to the Wall-Mart brand• Cross-border brand awareness also add to the buying power

v. Price sensitivity• Wall-Mart will be impacted by prices of goods in various regions depending on the circumstances of the economy in which it is present• Price adjustments for various regions for goods and services will need to be corrected impacting its cost reductions in the local organizations accordingly

vi. Backward integration• Wall-Mart poses significant threat to the acquisition of suppliers although it chooses not to do so as a global policy

vii. Product differentiation• Wall-Mart battles with identifying goods that are substantially different to the local competitors typically because these goods are of a commodity nature although it can import differing products. This however opens up risks of taxes and import tariffs which can result in Wall-Mart out pricing itself in the market.• Local customs and traditions imposes Wall-Mart to customize itself to offer similar products as other competitors to remain financially able. This reduces its buying power.

viii. Buyer concentration versus industry• Through Wall-Marts large presence through its various wholesale and retail channels concentration keeps increasing demanding higher buying power. • As Wall-Mart grows so does its power to source various goods and services at much reduced rates• Wall-Marts contribution to GNP, GDP and employment figures has significant impact on economies therefore entrenching itself into the countries economy where it trades. This increases buying power.

ix. Substitutes available• Wall-Mart's growth will continue to spur suppliers to offer new and inventive products therefore creating rivalry in supplier's base and generation of many new substitutes. Wall mart has a retailer has significant advantage in that a range of product and goods choices will always be available to them.Suppliers Poweri. Importance of volume to Supplier• Suppliers will try to maximize its output to reach maximum efficient capacity utilization. As a result if the supplier is already reaching maximum capacity increasing volume will not be in their interests as it will increase costs.

• Depending on the volume and importance of the goods needed by Wal-Mart, requests may or may not detract from the supplier power depending on how much Wal-Mart desires the goods.• As Wal-Mart purchasing typically is for lengthy contracted periods suppliers can be influenced to decrease its power to supply at a Wal-Mart favored price.

ii. Availability of inputs and impacts on costs and Differentiation of inputs• Unavailability of supplier raw material inputs in certain countries can increase supplier power to demand higher prices and vice versa. However has Wal-Mart has presence in different regions it can easily move supply to regions where raw materials are abundantly available to decrease the supplier influence over price. Wal-Mart can easily ship these goods repackaged or re-branded to the local tradition requirements.• As Wal-Mart will typically purchase standardized products it will also decrease the supplier power

iii. Substitutes available• Wal-Mart hold significant bargaining power due to its ability to source substitute products easily due to its location reach• However market demands due to local tradition and circumstances will force Wall-Mart to have to provide local goods and product which it may not be able to force substitutes easily.

iv. Switching cost of suppliers• Wall-Mart quality, branding and investment needs into suppliers force switching costs to become difficult as time progresses. • As products also become popular and increase in demand switching product from suppliers may cost Wal-Mart significant revenues.

v. Supplier concentration versus industry• As Wal-Mart typically invests in a supplier contract for lengthy periods of time supplier concentration and rivalry does not typically phase or influence them.• Only unless they are forced to shift to new suppliers as a result of significant price differences, loyalty tends to prevail.Internal market rivalryi. Exit barriers• Wal-Mart decisions to invest in territories poses significant barriers to exit once in place.• Typical pressures preventing exit depend on local circumstances such as government pressures, trade unions, non-liquid assets, inability to move cash and transfers out of the country.

ii. Industry concentration• Wall-Mart faces increasing competition in its various target locations as markets become saturated with new competition • As Wal-Mart diversifies its offerings it also begins to intrude into new competitive markets increasing rivalry

iii. Industry growth• Wall-Mart through its various positioning can influence and be influenced by changes in economies to exploit growth. It may also be able to ensure recovery by movement of support form other parts of organizations in downturns. • Wal-Mart has positioned itself in markets that were showing signs in growth such as Brazil, China, and Europe. However as Wal-Mart was early entrant to these territories in comparison peaking of revenues seems to be pushing Wal-Mart to have to invest in emerging countries to maintain its growth.

iv. Brand identity• Wall-Mart brand awareness building competes directly with local trusted brands and must accommodate strategies for overcoming these brands.• Wall-Mart exhibits ability to refine and acclimatize its strategy for compensating for the traditional values and needs

v. Diversity of rivals• This is the key threat identified to Wal-Mart. Wal-Mart tends to not be the ultimate specialist in certain areas that it explores thus exposing itself to threats of its rivals and losing market share accordingly. • Local rivals also exhibit ability to be more politically aligned to government and people traditions and cultures then Wal-Mart therefore creating tensions and suspicion resulting in loss of market share.Threat of new entrants/substitute productsi. Switching costs/ Price-performance tradeoff• Wal-Mart may be influenced in market share by new entrants that are cheaper and display similar quality as Wal-Mart products. • Significant threats to Wal-Mart are being posed by local Asian customers such as ChinaBarriers to entryi. Absolute cost advantage• Wal-Mart once established can demand price advantage however the entry to new markets has proved difficult. The preferred strategy to open up the opportunity has been through acquisition of existing companies. This allowed Wal-Mart to enter new markets without having to compete head-on with existing competitors on cost.

ii. Learning curves• Wal-Mart's preferred strategy of using a flexible and temporary workforce shows that there is little to no concern on the learning curve associated with having to establish a new business. This is simply because Wal-Mart can use skilled expatriate personnel for the permanent positions and use relatively unskilled local personnel for the other functions. Retail does not require extensive experienced persons for all functions provided the back office personnel are permanent experienced.

• Wal-Mart has learned through its ventures that the local customs and tradition cultural learning curve can affect its operations and therefore have recognized the need to be adaptable to these needs to overcome these learning curves.

iii. Government policy• Wal-Mart's ‘Achilles heal' is its inability to be always correctly politically aligned finding itself in difficult situations with the workforce. • Wal-Mart does have significant influence over certain parts of Government regulation but tend to be exposed regularly to taxes and trade tariffs.

iv. Access to distribution and Economies of scale• Wal-Mart can reach economies of scale through effective supply chains, agreements with preferred suppliers, and effective distribution of goods and products from consolidated purchasing off single suppliers.• Entry to the new markets required Wal-Mart to ensure that it access to all of the suppliers and distribution so has to displace existing competitors.• Distribution and imports are subjected to duties and taxes which influences results and performance. Local supply and distribution is preferred to overcome this.

v. Capital requirements• Wal-Mart through its international presence has ability to re-locate investment capital to areas where its needed the most• Local capital tends to be not required from the initial stages as its funded from corporate headquarters

Financial AnalysisThe following deductions can be reached from analysis of the provided financial information:

1. Steady growth in sales year-on year maintaining a 12% average growth 2. Cost of sales steady, probably attributed to stock and inventory costs3. Wall-Mart is operating on a gearing by debt principle with large LTD. Debt seems to be due to obligations of capital leasing probably due to property and renting expense for sites where Wal-Mart does not own property.4. Dividends per share not impressive probably due to high number of shares and low earnings comparison 5. Current ratio is low creating awareness that Wal-Mart not able to service its liabilities with assets6. Large assets based on inventories contributes to high working capital cycle7. Return on assets on the low side which implies not making full utilization of the assets available to them8. Heavy investments in property, land and capital leasing9. Return on equity maintained at average of 20% which shows good financial management policy10. Tax rates applicable over various regions effect net income significantly

3) Formulate and evaluate the options/alternatives

The following options for growth are recommended as a Wal-Mart strategy,

Option 1: Maintain current growth plan

Advantages Disadvantages• Steady growth and control of finances • Pressures from shareholders for higher returns create tension• Retains strong control of growth so has not to overexpose • Potential loss of market share by engaging in more head on competition

Option 2: Invest in new territories

Advantages Disadvantages• Potential to exploit higher returns and new markets • Greater exposure to territory volatility and economic instability • Create higher growth in revenues and share performance • Risk to financial capital outlay loss

Option 3: Buy into Competition

Advantages Disadvantages• Gain of market share • Anti competition law and monopoly law contraventions• Higher returns and access to new markets quicker • Extreme capital outlay

Option 4: Diversify offerings

Advantages Disadvantages• Entry to new markets • Increased competition• Diversity in portfolio decreases financial risk and may increase returns •

Possible brand damage

4) Recommend a strategy to pursue

The recommended strategy is to concrete the current position based on core competencies and focus on brand building while pursuing exploring of new markets and regions. Access to new regions can allow new growth, revenue generation while access to new market supplies.

5) Create a decision-action plan.• Perform Market analysis and feasibility study on most probable regions for new investment possibly Africa and Australia• Conduct feasibility study

• Present results of findings such as possibilities for entry i.e acquisition, partnerships, takeover, new investment. • Perform investigative territory analysis• Concrete plans for entry into market• Mobilize resources for entry• Execute plans

http://www.oppapers.com/essays/Wallmart/590007

INTRODUCTION

The world largest retailer Wal-Mart was founded by Sam Walton in the year 1962. He opened his first store in Rogers, Ark. On 31st October 1969, the company was incorporated as Wal-Mart Stores. Key success factor was the guidance of Sam. Presently they are operating in fifteen countries with more than 8,000 stores with 2.1 million employees. Major features of Wal-Mart stores are its store area, cleanliness and its shelves which is filled with varieties of quality items that includes health care products, family apparels, electronic items, automotive products, hardware items, jewellery etc.Wal-Mart is giving more emphasis for customer needs and tried to reduce cost through the effective usage of supply chain management system. In the year 2009, Fortune Magazine ranked Wal-Mart as first among other retailers in its survey. Sales were about 401 billion U.S dollars in the FY 2009. Sam Walton claims that Wal-Mart’s vision had always been to increase sales through lowering the costs through organized distribution system with the help of the Information Technology. It is said that Wal-Mart’s extreme success could be attributed to its effective supply chain management.Wal-Mart’s efficiency in supply chain management was due to two key factors namely automated distribution centre and the computerized inventory system. This brought in minimizing a lot of time the later not only reduced the checking out time but also recorded the transaction which is much needed to know envisage demand. Demand forecast is a constant issue which could be a threat when not handled properly. This is due to the fact that demand prediction is always inaccurate. Aggregation would be a remedy for this unpredictable demand.The 1970s marked the beginning of significant growth for the company. The first year of that decade saw the opening of the first Wal-Mart distribution centre, as well as the Wal-Mart Home Office, in Bentonville. Ark. At that point, Wal-Mart employed 1,500Associates working in 38 stores, with sales of $44.2 million. In 1972, Wal-Mart was listed in New York Stock Exchange. By the middle of the decade, Wal-Mart employed more than 7,500 associates in 125 stores with sales of $340.3 million, and in 1975entered into the state of Texas. The next year, the company acquired the Hutcheson Shoe Company, and introduced the Wal-Mart pharmacy, auto service centre and jewellery

divisions. 1997 was Wall-Marts first $100 billion sales year, with sales totalling $105 billion, and the company served 90 million customers per week worldwide. Wal-Mart also replaced Woolworth on the Dow Jones Industrial Average. In this year they entered in Germany and joint venture in Korea. In the last year of the 1990s, Wal-Mart became the largest private employer in the world, with 1,140,000 total associates. Wal-Mart entered the new millennium with the appointment of H. Lee Scott Jr. as the third CEO of Wal-Mart Stores Inc. in 2000. That same year, FO rtune magazine ranked the company fifth in its "Global Most Admired All-Stars" list and named Wal-Mart the third most admired company in America. The 2000Cone/Roper Report once again ranked Wal-Mart as the No. 1 Corporate Citizen in America. In the following years, Fo rtune magazine also placed Wal-Mart in the top spot-on its ´Most Admired Companiesµ list two years in a row, in 2003 and 2004. In 2004, Wal-Mart was also presented the "Corporate Patriotism Award,"

Each store constituted an investment centre and was evaluated on its profits relative to its inventory investments. Store-level data on sales, expenses, and profit and loss were collected, analyzed, and transmitted electronically on a real-time basis. The data could be analyzed by region, district, store, department within a store, or even at the level of an item within a department. One of the significant costs for retailers was shoplifting, or pilferage. Wal-Mart addressed this issue by instituting a policy that shared 50 percent of the savings from decreases in a store’s pilferage among that store’s employees through store incentive plans. Early in Wal-Mart’s history, Sam Walton implemented a process requiring store managers to fill out Best Yesterday ledgers. These relatively straight forward forms tracked daily sales performance against the numbers from one year prior. Recalled Walton organization was really a store within a store, encouraging department managers to be accountable and giving them an incentive to be creative. Successful experiments were recognized and applied to other stores. One example was the people greeter, an associate who welcomed shoppers as they entered the store.These greeters not only provided a personal service, their presence served to reduce pilferage. The 10-Foot Attitude was another customer service approach Walton encouraged. When the founder visited his stores, he asked associates to make a pledge, telling them, I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him, and ask him if you can help him. In return for employee’s loyalty and dedication, Walton began offering profit sharing in 1971. Every associate that had been with us for at least one year, and who worked at least 1,000 hours a year, was eligible for it, he explained. Using a formula based on profit growth, we contribute a percentage of every eligible associate’s wages to his or her plan, which the associate can take when they leave the company, either in cash or in Wal-Mart stock. In 2001, Wal-Mart’s annual company contribution totalled $486 million. Wal-Mart also instituted several other policies and programs for its associates: incentive bonuses, a discount stock purchase plan, promotion from within, pay raises based on performance not seniority, and an open-door policy.

SWOT Analysis

Strengths Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.

Wal-Mart has grown substantially over recent years, and has experienced global expansion.

The company has a core competence involving its use of information technology to support its international logistics system. For example, it can see how individual products are performing country-wide, store-by-store at a glance. IT also supports Wal-Mart's efficient procurement.

A focused strategy is in place for human resource management and development. People are key to Wal-Mart's business and it invests time and money in training people, and retaining a developing them.

Weaknesses

Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.

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.

The company is global, but has a presence in relatively few countries Worldwide.

Opportunities

To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region.

The stores are currently only trade in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India.

New locations and store types offer Wal-Mart opportunities to exploit market development. They diversified from large super centres, to local and mall-based sites.

Opportunities exist for Wal-Mart to continue with its current strategy of large, super centres.

Threats Being number one means that you are the target of competition, locally and globally.

Being a global retailer means that you are exposed to political problems in the countries that you operate in.

The cost of producing many consumer products tends to have fallen because of lower manufacturing costs. Manufacturing cost has fallen due to outsourcing to low-cost regions of the World. This has lead to price competition, resulting in price deflation in some ranges. Intense price competition is a threat.

Q.Wal-Mart was singularly effective in up grading the technology of its suppliers, in some cases well beyond their core competencyHowever, a serious allegation against Wal-Mart is that in its passion to reduce costs, it drained its suppliers to virtual bankruptcy.

ANS.Wal mart is a company play hard ball game means they pursue with the single mind focus on competitive and benefits it offers like leading market share Big margined growth. Wal mart always tries to win the game or we can say that they play to win the game at any cost. When if matter comes about price it hard to beat wal mart.The intention of wal mart is to rule the market by creating monopoly in the market and that why they were following the policy of predatory pricing in which they use a to sell the product intentionally at low cost in order to drive competitors out of the market or creating barriers to entry far new compotator, because it is really tuff for the new entrants to compete with wal mart in such policies. So either they go out of the business or choose not to come in the business, So in the price war between the two company. The company who is financially weaker are use to go out from the competition and due to this both company has to face losses but the company who financially sound can still stand in the market and financially weaker company due loss of revenue has to quiet from the market. So this policy is strongly followed by wal mart to prevent the entry of new company and due to this wal mart is famous for offering the product at the lowest cost. It is compulsory for wal mart to purchase the product at minimum cost as much possible and for this wal mart is caused of using monopoly power to force it supplier to give the product at minimum price and as we have explained that wal mart don’t allow new entrant to emerge in the market that’s why wal mart is single buyer with various suppliers . so wat mart use exploit supplier as much as possible and due to the constant demand of lower price cause kraff food to shut down thirty nine plants, to let of 13500 workers and to element a quarte of its product . they was unable to compete with other supplier and claims that cost of production gone up due to higher energy and row materials cost. One other example is most wat mart store pharmacies a full many genric prescription for 200 Rs far month supply. However in California complains from other pharmacies has resulted in watt mart buying to charge at least 450 Rs for a month supply of certain area. So in this way in passion to reduce cost wal mart drained its supplier to virtual bankruptcy. Wal-Mart has been accused of using monophony power to force its suppliers into self-defeating practices. For example, Barry C. Lynn, a senior fellow at the New America Foundation , argues that Wal-Mart's constant demand for lower prices caused Kraft

Foods to "shut down thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products." Kraft was unable to compete with other suppliers and claims the cost of production had gone up due to higher energy and raw material costs. Lynn argues that in a free market, Kraft could have passed those costs on to its distributors and ultimately consumers.

EVIDENCE:-

Charles Fishman’s article, “The Wal-Mart You Don’t Know” talk about the “squeeze” Wal-Mart puts on all of it’s suppliers in order to get the lowest price possible. One example he writes about is Vlasic’s gallon-sized jar of pickles. When it first came out, the jar was priced at over three dollars and sold successfully. Then Wal-Mart took it further and wanted to offer it to consumers for fewer than three dollars; they priced the jar for $2.97. Consumers went crazy over this; a gallon jar of Vlasic pickles for under three dollars. While sales increased rapidly, Vlasic wasn’t making any profit on the item. They were only making a cent or two on each jar sold. It even started hurting the other Vlasic pickle items because shoppers from other stores were going to Wal-Mart just to purchase the gallon-sized jar .Vlasic shortly went to Wal-Mart to see if they would increase the jar of pickles just slightly so that they would make some kind of profit. Wal-Mart turned them down without a second thought. Wal-Mart even told them that if they won’t sell the pickles for $2.97, then they would go to a competitor and asks them, and quit doing business with Vlasic altogether. Vlasic soon filed for bankruptcy; it is not fully determined of the gallon-size of pickles had a direct effect on that. The article also talks about a project study that Bain & Co., a global management firm, did on Wal-Mart trying to find out if companies actually have “healthy relationships with them”. They found that when negotiating prices with suppliers, if Wal-Mart does not like the price then they will tell the supplier, “Here’s the price you gave me. Here’s what I can get a competitor’s product for. Here’s what I can get a private-label version for. I want to see a better value hat I can bring to my shopper this year. Or else I’m going to use that shelf space differently”. Basically this is a direct threat from Wal-Mart to the suppliers, and they have the power to do so. Wal-Mart has been accused of using monophony power to force its suppliers into self-defeating practices. For example, Barry C. Lynn, a senior fellow at the New America Foundation , argues that Wal-Mart's constant demand for lower prices caused Kraft Foods to "shut down thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products." Kraft was unable to compete with other suppliers and claims the cost of production had gone up due to higher energy and raw material costs. Lynn argues that in a free market, Kraft could have passed those costs on to its distributors and ultimately consumers.For example, most Wal-Mart store pharmacies fill many generic prescriptions for $4 for a month's supply. However, in California and ten other states, complaints from other pharmacies have resulted in Wal-Mart being required to charge at least $9 for a month's supply of certain drugs.

Carey, a partner at Bain & Co., gives the example of his friend in the umbrella business that once supplied for Wal-Mart. One year the umbrella owner went to Wal-Mart and

requested a five percent increase in sales price and Wal-Mart turned him down. The owner then lowered his request to a small two percent increase and Wal-Mart denied his request completely and even quit doing business with them altogether. They told him that they would go with a Chinese manufacturer which was incredibly cheaper than him . It is important to note that these examples come from companies that no longer do business with Wal-Mart. The article discusses that when asking companies that currently work supply for Wal-Mart about their relationship, most would say it is great one, if they said anything at all. A lot of companies refused to even discuss Wal-Mart on any level. Just by refusing to talk, it is easy to grasp how powerful Wal-Mart is. Companies do not want to chance saying anything that could be taken negatively if Wal-Mart heard about it because they can stop doing business with any supplier at the drop of a hat. Most companies cannot afford to lose their market share they get from Wal-Mart shoppers. It’s hard to work with Wal-Mart, but it’s hard not to work with them at the same time .

Core competency

Wal-Mart needs to identify and nurture the primary core competency that fuelled their growth fulfilling customer needs with a wide spectrum of products at everyday low prices. This competency is the product of the aggregate of competencies across individual skill sets and organization boundaries Wal-Mart is a leader in channel management, inventory control, distribution and customer service. This is a result of the company’s ability to coordinate a complex information management and distributing network and to efficiently manage supplier relations, through the use of new technologies and the seamless flow of information. Wal-Mart’s extensive communications network connects all stores, warehouses, offices and suppliers. This enables Wal-Mart to not only provide value to its customers by offering a wide variety of goods at the lowest prices, but also to provide value to its suppliers as a large, ever present channel for sale of goods. This channel also provides a highly efficient feedback loop on unit sales, demand and inventory, facilitating a just in time supply management system and an effective needs-based position. Through careful bargaining and sheer-size, Wal-Mart has power over the suppliers, and can purchase goods cheaper than the competition. Wal-Mart can also differentiates through private branding, i.e. Sam’s Choice. In addition to the added differentiation, they can become less dependent on branded manufacturers, further eroding the power that suppliers may wield. This also allows them to exploit their initial strategy of opening stores in rural areas that were traditionally neglected, by maintaining a steady supply of low priced goods with low inventory costs. This raises the barriers to entry. By offering such a broad spectrum of products at the lowest prices, Wal-Mart reduces the threat of bargaining power of buyers. Wal-Mart was a leader in Uniform Product Codes scanning. For the two years that it took K-Mart to implement their system, Wal-Mart had, at least temporarily, a competitive advantage that was both valuable and rare.Another characteristic that is valuable and difficult to imitate: a loyal and motivated workforce. It requires time to develop a company culture of dedication and commitment to hard work. Providing value to the customer through low prices and excellent customer service, the threats of substitution are reduced. Customers won’t switch to competitor chains.

The management of Wal-Mart must nurture and continually improve these competencies across the organization to remain dominant in the domestic market. To sustain their phenomenal growth, these core competencies must be intrinsic to a strategy designed to transfer Wal-Mart’s competitive advantages into the global marketplace.

Implementation Now that the core competencies have been identified, Wal-Mart must continue to innovate and take advantage of new technologies to maintain their position as the cost leader in the industry, from supply chain management to customer service. Operational efficiency in itself is not an effective strategy. Flexibility is critical and willingness to take some risks is important in the formulation of new systems and ideas, lest their.Although diversification into the food retail industry only provides “razor thin” margins, the supermarket section serves as a draw to the higher margin merchandise departments. The two largest supercenters chains, Meijer and Fred Meyer, plan on staying regional. Wal-Mart has the infrastructure to exploit the concept nationwide.Management should continuously benchmark operating results and best practices against those of their competitors. This includes not only Target and K-Mart, but the major supermarket chains as well.Management must nurture their competitive advantages and convey their importance to the organization as a whole. The management and associates need to understand their responsibilities and what they need to contribute to maintain the system of best practices that translate into advantage.To expand globally, Wal-Mart should enter into joint ventures or acquire foreign mass retailers already established in the market, as they did with Cifra S.A. in Mexico. By buying an established business, Wall-Mart would be relieved of some of the initial capital investments for land and buildings, as well as skirting the morass of zoning ordinances and regulations.

Conclusion

There is no doubt that wal mart is a major player in the retail sector or we can say that there is no competitor moving near the wal mart in any matter. wall mart is the no.1 retail company in all over the world. known for providing product to the customer at lower price. this is the core competencies of wal mart.Beside this there is one obligation over the wal mart that they use to exploit their supplier in such a way that they become bankruptcy. so we are also in support of this obligation ,and we have mentioned few evidence that how wal mart exploited their supplier by following the process of MONOPONY.

BIBLIOGRAPHY

www.google.com

www.ask.com

www.scribt.com

INTRODUCTION

The world largest retailer Wal-Mart was founded by Sam Walton in the year 1962. He opened his first store in Rogers, Ark. On 31st October 1969, the company was incorporated as Wal-Mart Stores. Key success factor was the guidance of Sam. Presently they are operating in fifteen countries with more than 8,000 stores with 2.1 million employees. Major features of Wal-Mart stores are its store area, cleanliness and its shelves which is filled with varieties of quality items that includes health care products, family apparels, electronic items, automotive products, hardware items, jewellery etc.Wal-Mart is giving more emphasis for customer needs and tried to reduce cost through the effective usage of supply chain management system. In the year 2009, Fortune Magazine ranked Wal-Mart as first among other retailers in its survey. Sales were about 401 billion U.S dollars in the FY 2009. Sam Walton claims that Wal-Mart’s vision had always been to increase sales through lowering the costs through organized distribution system with the help of the Information Technology. It is said that Wal-Mart’s extreme success could be attributed to its effective supply chain management.Wal-Mart’s efficiency in supply chain management was due to two key factors namely automated distribution centre and the computerized inventory system. This brought in minimizing a lot of time the later not only reduced the checking out time but also recorded the transaction which is much needed to know envisage demand. Demand forecast is a constant issue which could be a threat when not handled properly. This is due to the fact that demand prediction is always inaccurate. Aggregation would be a remedy for this unpredictable demand.The 1970s marked the beginning of significant growth for the company. The first year of that decade saw the opening of the first Wal-Mart distribution centre, as well as the Wal-Mart Home Office, in Bentonville. Ark. At that point, Wal-Mart employed 1,500Associates working in 38 stores, with sales of $44.2 million. In 1972, Wal-Mart was listed in New York Stock Exchange. By the middle of the decade, Wal-Mart employed more than 7,500 associates in 125 stores with sales of $340.3 million, and in 1975entered into the state of Texas. The next year, the company acquired the Hutcheson Shoe Company, and introduced the Wal-Mart pharmacy, auto service centre and jewellery divisions. 1997 was Wall-Marts first $100 billion sales year, with sales totalling $105 billion, and the company served 90 million customers per week worldwide. Wal-Mart also replaced Woolworth on the Dow Jones Industrial Average. In this year they entered in Germany and joint venture in Korea. In the last year of the 1990s, Wal-Mart became the largest private employer in the world, with 1,140,000 total associates. Wal-Mart entered the new millennium with the appointment of H. Lee Scott Jr. as the third CEO of

Wal-Mart Stores Inc. in 2000. That same year, FO rtune magazine ranked the company fifth in its "Global Most Admired All-Stars" list and named Wal-Mart the third most admired company in America. The 2000Cone/Roper Report once again ranked Wal-Mart as the No. 1 Corporate Citizen in America. In the following years, Fo rtune magazine also placed Wal-Mart in the top spot-on its ´Most Admired Companiesµ list two years in a row, in 2003 and 2004. In 2004, Wal-Mart was also presented the "Corporate Patriotism Award,"

Each store constituted an investment centre and was evaluated on its profits relative to its inventory investments. Store-level data on sales, expenses, and profit and loss were collected, analyzed, and transmitted electronically on a real-time basis. The data could be analyzed by region, district, store, department within a store, or even at the level of an item within a department. One of the significant costs for retailers was shoplifting, or pilferage. Wal-Mart addressed this issue by instituting a policy that shared 50 percent of the savings from decreases in a store’s pilferage among that store’s employees through store incentive plans. Early in Wal-Mart’s history, Sam Walton implemented a process requiring store managers to fill out Best Yesterday ledgers. These relatively straight forward forms tracked daily sales performance against the numbers from one year prior. Recalled Walton organization was really a store within a store, encouraging department managers to be accountable and giving them an incentive to be creative. Successful experiments were recognized and applied to other stores. One example was the people greeter, an associate who welcomed shoppers as they entered the store.These greeters not only provided a personal service, their presence served to reduce pilferage. The 10-Foot Attitude was another customer service approach Walton encouraged. When the founder visited his stores, he asked associates to make a pledge, telling them, I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him, and ask him if you can help him. In return for employee’s loyalty and dedication, Walton began offering profit sharing in 1971. Every associate that had been with us for at least one year, and who worked at least 1,000 hours a year, was eligible for it, he explained. Using a formula based on profit growth, we contribute a percentage of every eligible associate’s wages to his or her plan, which the associate can take when they leave the company, either in cash or in Wal-Mart stock. In 2001, Wal-Mart’s annual company contribution totalled $486 million. Wal-Mart also instituted several other policies and programs for its associates: incentive bonuses, a discount stock purchase plan, promotion from within, pay raises based on performance not seniority, and an open-door policy.

SWOT Analysis

Strengths Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a wide range of products all in one store.

Wal-Mart has grown substantially over recent years, and has experienced global expansion.

The company has a core competence involving its use of information technology to support its international logistics system. For example, it can see how individual products are performing country-wide, store-by-store at a glance. IT also supports Wal-Mart's efficient procurement.

A focused strategy is in place for human resource management and development. People are key to Wal-Mart's business and it invests time and money in training people, and retaining a developing them.

Weaknesses

Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT advantages, could leave it weak in some areas due to the huge span of control.

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.

The company is global, but has a presence in relatively few countries Worldwide.

Opportunities

To take over, merge with, or form strategic alliances with other global retailers, focusing on specific markets such as Europe or the Greater China Region.

The stores are currently only trade in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India.

New locations and store types offer Wal-Mart opportunities to exploit market development. They diversified from large super centres, to local and mall-based sites.

Opportunities exist for Wal-Mart to continue with its current strategy of large, super centres.

Threats Being number one means that you are the target of competition, locally and globally.

Being a global retailer means that you are exposed to political problems in the countries that you operate in.

The cost of producing many consumer products tends to have fallen because of lower manufacturing costs. Manufacturing cost has fallen due to outsourcing to low-cost

regions of the World. This has lead to price competition, resulting in price deflation in some ranges. Intense price competition is a threat.

Q.Wal-Mart was singularly effective in up grading the technology of its suppliers, in some cases well beyond their core competencyHowever, a serious allegation against Wal-Mart is that in its passion to reduce costs, it drained its suppliers to virtual bankruptcy.

ANS.Wal mart is a company play hard ball game means they pursue with the single mind focus on competitive and benefits it offers like leading market share Big margined growth. Wal mart always tries to win the game or we can say that they play to win the game at any cost. When if matter comes about price it hard to beat wal mart.The intention of wal mart is to rule the market by creating monopoly in the market and that why they were following the policy of predatory pricing in which they use a to sell the product intentionally at low cost in order to drive competitors out of the market or creating barriers to entry far new compotator, because it is really tuff for the new entrants to compete with wal mart in such policies. So either they go out of the business or choose not to come in the business, So in the price war between the two company. The company who is financially weaker are use to go out from the competition and due to this both company has to face losses but the company who financially sound can still stand in the market and financially weaker company due loss of revenue has to quiet from the market. So this policy is strongly followed by wal mart to prevent the entry of new company and due to this wal mart is famous for offering the product at the lowest cost. It is compulsory for wal mart to purchase the product at minimum cost as much possible and for this wal mart is caused of using monopoly power to force it supplier to give the product at minimum price and as we have explained that wal mart don’t allow new entrant to emerge in the market that’s why wal mart is single buyer with various suppliers . so wat mart use exploit supplier as much as possible and due to the constant demand of lower price cause kraff food to shut down thirty nine plants, to let of 13500 workers and to element a quarte of its product . they was unable to compete with other supplier and claims that cost of production gone up due to higher energy and row materials cost. One other example is most wat mart store pharmacies a full many genric prescription for 200 Rs far month supply. However in California complains from other pharmacies has resulted in watt mart buying to charge at least 450 Rs for a month supply of certain area. So in this way in passion to reduce cost wal mart drained its supplier to virtual bankruptcy. Wal-Mart has been accused of using monophony power to force its suppliers into self-defeating practices. For example, Barry C. Lynn, a senior fellow at the New America Foundation , argues that Wal-Mart's constant demand for lower prices caused Kraft Foods to "shut down thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products." Kraft was unable to compete with other suppliers and claims the cost of production had gone up due to higher energy and raw material costs. Lynn argues that in a free market, Kraft could have passed those costs on to its distributors and ultimately consumers.

EVIDENCE:-

Charles Fishman’s article, “The Wal-Mart You Don’t Know” talk about the “squeeze” Wal-Mart puts on all of it’s suppliers in order to get the lowest price possible. One example he writes about is Vlasic’s gallon-sized jar of pickles. When it first came out, the jar was priced at over three dollars and sold successfully. Then Wal-Mart took it further and wanted to offer it to consumers for fewer than three dollars; they priced the jar for $2.97. Consumers went crazy over this; a gallon jar of Vlasic pickles for under three dollars. While sales increased rapidly, Vlasic wasn’t making any profit on the item. They were only making a cent or two on each jar sold. It even started hurting the other Vlasic pickle items because shoppers from other stores were going to Wal-Mart just to purchase the gallon-sized jar .Vlasic shortly went to Wal-Mart to see if they would increase the jar of pickles just slightly so that they would make some kind of profit. Wal-Mart turned them down without a second thought. Wal-Mart even told them that if they won’t sell the pickles for $2.97, then they would go to a competitor and asks them, and quit doing business with Vlasic altogether. Vlasic soon filed for bankruptcy; it is not fully determined of the gallon-size of pickles had a direct effect on that. The article also talks about a project study that Bain & Co., a global management firm, did on Wal-Mart trying to find out if companies actually have “healthy relationships with them”. They found that when negotiating prices with suppliers, if Wal-Mart does not like the price then they will tell the supplier, “Here’s the price you gave me. Here’s what I can get a competitor’s product for. Here’s what I can get a private-label version for. I want to see a better value hat I can bring to my shopper this year. Or else I’m going to use that shelf space differently”. Basically this is a direct threat from Wal-Mart to the suppliers, and they have the power to do so. Wal-Mart has been accused of using monophony power to force its suppliers into self-defeating practices. For example, Barry C. Lynn, a senior fellow at the New America Foundation , argues that Wal-Mart's constant demand for lower prices caused Kraft Foods to "shut down thirty-nine plants, to let go 13,500 workers, and to eliminate a quarter of its products." Kraft was unable to compete with other suppliers and claims the cost of production had gone up due to higher energy and raw material costs. Lynn argues that in a free market, Kraft could have passed those costs on to its distributors and ultimately consumers.For example, most Wal-Mart store pharmacies fill many generic prescriptions for $4 for a month's supply. However, in California and ten other states, complaints from other pharmacies have resulted in Wal-Mart being required to charge at least $9 for a month's supply of certain drugs.

Carey, a partner at Bain & Co., gives the example of his friend in the umbrella business that once supplied for Wal-Mart. One year the umbrella owner went to Wal-Mart and requested a five percent increase in sales price and Wal-Mart turned him down. The owner then lowered his request to a small two percent increase and Wal-Mart denied his request completely and even quit doing business with them altogether. They told him that they would go with a Chinese manufacturer which was incredibly cheaper than him . It is important to note that these examples come from companies that no longer do business

with Wal-Mart. The article discusses that when asking companies that currently work supply for Wal-Mart about their relationship, most would say it is great one, if they said anything at all. A lot of companies refused to even discuss Wal-Mart on any level. Just by refusing to talk, it is easy to grasp how powerful Wal-Mart is. Companies do not want to chance saying anything that could be taken negatively if Wal-Mart heard about it because they can stop doing business with any supplier at the drop of a hat. Most companies cannot afford to lose their market share they get from Wal-Mart shoppers. It’s hard to work with Wal-Mart, but it’s hard not to work with them at the same time .

Core competency

Wal-Mart needs to identify and nurture the primary core competency that fuelled their growth fulfilling customer needs with a wide spectrum of products at everyday low prices. This competency is the product of the aggregate of competencies across individual skill sets and organization boundaries Wal-Mart is a leader in channel management, inventory control, distribution and customer service. This is a result of the company’s ability to coordinate a complex information management and distributing network and to efficiently manage supplier relations, through the use of new technologies and the seamless flow of information. Wal-Mart’s extensive communications network connects all stores, warehouses, offices and suppliers. This enables Wal-Mart to not only provide value to its customers by offering a wide variety of goods at the lowest prices, but also to provide value to its suppliers as a large, ever present channel for sale of goods. This channel also provides a highly efficient feedback loop on unit sales, demand and inventory, facilitating a just in time supply management system and an effective needs-based position. Through careful bargaining and sheer-size, Wal-Mart has power over the suppliers, and can purchase goods cheaper than the competition. Wal-Mart can also differentiates through private branding, i.e. Sam’s Choice. In addition to the added differentiation, they can become less dependent on branded manufacturers, further eroding the power that suppliers may wield. This also allows them to exploit their initial strategy of opening stores in rural areas that were traditionally neglected, by maintaining a steady supply of low priced goods with low inventory costs. This raises the barriers to entry. By offering such a broad spectrum of products at the lowest prices, Wal-Mart reduces the threat of bargaining power of buyers. Wal-Mart was a leader in Uniform Product Codes scanning. For the two years that it took K-Mart to implement their system, Wal-Mart had, at least temporarily, a competitive advantage that was both valuable and rare.Another characteristic that is valuable and difficult to imitate: a loyal and motivated workforce. It requires time to develop a company culture of dedication and commitment to hard work. Providing value to the customer through low prices and excellent customer service, the threats of substitution are reduced. Customers won’t switch to competitor chains. The management of Wal-Mart must nurture and continually improve these competencies across the organization to remain dominant in the domestic market. To sustain their phenomenal growth, these core competencies must be intrinsic to a strategy designed to transfer Wal-Mart’s competitive advantages into the global marketplace.

Implementation Now that the core competencies have been identified, Wal-Mart must continue to innovate and take advantage of new technologies to maintain their position as the cost leader in the industry, from supply chain management to customer service. Operational efficiency in itself is not an effective strategy. Flexibility is critical and willingness to take some risks is important in the formulation of new systems and ideas, lest their.Although diversification into the food retail industry only provides “razor thin” margins, the supermarket section serves as a draw to the higher margin merchandise departments. The two largest supercenters chains, Meijer and Fred Meyer, plan on staying regional. Wal-Mart has the infrastructure to exploit the concept nationwide.Management should continuously benchmark operating results and best practices against those of their competitors. This includes not only Target and K-Mart, but the major supermarket chains as well.Management must nurture their competitive advantages and convey their importance to the organization as a whole. The management and associates need to understand their responsibilities and what they need to contribute to maintain the system of best practices that translate into advantage.To expand globally, Wal-Mart should enter into joint ventures or acquire foreign mass retailers already established in the market, as they did with Cifra S.A. in Mexico. By buying an established business, Wall-Mart would be relieved of some of the initial capital investments for land and buildings, as well as skirting the morass of zoning ordinances and regulations.

Conclusion

There is no doubt that wal mart is a major player in the retail sector or we can say that there is no competitor moving near the wal mart in any matter. wall mart is the no.1 retail company in all over the world. known for providing product to the customer at lower price. this is the core competencies of wal mart.Beside this there is one obligation over the wal mart that they use to exploit their supplier in such a way that they become bankruptcy. so we are also in support of this obligation ,and we have mentioned few evidence that how wal mart exploited their supplier by following the process of MONOPONY.

BIBLIOGRAPHY

www.google.com

www.ask.com

www.scribt.com

http://www.oppapers.com/essays/Wall-Mart/159613

1.

Wal-Mart is the world’s biggest retailer in food industry with more than 2 million employees (source: Wal-Mart.com). Based in US it actually operates in 10 countries worldwide (plus Japan through a controlling share in Seiyu). Wal-Mart Corporate strategy is focused on food distribution industry, covering 5 market segments with as many business divisions: • Supercenters, their one-stop family shopping centers, huge malls selling from fresh goods to sport equipment and also including “specialty shops” as banks, pharmacies and health clinics;• Discount Stores selling from apparel to home furnishing, focused on low prices more than the other business divisions;• Neighborhood Markets, medium-sized stores more focused on day-to-day shopping;• Sam’s Club, a member only store, specialized on small business supplies;• Walmart.com, the online store.All 5 divisions are strictly related; actually they rely on the same competitive advantage - everyday low prices, and they capitalize on the same cost-reduction strategies. Thus Wal-Mart develops a fully-related diversified corporate strategy. Their strategy is diversified in the sense that they do not focus only on huge malls in big cities but they are also present in small cities with discount warehouses and small shops, covering all the market segments, from day-to-day shopping to one-stop weekend shopping, and with different range of prices. Anyway all their BUs capitalize on the ability of their value chain structure to save money, which means lower costs and higher competitiveness. Walmart.com, for instance, is trying to develop Wal-Mart’s famous competitive advantage using Wal-Mart “real” stores to deliver goods that have been previously purchased on line, in order to avoid charging prices with the costs of door-to-door delivery (source: Wallmart.com).

Analyzing Porter’s five forces that influence the food industry, these considerations arise:• There’s strong rivalry among the existing competitors. High pressure on prices, high fixed costs, large number of competitors focused on the same customers and low growth rate make the food industry a highly competitive environment.

• Customers have a medium bargaining power. Customers power increases as there are groups of them who buy a large slice of distributed products. While this phenomenon is of scarce importance, the relatively easiness to change store and the low switching costs increase the bargaining power of store’s clients.• Suppliers have low bargaining power. Big distribution considers controlling suppliers power as a priority in order to reduce costs. In Wal-Mart case, suppliers are strictly kept under control establishing long relationships and limiting their single contribute at 4% of total supplies.• There’s no big threat of substitutes. People must buy food. They can only buy it at cheaper prices but they need to. Catering could be a substitute, but it comes with a different price/quality ratio. • No threat of new entry. Food Industry usually has big entry barriers. It is very competitive and huge capital injections are required in order to develop scale economies and differentiate through low prices.

Wal Mart Strategy Analysis - Document Transcript

1. Strategy Management Strategic Analysis Section A1 – Group 12 Peter De Boeck Alejandra Duran Ilan Hadass June Tan Christian Zapf 1

2. 1. Define Wal-Mart’s strategy Traditionally, Wal-Mart has essentially had a low-cost, high volume strategy. The strategy aims at customer satisfaction through low prices and relatively good customer service. Here are the basic details. • Low cost: Wal-Mart has lower operating expenses than the industry average. The primary cost advantage is Wal-Mart’s superior distribution capability (location of stores, inside-out growth patterns, cross-docking, superior information management). Quantitative details on cost advantage are set forth in Section 3 below. • High Volume: Industry analysts watch Wal-Mart’s growth of sales figure very closely. Wal- Mart’s prices are low by the industry standard, which, combined with its lower costs, indicates a strategy that aims at growth in volume through grabbing increased market share (cf. Dell). • Customer Satisfaction: Low prices, advanced data management and extremely motivated employees (“10 ft rule”, “sundown rule”) means a better customer experience than at other discount retailers, even though Wal-Mart remains a self-service retailer. In addition, the large size of the traditional Wal-Mart stores adds convenience by offering a one-stop solution by offering a wide range of products. In the words of Sam Walton, “Wal-Mart’s aims at creating a loyal customer base by lowering their cost of living through offering quality and other products at significantly lower prices, while surprising them on the convenience and service level side.” It’s worth mentioning that Wal-Mart acquired volume through a careful consideration of locations, away from competition. Today, however, Wal-Mart is experimenting with extending its original strategy. There are three avenues being considered: internationalization, different formats (neighborhood stores) and expanding the product range to offer more complete “customer solutions” like travel, insurance and banking services. These growth options are discussed in Section 6. Still, in terms of strategy, we can say here that the “internationalization” option is essentially an extension of Wal-Mart’s traditional strategy to different countries (which is no doubt why Wal-Mart is pursuing it so aggressively), whereas the other two options are new ground for Wal-Mart (which explains why they are being much more tentative in those areas). 2. Evaluate the attractiveness of the discount retailing industry We have analyzed the market attractiveness from the perspective of an existing player in the discount retailing industry (as opposed to from the perspective of an entrant). We conclude that, for the average retailer, the industry is unattractive principally because of the intense internal rivalry among the principal retailers and the low switching cost for end-customers. • Suppliers: weak power 2

3. The suppliers are the consumer goods manufacturers (both food and durables) and they have little power. In the first place, with very few exceptions, the consumer goods are commodities (or at least, acceptable substitutes are readily available, both from other manufacturers and from in-house private labels). The availability of alternative suppliers puts the retailers in a strong position. In addition, retailers have high power of negotiation due to the high volumes purchased (and the projected growth of the discount market). Who wants to put off a retailer who supplies 15% of a growing market? The limited number of big discount retailers also creates an imbalance in the importance of the accounts for the retailers and the suppliers. A Wal-Mart or Target account is enormously important to a supplier, but Wal-Mart can easily live without this or that supplier. (Of course, the suppliers have more power vs. smaller or newer entrants.) • Buyers: average power The end-consumer has significant power, because of (a) the ready availability of substitutes (for the most part you can shop elsewhere), (b) the ease of switching between different stores (customers are not locked- in) and (c) the lack of real differentiation among the retailers. Since all the

retailers explicitly compete on value, shoppers can easily compare the offerings. The transparency of any price advantages on what are generally commodity products decreases consumer loyalty. As a result, any retailer that underperforms on day 1 (being out of stock on milk for example) can find himself losing customers on day 2. • Internal rivalry: strong Of the 15 top discount stores shown in Exhibit 3 to the 1993 case, three were in Chapter 11 proceedings in 1993 and at least one more has declared bankruptcy since then (Kmart). Enough said? Obviously, competition is fierce among discount retailers. The reasons are (a) the lack of differentiation in product offerings, (b) low switching costs for end consumers and (c) volume-driven strategies that aim at grabbing market-share at the expense of profitability (which creates a potential for price wars). The heavy pressure for increases in volume arises because only volume allow the retailer to generate cost efficiencies, which can then be passed on to the consumer in the form of price discounts, thereby creating even more volume in terms of both basket size and visit frequency. Launching yourself into this upward virtuous spiral is an essential ingredient of success for a discount retailer. • Substitutes: moderate A number of substitutes are available for consumers, principally from retailers having different formats: food-supermarkets, local grocery stores, department stores, specialty stores, etc. Generally speaking, these other formats offer more convenience at higher prices. Discount retailers have to keep track that their price discounts remain sufficiently large to justify the extra effort for consumers to come to them. An interesting second substitute is the direct sales channel. Manufacturers like Dell who sell directly to the consumer may be a growing rival for discount retailers. As consumers become more used to purchasing relatively large items over the internet (the sort of items for which the price savings offered 3

4. by a discount retailer would have justified the effort of making the trip), online sellers will be an increasing threat to the traditional discount retailers. However, of course, none of these online sellers can offer the one-stop convenience of a discount retailer: none of them will be able to offer a comparable range of products in the immediate future. • Barriers to entry: high As explained above, volume is essential to survive as a discount retailer. A new entrant must achieve substantial market share to reach minimum efficient scale. Ingredients for volume selling are (a) a complex and expensive distribution network, (b) a base number of stores to justify the distribution network, and (c) a data management system matching supply and demand. High capital expenditures are therefore a prerequisite. Even if this money can be raised (which is unlikely given the overall unattractiveness of the industry), there is a scarcity of desirable property, at least in the U.S.: the country is already carpeted with large retail discount centers (Wal-mart itself has run out of space) and so it is hard to find locations without head to head competition with one or more incumbents. As a result, incumbents will almost inevitably retaliate and attempt to squeeze out the entrant through price wars (which the entrant will lose because of its lack of economies of scale). (An additional reason for retaliation is the large exit barriers for the current players created by the enormous amount of capital tied up for them in their existing operations.) 3. What are Wal-Mart’s competitive advantages? Please clearly articulate how Wal-Mart activities translate into competitive advantages, and to the extent possible, quantify these effects. We believe that Wal-Mart has five distinct competitive advantages, which are set forth in the table below. In each case, the activities that implement that competitive advantage are listed. Under fit and scope, we list how we believe these activities implement the basic strategy of Wal-Mart described in Section 1 (low cost, high volume, customer satisfaction). It can be seen that the competitive advantages always fit with the strategy and are also mutually supportive. Competitive Activities Fit and Scope Trade-Offs Advantage Distribution Efficient distribution; - Economies of scale match - Expense capabilities1 e.g. cross-docking, volume-based strategy - Requires partnership predominance of Wal- - Cost savings from lower inventory relationship with suppliers mart’s own distribution levels - Requires sophisticated centers, and “inside-out” - Cost-savings can translate into IT location strategy lower prices and more customer satisfaction Partnership Wal-Mart integrates - Improves supply chain and lowers - Relatively high cost of relationship suppliers via IT and distribution costs goods sold 1 One could argue that Wal-Mart’s distribution capabilities are not a competitive advantage, though merely an activity that, for now, is being executed better than that of its competitors 4

5. with treats them well in terms - Additional cost savings from - Requires integrated IT suppliers of pricing; they are more elimination of manufacturer reps - Access to sales and partners than “value inventory info for third takers” parties Advanced Active collection and - Useful data for suppliers Expense and time data-mining usage of customer - Improves customer satisfaction purchase behavior info through more accurate forecasting of demand - Lower costs through reduced inventory and shrinkage - Improved matching of supply and demand creates superior sales/ sq ft Workforce Customer-oriented - Good customer service is not - Expensive in terms of culture workforce motivated compromised by self-service and benefits (profit sharing) through generous low cost structure, thereby - Requires strong monetary participation improving customer loyalty corporate culture (need and belief in Wal-Mart - Stores can respond more quickly/ proxy for Sam Walton) culture flexibly to changing demand - Requires employee - Continuous improvement mindset enablement from sophisticated IT (employees are hired with little educational background) EDLP2 Maintenance of “every - Improves customer satisfaction - Only possible so long as day low prices” through low prices you really have the lowest - Matches volume-driven strategy prices - Drives down costs through less advertising - Steady prices improve stability of supply chain To supplement the

qualitative analysis below, we have analyzed Wal-Mart’s cost structure vs. the competition in the chart below: - 1 9 9 3 : c o s t s tru c tu re (% o f s a le s ) 102 100 +2 ,3 9 7 ,4 -0 ,6 +0 ,2 98 -0 ,3 -1 ,1 -0 ,3 96 94 9 3 ,2 92 -4 ,4 90 Advertsing COGS diff Rent Wal-Mart Industry Inbound IT costs Shrinkage operating average Other log exp 5

6. What the chart shows is that Wal-Mart overall has a 4.2% cost advantage over its average competitor (based on percentages of net sales), which breaks down as follows: COGS are actually higher at Wal-Mart. This is consistent with Wal-Mart’s partnership relations with suppliers that are aimed not at squeezing suppliers but at producing cost reductions in distribution from improved cooperation and IT integration. Advertising expenses are lower given the EDLP strategy: no promotion folders need to be composed and distributed. In addition Wal-Mart probably realizes economies of scale through nation-wide TV advertising. Rent per square meter is actually higher for Wal-Mart ($8,8/sq.ft. vs. $4,4/sq.ft) though this better locations apparently pay-off as Wal-Mart has lower rent expenses as % of sales. Inbound logistics: Cross-docking and other distribution improvements result in cost savings of 1.1% of net sales. IT costs are higher than those of Wal-Mart’s competitors. However, these additional costs are offset by benefits on many fronts: (a) higher sales/sq.ft through better forecasting of demand, (b) (b) lower supply chain costs through integration with suppliers, (c) more effective communication both internally and externally, and (d) lower shrinkage costs (due to improved tracing) A portion of the cost savings, which the chart above identifies as “other operating costs” remain unallocable to specific categories. We believe that these additional cost savings are principally due to economies of scale in Wal-Mart’s distribution system that simply dwarfs those of its competitors. In addition, we suspect that staffing at Wal-Mart stores is leaner than those of its competitors, so that employee costs are relatively low at Wal-Mart (on a per square foot basis), even taking into account the generous benefit schemes. The costs do not tell the complete story. A sales/sq.ft. comparison shows that the combination of its competitive advantages lead to higher sales ratios. We believe that this is merely the result of (a) its low prices, (b) its corporate culture, and (c) its insight in purchasing behavior that allows them to eliminate bad-selling sku’s. 2 We consider ADLP as a competitive advantage as Wal-Mart is the only player able to offer lower prices than competition in a sustainable matter (or in other words: without going bankrupt) 6

7. - 1993 : Sales/sq.ft. Comparison - Warehouse clubs 681 Supercenter 595 535 500 Discount Departments stores 397 385 374 357 332 289 248 228 211 179 144 105 Arnes Price Club BJ's wholesale Caldor Bigg's Sam's club Pace Fred Meyer Costco Smitty's Kmart Meijer supermarket Target Wal-Mart Wal-Mart Average club 4. How sustainable are those advantages in the U.S.? The advantages are sustainable in the U.S. Distribution capabilities. Wal-Mart’s distribution system is already in place. It is massive and very difficult to replicate by competitors, in particular when you consider the electronic linkage of sales and inventory information all around the country. Partnership relationship with suppliers. The supplier partnerships also constitute a sustainable advantage. This relationship is something that evolves over time and the more time that passes, the higher the level of integration. Wal-Mart has already demonstrated its commitment and seriousness in their operations so the relationships should prosper even more over time. Other competitors will lack the volume of purchases that Wal-Mart can offer and will lack the years of relationship that Wal-Mart already has with their suppliers. In addition, Wal-Mart beats the other discount retailers on compensation paid to suppliers because it reaps cost savings in the operations area (as discussed above). Advanced data-mining. Wal-Mart’s IT systems are very advanced and even though their competitors will continue to copy them, they are always one step behind. The company has developed expertise in this issue so it is able to constantly upgrade their systems. However, one would expect Wal-Mart’s competitive advantage in this area to shrink over time. Workforce culture. The advantage of having motivated and proactive employees can be replicated by others, but it is not an overnight thing. Wal-Mart has created a corporate culture that is considered one of the best in the U.S. and “matching” this by their competitors will take time. Creating a culture is an everyday effort on the part of management and it involves careful focus on the interactions that occur in the company. It is impossible for another discounter to replicate Wal Marts culture exactly but they can follow the same idea. However, it is difficult to match the “best working place in the U.S.” EDLP. You cannot replicate EDLP unless you can actually offer consistently low prices. Competitors can only do this to the extent they are able to match Wal-Mart on cost. Given the other competitive 7

8. advantages of Wal-Mart that reduce its costs (IT and distribution), it is hard to imagine another competitor matching Wal-Mart’s EDLP. 5. How transferable are those advantages as Wal-Mart moves into new formats and especially into new international locations? (A) New formats. Currently, Wal-Mart is considering “neighborhood stores” as a new format. Accordingly we have used that format to analyze the transferability of Wal-Mart’s competitive advantages. Advanced data mining. Wal-Mart’s IT capabilities can be easily adapted. Wal-Mart’s assortment will be different in other formats, customer demand will be different, but all this will be easily manageable by Wal-Mart’s existing IT. EDLP. We have some doubt whether Wal-Mart’s cost structure for this new format will be good enough to support EDLP for the new format. In particular, we expect rental costs/ sq ft to be higher given the urban locations. Urban locations also create higher distribution costs (more frequent, smaller deliveries, delivery problems due to traffic

congestion). However, Wal-Mart may be able to partially offset some of these costs through reduced inventory costs resulting from high inventory turnover Workforce culture. The corporate culture can be transferred easily to new formats. New employees are no harder to socialize at neighborhood stores than at supercenters. Distribution capability. The neighborhood stores can benefit from the existing distribution system. In fact, locations are chosen so that neighborhood stores can be served as part of runs to supercenters. This is probably the biggest plus for the new format: the increased volume will generate cost savings in distribution for both the existing formats and the new neighborhood stores. Partnership relationship with vendors. The neighborhood market will use the current suppliers; there are no transfer issues. Our main concern about the neighborhood stores is therefore whether the same economics of the successful supercenters are transferable to any new formats. The table below summarizes our concerns for the neighborhood markets. 2002 Supercenter economics Neighborhood markets # sg.ft. 180.000 45.000 Sales/sq.ft 366 422 Total sales($)/store 65.825.699 18.990.000 % COGS 75,10% 84% Operating expenses 18,10% 18,10% Operating profit (%) 6,80% -2,10% Operating profit($)/sq.ft. 24,9 -8,9 The table shows that COGS represent 84% of sales, which leads to a 16% gross margin for neighborhood markets (assuming the same price levels as Supercenters). Even assuming the same 8

9. operating expenses for neighborhood stores as for Supercenters, which is a generous assumption for the neighborhood stores, we notice that the neighborhood markets would run at a loss3. The high COGS and lower gross margin, we believe, reflect the fact that the product mix is more oriented towards food. The table below summarizes the succesfactors of the supercenter format. Gross profit can be expressed as (# of customers) x (visiting frequency) * (average $ in shopping basket) * average gross margin. Each format adds to the successful mix of the supercenter: FOOD (grocery supermarket) NON-FOOD (General Merchandise discount store) - # of customers: the # of potential supercenter - Visiting frequency: the frequency visit is high (weekly customers is high given the high geographic span of or bi-weekly) because supercenters offer food, and the format Americans have the habit of weekly stocking the majority of their food items - The average $ in shopping basket is high. The trip to the supercenter is done to fill the basement with food, but also to buy non-food items. - The gross margin is relatively high: whereas food drives traffic, general merchandise drives profit. The floorplan shows that the food and non-food sections are nicely separated to allow for a quick visit (in- store-time-consumption is one of the drawbacks of large supercenters). Though the intermediary section between food and nonfood will typically be filled with cheap non-food items to draw the customer into the moneymaking non-food part of the supercenter. Overall we now understand why supercenters are such money machines: the non-food section provides the customer span and profit; the food section provides the frequency and low price image. In conclusion we summarize that the competitive advantages are transferable, but that Wal-Mart should carefully consider its price-level and assortment to make new formats profitable. (B) Current formats in other countries. Expanding the existing formats to other countries is intuitively appealing. A low cost volume- based strategy offering superior customer satisfaction seems appealing anywhere we can identify a sizeable middle class (or aspiring middle class) and decent population growth. Though when reviewing the competitive advantages, one notices that Wal-Mart might prefer a mature and developed retail market to realize its low-cost advantage on the one hand, but an underdeveloped, emerging slowly growing retail market to have time to grow corporate culture perspective. • Advanced data mining / customer insight Technology advancement and trained employees are the key requirements for implementing the IT system abroad. Though this is not a barrier to overcome, shopping and consumption habits differ across most 3 However, one should not jump to conclusions: (a) overall operating expenses can go down due to the economies of scale (b) marginal distribution costs for the neighborhood stores are low as they are supplied on trips to supercenters (c) prices will be higher at neighborhood markets given the added convenience of their location. 9

10. countries making it hard to build on the US data. Mature retail countries as Western Europe are preferable over emerging modern-retail countries as China given (a) the countries’ availability of technology/infrastructure and (b) its similar consumption habits to the US. • EDLP Despite the fact that Wal-Mart is the inventor, we see different retailers in different countries adopting an EDLP strategy. We see little problem in copying this part of the strategy. • Customer oriented workforce The corporate culture is related to a number of factors: - The entry strategy: if Wal-Mart grows organically in a new country, it can build its own corporate culture. Though when it acquires a retailer, it has to convert the existing corporate culture, which has proven to be difficult. On the other side organic growth in an emerging country brings the major disadvantage that volume grows slowly which limits the economies of scale. - The culture of the country: the Wal-Mart culture is atypical and not all workforces might cope with it given their nation’s culture - The role of the partner: most retailers enter a new country through a partnership to increase the rate of success. This requires a mutual understanding and a fit between the two corporate cultures to work together effectively In conclusion we see that organic growth is the preferred option to build a similar customer oriented workforce. Though this may not be trivial if Wal-Mart needs to acquire volume fast. • Distribution capability The distribution network has to be build from scratch in a new country. This limits the optimal choice of a target country: - In order to get the competitive cost advantage, volume is needed. This means that acquisition is a preferred tool from a cost perspective. - A decent infrastructure is needed so all goods can be transported

efficiently - The country is preferably large so economies of scale can be attained. That means similar assortments, and therefore similar consumer tastes, across large regions So from a distribution point of view, a large developed retail market is the preferred choice. • Partnership relationship with vendors Wal-Mart can work with the same suppliers in other countries to the extent that: - The assortment is affordable to the population and fits with the local taste. In clear terms this means that western countries are preferable 10

11. - The supplier is present in these other countries and/or has the financial power to develop itself in these countries. This means that from a supplier’s perspective, mature western oriented countries are preferable. • Economics of the format We already explained the economics of the supercenter format. This format has to fit with local purchasing habits: - Weekly stocking of items: Japanese consumers do not have the habit of stocking items on a weekly basis. Wal-Mart’s existing formats as the supercenter may therefore clash with the local shopping habits - Mobile population: the population has to be mobile, willing to travel to the Wal-Mart’s large stores and able to transport large quantities of goods easily home. This may not be trivial: imagine carrying 20 bags home using Singapore’s MRT. Conclusion: we see that transferring the different competitive advantages puts different and sometimes conflicting requirements on the country that Wal-Mart wants to enter. This is in line with their experience: when acquiring the Wertkauf retail chain, they had large difficulties in converting the existing corporate culture towards the customer-oriented culture (it took a while before German employees wanted to open the day with shouting in group: “the customer is the king!”). 6. Attractive growth options for Wal-Mart. (1) Continue converting discount formats to supercenters: we illustrated the success of the supercenter format. Overall, we believe it will be difficult for Wal-Mart to find a similar golden egg amongst its alternatives. Therefore it should pursue converting discount formats to supercenters to the extent this is possible. (2) New product categories and services. First, Wal-Mart can move up in the quality of its products. Wal-Mart’s experience in the UK shows that consumer perceptions can be altered from a focus on low-cost to providing high quality at value prices. Expanding its own higher-quality brands, such as the ‘George’ apparel line and increasing the selection of known brands (Levi Strauss jeans, etc.) are ways to implement this strategy. Second, Wal-Mart can further expand its one-stop-solution by offering more store-in-store specialty stores. For example, in 2002 Wal-Mart began to offer PC fix centers, but it can go far beyond that to areas such as financial services (including residential brokerage), insurance, banking and credit, entertainment, home and garden improvement, etc. All of these moves can drive improved margins and, in the case of new services, create entirely new revenue sources. However, we are skeptical about whether this is the right move for Wal-Mart. It is, at heart, a high-volume, low-cost retailer. If its existing strategy were not working, it might be worth doing something else. 11

12. New store formats. Our concern with new formats is the preservation of Wal-Mart’s cost structure and the profitable format economics. As discussed above in the context of the neighborhood stores, all competitive advantages are transferable into other formats with the possible exception of EDLP; so because of these synergies incremental investments stay relatively limited. Though Wal-Mart should only do this to the extent they can assure making profits with these formats. Internationalization. At some point in the not so distant future, Wal-Mart’s highest growth will be generated in the international arena. It is our view that this is the most promising opportunity for Wal- Mart. As discussed above in Section 5B, the overall strategy for Wal-Mart makes sense in other countries too and for the most part Wal-Mart’s competitive advantages can be transferred abroad. It is therefore not surprising that the number of Wal-Mart stores outside the U.S. has almost doubles to 1200 (compared to 1647 in the United States) in the past four years. Though we should also emphasize that some markets as South Korea, China, and Japan have been less successful because of reasons we indicated: volume did not come instantaneously because of the early stage of development of the retail market, local partnerships did not fit Wal-Mart’s own culture, differences exist in consumer preferences requiring totally different assortments, the countries’ infrastructure was rather underdeveloped, etc. Though we see that in more developed and more western-like retail markets, Wal-Mart (despite some initial growing pains) successfully gained market share and attained profitability. 12