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STRATEGY

MANAGEMENT

GMSI581

SUBMITTED BY SUBMITTED TO

RAHUL YADAV MR. ASHWINI GOEL

100163

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TABLE OF CONTENTS

1. History………………………………………3-5

2. Porter’s five forces…………………………..5-6

3. Generic Strategies…………………………...7-8

4. Matrix Analysis…………………………….9-11

5. Financial view………………………………..12

6. Conclusion……………………………………12

7. Bibliography………………………………….13

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History

1960’s – The Beginning

Wal-Mart was founded by Sam Walton in 1962. He opened his first store in Rogers, Ark.

Sam was traveling different places to learn whole about discount retailing before finally

opening his store. After traveling, he came to know that people want different kind of stores.

Based on his research, he and his wife invest 95% of their savings in their first store.

(History, 2011)

1970’s - Expansion

In 1972, Wal-Mart becomes public and its stock was listed on New York Stock Exchange.

Wal-Mart became successful and in 1975 it has more than 125 stores and their sales were

around 340 million dollars. With expansion and increase in inventory, they lease an IBM

370/135 computer system in order to properly manage inventory and maintain proper income

statement for each and every store. Electronic cash registers were also introduced in many

stores. They also develop their network of computers (companywide). By the end of 1979,

their sales reach upto 1 billion dollars and they develop their computer centre and install an

IBM 3774 in their stores. (45 Years of Wal-Mart History, 2011)

1980’s – Comes Of Age

In 1983, company started using bar codes and opened first Sam’s club. In 1984, Bob Martin

becomes Chief Information Officer of Wal-Mart. In 1987, Wal-Mart was the first company to

have largest private satellite network in US. This network is connecting all headquarters and

operating centres of company. (45 Years of Wal-Mart History, 2011). Wal-Mart opens its

first Supercentre in 1988. It includes all kinds of grocery and general merchandise. By the

end of 1989, company had expanded to 1402 stores and 123 Sam’s club. Sales and

employment had increased and sales had increased to 26 billion dollars. (History, 2011)

1990’s – Goes Online

In 1990, to store and manage past sales data warehouse prototype was developed by Wal-

Mart. In the mid 0f 1992, a retail link system was developed by Wal-Mart to strengthen their

relationship with their suppliers. This system was very effective and also provides

information about sales and the levels of inventory. In 1993, Randy Mott becomes the Chief

Information Officer of Wal-Mart. In 1995, Wal-Mart has spread around 50 states. It has a

total of around 1995 Wal-Mart stores, 239 supercentres, 433 Sam’s Club and 276

international stores and its sales reaches around 94 billion dollars. In 1996, Wal-Mart goes

online and makes its retail link system online. (45 Years of Wal-Mart History, 2011).

2000’s – Successful Retailer

In 2002, Wal-Mart starts contacting with its worldwide suppliers online. Wal-Mart had record

of highest sales in one day of 1.43 billion dollars just the day after thanks giving. Wal-Mart

introduced the technology of radio identification frequency in 2005. In 2006, Rollin Ford

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becomes Chief Information Officer and company has 2 million employees, 6775 stores

worldwide and had huge sales of 349 billion dollars. (45 Years of Wal-Mart History, 2011)

Sam’s Secret – Satisfaction of Customers

In his autobiography, Sam said, "if you think about it from the point of view of the customer,

you want everything: a wide assortment of quality merchandise; the lowest possible prices;

guaranteed satisfaction; friendly, knowledgeable service; convenient hours; and a pleasant

shopping experience. You love it when a store exceeds your expectations, and you hate it

when a store inconveniences you, gives you a hard time, or pretends you're invisible."

(History, 2011)

Product Divisional Structure

Wal-Mart basically includes Wal-Mart stores (US), Sam’s Club (US) and International stores.

Wal-Mart Stores

Wal-Mart stores include Wal-Mart Discount stores, Wal-Mart Supercentres, Wal-Mart

Neighbourhood Markets, Wal-Mart Express Stores, Marketside and Walmart.com. In US,

there are about 647 Discount stores and each store has about 225 employees. These stores

include all kinds of general merchandize at low price such as electronics, toys, hardware,

jewellery etc. There are about 3002 supercentres across US and are 24 hours open. They have

an area of 185000 square feet and have about 350 employees. They include all kind of

groceries and also include speciality shops. First neighbourhood market was opened in 1998

and today there are about 164 Wal-Mart neighbourhood markets. They have an area of 42000

square feet and have about 95 employees. First Wal-Mart express was opened in 2011 and

opened especially in area where people easily don’t have access to stores and includes all

kinds of products. First marketside was opened in 2008. They basically specialize in fresh

and delicious foods at low prices. Walmart.com was founded in 2000 to give convenience to

customers to shop online. It has almost 1000000 products at low prices. (Wal-Mart, 2011)

Sam’s Club

First opened in Midwest City, Oklahoma in 1983, today there are about 610 Sam’s Club in

US. They have an area of about 132000 square feet and have almost 175 employees. They

also have 100 international branches. Their annual membership fee is affordable and this

keeps their prices low. They also help small businesses. (Sam’s Club, 2011)

International Stores

In 1991, Wal-Mart goes global. It had opened its stores in many parts of the world. They had

opened stores in different formats according to the needs and desires of local consumers.

Internationally, they don’t operate under banner Wal-Mart. Today, there are about 5336

international stores and have about 740000 employees in 27 countries. (International, 2011)

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Purpose

According to Sam Walton - “If we work together, we’ll lower the cost of living for

everyone…we’ll give the world an opportunity to see what it’s like to save and have a better

life.” Sam’s main aim was to save the money of the people which they earn by doing hard

work and can have better life with their saved money. His main focus was on people and not

on money. It is the basic principle on which all the Wal-Mart stores work. Wal-Mart is only

helping people around the world save money. Because of its principles, Wal-Mart had greatly

affected the retail industry and changed the way how the business should work and focus on

increasing customer satisfaction. (Our Purpose, 2011)

Porter’s Five Force Analysis

1. Bargaining Power of Customers

Wal-Mart has always focused on its customers. Sam Walton’s main dream was not to

make money but to save the money of the people which they earn by working hard by

selling goods at low and convenient price and also at place convenient to most people.

With this saved money, people can have good life. Walt-Mart takes care of its customers

like family. So, Wal-Mart has very little pressure from its customers as customers are

already happy with the prices and the facilities of Wal-Mart. Wal-Mart has also been

opened at the places where don’t easily get access to the big stores. Very few people have

complained about Wal-Mart’s prices. Customers can buy from other competitors having

same prices but they will not provide as good facilities as Wal-Mart does.

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2. Threat of Substitutes

In case of threat of substitutes, pressure on Wal-Mart is very low. This is mainly because

Wal-Mart provides very large varieties of products which mostly covers everything i.e.

groceries, electronics, toys, general merchandises, hardware, jewellery etc. The main

thing is that Wal-Mart provides these entire products at low prices as compared to other

competitors and they provide these products under one roof and is opened at convenient

places. So, Wal-Mart left no place for the substitutes. Others have low prices but they are

not as convenient as Wal-Mart. So, customers will mostly prefer to buy from Wal-Mart

only. So, there is no place for substitutes.

3. Bargaining Power of Suppliers

Wal-Mart is a very big organization and is spread all over the world. It is one the most

successful retailers of the world. They have very huge customer base. In case of

bargaining power of suppliers, Wal-Mart faces low to medium pressure. Wal-Mart is the

leader of the retail industry. They have been in industry for long and have developed

strong position in the industry over the years. With this, they have also got some power.

They have contact with many manufacturers and wholesalers. Wal-Mart can easily force

its supplier to cut down price and supplier has no other way but to do it. They have big

suppliers like Coca Cola and Procter and Gamble but they also listen to the Wal-Mart as

they have strong position in retail industry.

4. Threat of New Entrants

In case of threat of new entrants, Wal-Mart faces low pressure. In this, it is very difficult

to enter as there are many entry barriers. Wal-Mart has been in the retail industry for very

long and developed very good position in the market. Wal-Mart dominates the market. It

has contact with large number of manufactures and wholesalers. Wal-Mart is better than

others in terms of brand name, convenience, financial position etc. They also sell the

products at the lowest prices and have cost advantage over other in the industry. So, there

is very little or no possibility of any new company giving them competition. New entrants

would not be able to survive for long in the industry.

5. Competitive Rivalry

In case of competitive rivalry, Wal-Mart is facing medium pressure from its established

competitors. Wal-Mart basically faces biggest competition from Sears, Target and K-

Mart. Among them, their biggest competitor is Target. Target like Wal-Mart had been

able to develop themselves and also develop strong position in the industry. Wal-Mart

faces competition from others but still it has competitive advantage over other. Wal-Mart

is oldest and has been able to establish better strong hold in the industry. It is still a cost

leader and sells at lesser price than its competitors. Wal-Mart was among the first

companies to establish largest private satellite communication in the US. It is the first

company to introduce the technology of bar codes and computers for inventory

management. So, technologically Wal-Mart has always been better than its competitors.

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Generic Strategies

(Three Generic Competitive Strategies, 2011)

Cost Leadership

Over the years, Wal-Mart has become one of the biggest and most successful retailers in the

world. The strategy which had helped them over the time and become leader in the industry is

cost leadership strategy. Wal-Mart has always focused on people and not on money. Even the

Sam Walton’s dream of founding Wal-Mart is to help the people to save their money by

selling the products at least possible prices and with that saved money people can have a

good life. Wal-Mart has always focused on selling the products at the reduced price. That’s

why their customers never complain about Wal-Mart and their customers are increasing day

by day.

Wal-Mart has very good strong hold in the retail industry and so they dominate the industry.

Their main slogan is “Always Low Prices”. They always find some or the other way to

reduce their overall costs so that they can sell the products to customers at the lowest prices.

As dominant force in industry, they can easily force their suppliers to cut down costs and sell

them at low prices. They have big suppliers like Coca Cola and Procter and Gamble but they

also have to sell according to the Wal-Mart. They also use other concepts like Every Day

Lower Prices (EDLP) which helps to provide the customers with quality goods at lowest

prices.

Wal-Mart has maintained its cost leadership position over many years and will also continue

to maintain it in future. Whenever any of its employees travels for the work of the company,

he/she always travels in the economy class rather than the first. This is also one of their ways

of saving cost. Wal-Mart has always been technologically advanced than others. It uses

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computers for proper management of inventory and also maintain past records. This helps

them in the proper utilization of inventory and helps them reduce cost.

Focus Strategy

Wal-Mart has also undertaken focus strategy. The main aim of Wal-Mart always has been to

take care of the people i.e. customers. Wal-Mart focuses on all kinds of people whether the

live in urban areas or they live in rural areas. Wal-Mart has always focused on the people.

They target all kinds of customers i.e. rich as well as poor. They have opened their stores in

urban areas but they have also opened its stores in places where people don’t easily get access

to the big stores.

Wal-Mart was the first retailer to focus on this area. Their competitors like Target and K-

Mart have targeted this area and have always focused on urban areas. Prices are low as

compared to others in the industry and these people have no complaints about the price as

they have more convenience buying from Wal-Mart rather than buying from others.

Differentiation Strategy

Wal-Mart has not only adopted cost leadership and focus strategy, they have also focused on

differentiation strategy. Differentiation strategy means they are different from their

competitors and are unique in their way. Not only cost leadership strategy had helped them

become leader of the leader but differentiation strategy had also helped them in achieving

success and become best retailers in the world. Wal-Mart has always differentiated itself from

its competitors.

Wal-Mart was the first retailer to come up with the idea of ‘one roof’. They have huge stores

and their each store contains all kinds of goods like electronic, toy, hardware, jewellery etc.

and these products were sold at lesser price as compared to their competitors in the industry.

This idea was not undertaken by any of its competitors. Customers not only get all kinds of

products at lesser price but it is also very convenient for them. That’s why more consumers

are attracted. Use of the concept like Every Day Low Price (EDLP) which helps them to sell

the quality products to customers at low price also differentiates them from their competitors

in the market.

They have opened different kinds of stores like neighbourhood stores, supercentres, Wal-

Mart express stores, Marketside etc. according to the different needs of customers. They have

also opened Sam’s Club warehousing which is very cheap and helps small businesses. They

were the first company to focus more on the needs of the people rather than making money

and they were also the first one to target on the place where people find it difficult to find big

stores. They were the first one to open online stores and online they have around 1000000

products at lowest price. Wal-Mart was the first one to develop the network of computers

with their suppliers and work stations to strengthen their relationship with the suppliers. They

were also the first to have the largest private satellite communication in US to have contact

with its operators all over the world. They lease a computer system to manage inventory.

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Matrix Analysis

Competitive Profile Matrix

Wal-Mart Target ShopKo

Critical Success

Factors

Weight Rating Weighted

Score

Rating Weighted

Score

Rating Weighted

Score

1. Market share

2. Price

Competitiveness

3. Financial

position

4. Product

Quality

5. Consumer

Loyalty

6. Expansion

7. Advertisements

0.15

0.17

0.09

0.17

0.20

0.10

0.12

3

4

4

3

4

3

2

0.45

0.68

0.36

0.51

0.80

0.30

0.24

2

3

3

2

2

3

2

0.30

0.51

0.27

0.34

0.40

0.30

0.24

2

2

3

2

2

2

1

0.30

0.34

0.27

0.34

0.40

0.20

0.12

Total 1.00 3.34 2.36 1.97

1-Major weakness, 2-Minor weakness, 3-Minor strength, 4-Major strength

The total weight obtained by Wal-Mart is 3.34, Target is 2.36 and ShopKo is 1.97. Since

Wal-Mart has the highest total, we can clearly state that Wal-Mart has more competitive

advantage than Target and ShopKo. The second highest total is of Target and the last is

ShopKo.

Internal Factor Evaluation Matrix

Strengths:

1. Strong financial position

2. Easy shopping

3. Good working culture

4. Online shopping

5. Customer centred stores

Weaknesses:

1. Poor R&D

2. Outdated store policies

3. Less women employees

4. No mission statement

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Key Internal Factors Weight Rating Weighted score

Strengths

1. Strong financial position 0.13 4 0.52

2. Easy shopping 0.12 4 0.48

3. Good working culture 0.11 3 0.33

4. Online shopping 0.11 3 0.33

5. Customer centred stores 0.12 4 0.48

Weaknesses

1. Poor R&D 0.12 3 0.36

2. Outdated store policies 0.10 2 0.20

3. Less women employees 0.10 2 0.20

4. No mission statement 0.09 3 0.27

Total 1.00 3.17

1-Poor, 2-Average, 3-Above average, 4-Good and score of 2.5 is considered average.

The total score of Wal-Mart in Internal Factor Evaluation Matrix is 3.17. The score is more

than 2.5 (which is average) which means that Wal-Mart is very strong internally and is

working effectively.

External Factor Evaluation Matrix

Opportunities:

1. Facility of online shopping

2. Using its brand image

3. Want easy shopping

4. Increasing retail sales

5. Untouched Asian market

Threats:

1. Competition from local stores in rural areas

2. Easy availability of substitutes

3. Wal-Mart haters affecting company

4. Government intervention

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Key External Factors Weight Rating Weighted score

Opportunities

1. Facility of online

shopping

0.12 3 0.36

2. Using its brand image 0.11 3 0.33

3. Want easy shopping 0.10 4 0.40

4. Increasing retail sales 0.13 4 0.52

5. Untouched Asian

market

0.12 4 0.48

Threats

1. Competition from local

stores in rural areas

0.09 4 0.36

2. Easy availability of

substitutes

0.11 4 0.44

3. Wal-Mart haters

affecting company

0.10 3 0.30

4. Government

intervention

0.12 2 0.24

Total 1.00 3.43

1-Poor, 2-Average, 3-Above Average, 4-Good and 2.5 is considered as an average score.

The total score of Wal-Mart in External Factor Evaluation Matrix is 3.43. The score is more

than 2.5 (which is average) which means that Wal-Mart is externally strong as well. Wal-

Mart takes full advantage of the opportunities and also minimizes risk. In other words, Wal-

Mart has more opportunities than threats.

From Internal and External Factor Evaluation Matrix, we came to the conclusion that Wal-

Mart falls in the first quadrant which means strategy of grow and build is being followed by

Wal-Mart. In both Internal and External Factor Evaluation Matrix, Wal-Mart has value

between 3 and 4 i.e. 3.17 and 3.43.

Strong(3.0 to

4.0)

Average (2.0 to

2.99)

Weak (1.0 to

1.99)

High (3.0 to

3.99)

I

WALMART

II

111

Medium (2.00

to 2.99)

IV V VI

Low (1.0 to

1.99)

VII VIII IX

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Financial View

Wal-Mart is traded in New York Stock Exchange. Wal-Mart is a huge company. It has more

than 9700 retail stores and globally it has almost 2 million employees. In 2011, Wal-Mart has

total sales of 419 billion dollars. In 2010, its net sales were 405 billion dollars. Its sales have

increased but it has not increased at good rate. Wal-Mart always keeps control on its cost and

tries its best to control its overall cost. Its overheads were just increasing at the rate of 1.7%

per annum last five years. Wal-Mart sells its quality products to the customers at the lowest

possible cost. (Investors, 2011)

Ratios

1. Current ratio – Current ratio means ability of firm to pay its current liability with the

help of current assets. Current ratio of Wal-Mart in 2009 is 0.88 and in 2010 is 0.86. It

is almost same. Ratio is low so company should try to improve the ratio.

2. Inventory turnover ratio – Inventory turnover ratio means how quickly is the

inventory with the company is turning into sales. More the inventory turnover, more

efficiently is company performing. In 2010, Wal-Mart’s inventory turnover ratio has

increased by 5%. Wal-Mart is quickly turning its inventory into sales.

3. Return on net sales – Return on net sales means each percentage of sales that has

been converted into income. In 2009, Wal-Mart’s return on net sales is 3.46% and in

2010 it is 3.66%. It is increasing but at very low rate.

(Annual report, 2010)

Conclusion

Wal-Mart is one of the most successful retailers till date. Wal-Mart is considered as the

dominant force and leader of the retail industry. It has been able to reach such high position

mainly because of its cost leadership and differentiation strategies. It has been able to

maintain cost advantage over its competitors over the years. The main aim of Wal-Mart has

been able to sell quality goods to its customers at lowest possible price. Wal-Mart has always

worked differently from its competitors.

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Bibliography

History, 2011. History of Wal-Mart. (Hitting the headlines)[Online]. Available at

http://walmartstores.com/aboutus/297.aspx

45 years of Wal-Mart history, 2011. History of Wal-Mart. (Hitting the

headlines)[Online]. Available at

http://www.cio.com/article/147005/45_Years_of_Wal_Mart_History_A_Technology_

Time_Line

Wal-Mart, 2011. Structure of Wal-Mart. (Hitting the headlines)[Online]. Available at

http://walmartstores.com/AboutUs/7606.aspx

Three generic competitive strategies, 2011. Generic strategies. (Hitting the

headlines)[Online]. Available at

http://tatler.typepad.com/nose/2005/04/three_generic_c.html

Annual report, 2010. Wal-Mart financial analysis. (Hitting the headlines)[Online].

Available at

http://cdn.walmartstores.com/sites/AnnualReport/2010/PDF/01_WMT%202010_Financials.

pdf