Wal-Mart
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Sam’s Clubs
GLOBAL INDUSTRY ANALYSIS - CASE STUDYGLOBAL INDUSTRY ANALYSIS CASE STUDYWal*Mart Stores, Inc.
a presentation p
1
Sam Walton Founder of Wal*Mart Stores, ,Inc.
Performance of Wal*Mart20-year average return on equity of 33%Compound average sales Compound average sales growth of 35%Market value = $57.5 billion$
Wal*Mart Industry average
Sales per $300 $210Sales per square foot $300 $210
WAL MARTBackground
2
Year 1988 CEO: David GlassCOO: Don Soderquist
How to sustain the company’s phenomenal performance?
1987 1993
Net sales 15,959 67,345
Net Income 628 2,333
Number Of StoresNumber Of Stores
Discount Stores 1,114 1,953
Sam’s Wholesale Clubs 84 419
Supercenters N.A. 68
WAL MARTBackground
3
Number of Stores (1994)
0 500 1000 1500 2000
Hypermarkets Warehouse Outlets
Warehouse Clubs Wal*Mart Stores
WAL MARTBackground
4
CR5 (1986)Where
Emerged in the U.S.38%
gWhen
Mid-1950s62%Top 10 discounters in 1962
Wal*Mart remained onlyThe industry became more The industry became more concentrated
Discount store companies 29%
CR5 (1993)
poperated 50 or more stores accounted for 82%
71%
WAL MARTDiscount Retailing
5
25%30
Discount Retailing Industry
wth
9% 7%11.2%10
20
ales
Gro
w
0Sa
WAL MARTDiscount Retailing
6
Comparative Pricing Study, 1993
WAL MARTDiscount Retailing
7
Overall Performance of Discounters
WAL MARTDiscount Retailing
8
Year 1945Ben Franklin franchise store
In 1950s15 stores
Year 1962Wal*Mart Discount City storestore
Year 196918 Wal*Mart stores15 Ben Franklin franchise stores
WAL MARTWal*Mart’s Discount Stores
9
and History of Growth
Year 197030 discount stores in rural states
South and MidwestCost of good soldBuild its own warehouse− Buy in volume at Buy in volume at
attractive prices − Store the
merchandiseYear 1972
Took the company publicRaised $3 3 millionRaised $3.3 million
WAL MARTWal*Mart’s Discount Stores
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and History of Growth
Year 1993West coast and West coast and northeastern states
Year 1994Year 1994Operated in 47 states
WAL MARTWal*Mart’s Discount Stores
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and History of Growth
Key strategies for growingLocate store in isolated rural areas and small towns (population 5000~25000)Pattern of expansion
Always push from inside outout
Mid-1980sOne third were located in areas that were not served by any of its competitors
WAL MARTWal*Mart’s Discount Stores
13
and History of Growth
Year 199355% of Wal*Mart faced competition from Kmartcompetition from Kmart23% from Target82% of Kmart faced 82% of Kmart faced competition from Wal*Mart85% of Target faced competition from Wal*Mart
WAL MARTWal*Mart’s Discount Stores
14
and History of Growth
PhilosophyPhilosophyKeep prices below everybody elseTrip expenses can’t exceed 1% of the purchases
Spent lots of time in his own store and b titobserve competitors
CultureDo not show off buying luxury goodsDo not show off buying luxury goods
SuccessThe way it treated its associatesy
WAL MARTWal*Mart’s Discount Stores
15
and Sam’s Legacy
Management styleManagement styleMaintain an open-door policyEmpowering associatesMaintain technology superiorityBuild loyalty among associates,
t d licustomers, and suppliers
WAL MARTWal*Mart’s Discount Stores
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and Sam’s Legacy
Tailor to individual market or individual Tailor to individual market or individual store
Information systemInformation systemA process which indexed product movements in the store to over a thousand store and market traits Using inventory and sales data
WAL MARTWal*Mart’s Discount Stores
18
and Merchandising
Lower price
Promotional strategyEveryday-low-prices
Maximize sales
Few promotions13 major circulars per year
Maximize sales volume
and industry turnover
Minimizeexpenses
1993
Satisfaction guaranteed policySatisfaction guaranteed policy
WAL MARTWal*Mart’s Discount Stores
20
and Merchandising
Marketing sloganLower price Lower price
Store managers set up prices
2-4% pricing differential between Wal*Mart and its best competitors in most markets in
l 1990early 1990s
WAL MARTWal*Mart’s Discount Stores
21
and Merchandising
National brand strategy
Private label apparelPrivate label apparel25% of apparel sales
Oth i t l b lOther private label26% price advantageAlso sold in Sam’s Clubs and supercentersAlso sold in Sam s Clubs and supercenters
“Buy American” program
WAL MARTWal*Mart’s Discount Stores
22
and Merchandising
Strength WeaknessC t d t g Ig t d tiCost advantage Low price & customer-orientedStrong supply chain
Ignore store decorationSince Wal-Mart sell products across many sectors (such as Strong supply chain
People are key to success
y (clothing, food, or stationary), it may not have the flexibility of some of its more focused some of its more focused competitors.
Opportunity Threatpp yBuild its own brandPut efforts on social welfare
b i
Other competitorsIntense price competition
better imageNew locations and store typesOverseas marketsOverseas markets
WAL MARTWal*Mart
and SWOT Analysis
WAL MARTWal*Mart’s Discount Stores
24
and Store Operation
WAL MARTWal*Mart’s Discount Stores
25
and Store Operation
Electronic scanning of uniform product code uniform product code (UPC) at the POS
Ensure accurate pricingEnsure accurate pricingImprove efficiencyReduce ShrinkageImprove communications
WAL MARTWal*Mart’s Discount Stores
26
and Store Operation
Satellite system Data collected and analyzedData collected and analyzedObserving Merchandise flow overstock discountflow, overstock, discountVideo transmissions, credit card authorizations, and card authorizations, and inventory control
WAL MARTWal*Mart’s Discount Stores
27
and Store Operation
Phenomenal distribution network
Two step phub-and-spoke
WAL MARTWal*Mart’s Discount Stores
28
and Distribution
Phenomenal distribution network
Cross-docking technique
WAL MARTWal*Mart’s Discount Stores
29
and Distribution
Phenomenal distribution network
Distribution center
Cost advantageStable price
WAL MARTWal*Mart’s Discount Stores
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and Distribution
Phenomenal distribution network
Computerizped pick to light system
WAL MARTWal*Mart’s Discount Stores
31
and Distribution
WAL MARTWal*Mart’s Discount Stores
32
and Distribution
Backward integrationNo nonsense negotiatorNo nonsense negotiatorEconomies of scaleMaintain long term Maintain long term relationship with supplier, as powerful partner (RSP)
WAL MARTWal*Mart’s Discount Stores
33
and Vendor Relationships
WAL MARTWal*Mart’s Discount Stores
34
and Vendor Relationships
Backward integrationElectronic data interchange (EDI)(EDI)CPFR
ForecastingForecastingPlanningReplenishingShipping applications
WAL MARTWal*Mart’s Discount Stores
35
and Vendor Relationships
The CPFR Process Seller
FRONT END AGREEMENTCollaborativeO
nce
JOINT BUSINESS PLAN PlanningQ
tr.
CREATE SALES FORECAST
IDENTIFY EXCEPTIONSCollaborative
Forecastingk, M
o
RESOLVE EXCEPTIONS
g
Wk
CollaborativeCREATE ORDER FORECAST
IDENTIFY EXCEPTIONS
CollaborativeReplenishment
Wk,
Mo
RESOLVE EXCEPTIONS
W
GENERATE ORDER
36BuyerGENERATE ORDER
Backward integrationVendor-managed inventory (VMI) t(VMI) system
WranglerGEGE
WAL MARTWal*Mart’s Discount Stores
37
and Vendor Relationships
Backward integrationFrom EDI to Retail link
WAL MARTWal*Mart’s Discount Stores
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and Vendor Relationships
Whole Supply chainEconomies of scaleC t l d hi titi Cost leadership competitive advantage
JIT inventorJIT inventorPOS and retail linkCRS & VMIEDICPFR
WAL MARTWal*Mart’s Discount Stores
39
and Vendor Relationships
Non-unionized
Decentralized: full autonomyDecentralized: full autonomy
Profit sharing programY SYes we can SamStore within storeShrink incentiveShrink incentiveStock sharing
Administrative styleAdministrative styleFrugality
No hierarchy in organizationNo hierarchy in organization
WAL MARTWal*Mart’s Discount Stores
41
and Human Resource Management
Non‐unionized, Full autonomy to associates, Decentralized,
Inferior fixtures standardization, Trucks, Average store size 84,000 square feat
FirmInfrastructure
Human Resourceivities
, y , ,profit sharing program, Job rotation, Stock purchase plan
UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite system, CPFR
Management
TechnologyDevelopment
pport A
ct
Maintain long‐term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy
Everyday l i
ProcurementSup
VMI Six days a Two step ECR M
low priceAlways low price, alwaysSelf service
systemRetail linkEDICPFR
week(9~21) Monday
(12:30~17:30)
hub and spoke distributing system
Satisfaction guarantee policyQuick
Margin
Se se ceCash and carrySave
money, li b tt
response (QR)
live bettercredit card, Layaway plan
Outbound Marketing After SalesInboundPrimaryO ti Logistics
g& Sales ServiceLogistics
yActivities Operations
WAL MARTWal*Mart
and Value Chain
Historical Time Series Wal*Mart opened the first pthree Sam’s clubs in 1983Sam’s sales surpassed Price Club’s, making it the largest wholesale club in 1987In 1987 Wal*Mart In 1987, Wal Mart introduced its first supercenter pIn 1991, Wal*Mart acquired “The Wholesale Club” with 28 l h d 28 outlets in the Midwest
WAL MARTDiversification
43
In 1993, Sales at Sam’s Club ,rose 19.5% as the highest in national warehouse club chains, which Sam’s was nearly twice the size of Price ClubPrice ClubSam’s Club acquired 99 of Kmart’s 113 “Pace club” in 1993
WAL MARTDiversification
44
Comparison
WAL MARTDiversification
45
Backward IntegrationAcquire “McLane Company”Acquire McLane CompanyTexas retail grocery supplierTo service both Sam’s Clubs To service both Sam s Clubs and supercenters
WAL MARTDiversification
46
Warehouse clubs
WAL MARTDiversification
47
and Sam’s Clubs
Operating philosophyTo offer a limited number of SKUs in pallet-size quantities in a no-frills, warehouse-type building
LocationOften locate next to a Often locate next to a Wal*MartSam’s chose to cannibalize its own sales rather than give competitors any openings
WAL MARTDiversification
48
and Sam’s Clubs
PaymentDiscover cardCash- and-carry
Membership Free$$25 annually
Business HourSeven days a weekSeven days a week
SupplyDirect shipment from psupplier - 70%Company’s distribution
30%centers - 30%
WAL MARTDiversification
and Sam’s Clubs49
Top Warehouse Clubs by 1993
WAL MARTDiversification
and Sam’s Clubs50
Definitionb k d
Operating margins within the industry were extremely low-
A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000
f
y ya typical supermarkets was lucky to squeeze out a 2 % profit marginsquare feet in size
It contains bakeries, delis and convenience shops
profit margin.Industry trend
Operating philosophyFamiliarityFamiliarity
Low‐price imageMotivation
WAL MARTDiversification
and Supercenters51
Definitionb k d
A supercenter is a combination supermarket and discount
A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000
f
pstore averaging 120,000 to 130,000 square feet in sizeIt contains bakeries delis and square feet in size
It contains bakeries, delis and convenience shops
It contains bakeries, delis and convenience shops
Operating philosophyFamiliarityFamiliarity
Low‐price imageDefinition
WAL MARTDiversification
and Supercenters52
Definitionb k dFamiliarityA supercenter is a combination supermarket and
discount store averaging 120,000 to 130,000 f
FamiliarityLow-price image
square feet in size
It contains bakeries, delis and convenience shops
Operating philosophyFamiliarity Operating Familiarity
Low‐price image
Operating Philosophy
WAL MARTDiversification
and Supercenters53
Definitionb k dA supercenter is a combination supermarket and
discount store averaging 120,000 to 130,000 fsquare feet in size
It contains bakeries, delis and convenience shops
Operating philosophyFamiliarityFamiliarity
Low‐price imageLayout
WAL MARTDiversification
and Supercenters54
450 associatesFull-time
Staff - 70% Part-time- 30%- 30%
WAL MARTDiversification
and Supercenters55
Business Hours
24 hours Seven days a week
WAL MARTDiversification
and Supercenters56
ComparisonComparison
WAL MARTDiversification
and Supercenters57
M i
Year 1992Joint ventureCifra S A (Mexico’s largest Mexico Cifra S.A. (Mexico s largest retailer) 63 stores (22 Sam’s Clubs, 11 Wal*Mart supercenters)
WAL MARTDiversification
58
and International Expansion
1994, MarchAcquire 122 Woolco Acquire 122 Woolco storesWoolworth Corp.p
Canada
WAL MARTDiversification
59
and International Expansion
South AmericaPlan to enter in 1995Brazil & Argentina
WAL MARTDiversification
60
and International Expansion
Discount StoreKmart
CompetitorsHigh degree of concentrationKmart
TargetCaldor
High degree of concentrationHigh industry growthHave excess capacity
Warehouse ClubsPrice Club
Cost structure of firms: sensitive to costB ’ it hi g t i lCostco
PaceSupercenter
Buyer’s switching cost is lowFirm can adjust prices quicklyPrice elasticity of demand Supercenter
MeijerFred Meyer
Price elasticity of demand
Fred Meyer
WAL MARTWal*Mart
and Five Force Analysis
SupermarketKroger
Potential EntrantThey have distribution Kroger
Safeway StoresThey have distribution channelsAccess to raw materialsAllocate favorable locations
WAL MARTWal*Mart
and Five Force Analysis
Key playersProcter & Gamble
SuppliersIndustry is concentratedProcter & Gamble
GEWrangler
Industry is concentratedMany suppliersNo-nonsense
WAL MARTWal*Mart
and Five Force Analysis
Discount StoreSupercenter
CustomersLow switching costSupercenter
General publicWarehouse clubs
Low switching costTransportation cost
Warehouse clubsOwn businessRetailer
WAL MARTWal*Mart
and Five Force Analysis
Please discuss the differences among discount stores, superstores, Supermarkets, Sam’s club, Hypermarket?p , p , , yp
Discount store−grocery wholesale
kSupermarkets−fresh product wholesale
Superstores−discount store + supermarkets
Sam’s club−warehouse for grocery and fresh product, with g y p ,membership fees, the customers are business and retailers
HypermarketHypermarket−huge warehouse including clothing, grocery, good, for one stop shop like a department store run by one companyrun by one company WAL MART
Wal*Martand Case Discussion
What pricing strategies that Wal-Mart discount stores adopted to avoid price competition with other p p pdiscount stores? What actions that Wal-Mart had done to cope with this pricing strategy?
Based on cost advantage−Always low prices---AlwaysStable price−Stable price
−Spent less on ad.−Operating expenses are low
S iStore managers set up pricesLocate store in isolated rural areas and small townsBuy its own warehousesBuy at a best price (backward integration)
WAL MARTWal*Mart
and Case Discussion
What the information system had helped Wal-Mart’s business? Please list the functions and how these ffunctions had helped Wal-Mart’s cost reduction?
Electronic scanning of uniform product code (UPC) at the POS−Ensure accurate pricing−Improve efficiencyp y−Reduce Shrinkage−Improve communications
Satellite system Satellite system −Data collected and analyzed−Observing Merchandise flow, overstock, discountVideo transmissions credit card authorizations −Video transmissions, credit card authorizations, and inventory control
Electronic data interchange (EDI)CPFR−CPFR
−Forecasting−Planning
WAL MARTWal*Mart
−Replenishing−Shipping applications
and Case Discussion
Q & AQ & AThank You for Thank You for
ListeningListening
68
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