Case Study of Wal-Mart Store Inc.

Sam’s Clubs

GLOBAL INDUSTRY ANALYSIS - CASE STUDYGLOBAL INDUSTRY ANALYSIS CASE STUDYWal*Mart Stores, Inc.

a presentation p

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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

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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

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Number of Stores (1994)

0 500 1000 1500 2000

Hypermarkets Warehouse Outlets

Warehouse Clubs Wal*Mart Stores

WAL MARTBackground

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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


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Comparative Pricing Study, 1993


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Overall Performance of Discounters


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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

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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


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Year 1993West coast and West coast and northeastern states

Year 1994Year 1994Operated in 47 states


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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


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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


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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


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and Sam’s Legacy

Management styleManagement styleMaintain an open-door policyEmpowering associatesMaintain technology superiorityBuild loyalty among associates,

t d licustomers, and suppliers


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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


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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


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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


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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


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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


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and Store Operation


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and Store Operation

Electronic scanning of uniform product code uniform product code (UPC) at the POS

Ensure accurate pricingEnsure accurate pricingImprove efficiencyReduce ShrinkageImprove communications


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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


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and Store Operation

Phenomenal distribution network

Two step phub-and-spoke


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and Distribution


Cross-docking technique


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and Distribution


Distribution center

Cost advantageStable price


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and Distribution


Computerizped pick to light system


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and Distribution


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and Distribution

Backward integrationNo nonsense negotiatorNo nonsense negotiatorEconomies of scaleMaintain long term Maintain long term relationship with supplier, as powerful partner (RSP)


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and Vendor Relationships


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Backward integrationElectronic data interchange (EDI)(EDI)CPFR

ForecastingForecastingPlanningReplenishingShipping applications


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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


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Backward integrationFrom EDI to Retail link


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Whole Supply chainEconomies of scaleC t l d hi titi Cost leadership competitive advantage

JIT inventorJIT inventorPOS and retail linkCRS & VMIEDICPFR


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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


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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

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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


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Comparison


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Backward IntegrationAcquire “McLane Company”Acquire McLane CompanyTexas retail grocery supplierTo service both Sam’s Clubs To service both Sam s Clubs and supercenters


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Warehouse clubs


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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


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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%


and Sam’s Clubs49

Top Warehouse Clubs by 1993


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


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




Low‐price imageDefinition


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


Operating philosophyFamiliarity Operating Familiarity

Low‐price image

Operating Philosophy


and Supercenters53

Definitionb k dA supercenter is a combination supermarket and

discount store averaging 120,000 to 130,000 fsquare feet in size



Low‐price imageLayout


and Supercenters54

450 associatesFull-time

Staff - 70% Part-time- 30%- 30%


and Supercenters55

Business Hours

24 hours Seven days a week


and Supercenters56

ComparisonComparison


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)


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and International Expansion

1994, MarchAcquire 122 Woolco Acquire 122 Woolco storesWoolworth Corp.p

Canada


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South AmericaPlan to enter in 1995Brazil & Argentina


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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


Key playersProcter & Gamble

SuppliersIndustry is concentratedProcter & Gamble

GEWrangler

Industry is concentratedMany suppliersNo-nonsense

WAL MARTWal*Mart


Discount StoreSupercenter

CustomersLow switching costSupercenter

General publicWarehouse clubs

Low switching costTransportation cost

Warehouse clubsOwn businessRetailer

WAL MARTWal*Mart


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

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Case Study of Wal-Mart Store Inc.

Economy & Finance

uniform product

helped wal

sams club

sams clubs

case discussion

discount stores

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store