Wal-Mart Case Analysis

Wal-Mart was founded in 1962 by Sam Walton in Rodgers Arkansas. Over the years, the chain stores have not only grown to be the leading retail shops in the U. S. but the world at large. According to Porter’s Cost Leadership Strategy approach, the only way a company will be successful using this strategy is if it is able to operate at a lower cost than its competitors. Wal-Mart has proven this theory because it has been successful by lowering its operating costs at all the chain levels and by having a bargaining power with suppliers to obtain low prices.

This paper asserts various aspects of Wal-Mart including its management, success, failures and gives recommendations for improvement. What impresses you about this company? Other than the obvious lower cost products offered to the consumer, what impresses me about Wal-Mart is that Wal-Mart is always leading edge on supply chain systems and technologies. Because of their size and sheer volume, they are able to "force" their suppliers to conform to their practices. Implementing change to the supply chain is the most difficult thing to do, but they have the leverage to do it.

Things like electronic inventories, RFID, "live" electronic links to suppliers’ inventories, etc. , all create efficiencies and help to keep costs down. For example, when you buy a box of corn flakes at Wal-Mart, as soon as it is scanned as a sale, it automatically communicates this to the supplier of corn flakes. This triggers an auto reorder and a replacement shipment is sent to Wal-Mart. With RFID technology, a whole pallet of cornflakes can show up and be scanned, then received into their stock without even unwrapping the pallet.

Costs are lower, less handling, quicker response to sales, minimizes stock outs, etc. (Peter . P. & Donnelly, J. 2013). In addition, Wal-Mart’s Retail Link system allows thousands of their suppliers to track their merchandise through Wal-Mart’s value chain, get hourly sales figures for each item and monitor gross margins on each of their products (Peter . P. & Donnelly, J. 2013). With access to this system, the suppliers can adjust their products to meet the needs of the customers at a specific Wal-Mart location. What accounts for Wal-Mart’s success over the past 25+ years?

Great strategy, great leadership and superb implementation of the strategies have contributed to the success of Wal-Mart. During Lee Scott’s leadership, Wal-Mart retained its position as the number one retailer in the world. The strategies, that is; to have a wide selection of goods at low prices has worked to the favor of Wal-Mart. There are a lot of things that have factored into their success. First is that net profit has been increasing over the years.

The total net profit changed from $112,000 in 1962 to $12.7 billion in 2005 (Peter . P. & Donnelly, J. 2013). Statistics show that Wal-Mart is growing in terms of number of stores being set up both locally and overseas. For example, Wal-Mart had 32 stores in Arkansas by 1970. In 2008, there were a total of 7,262 stores (Peter . P. & Donnelly, J. 2013). With nearly 180 million people per week shopping Wal-Mart stores in 14 countries and approximately 127 million here in the U. S. stores it is no wonder why Wal-Mart remains the largest retailer in the world (Peter . P. & Donnelly, J. 2013).

Is it a great strategy, superb strategy implementation and execution, or great leadership? It is all three; great strategy, superb implementation and strong leadership that helps Wal-Mart to be what it is today, but I believe that it is mainly a superb strategy implementation and execution that Wal-Mart does so well at. A lot of companies have the same strategy as Wal-Mart, which is having the lowest prices, but the majority of them cannot even touch what Wal-Mart accomplishes. Most companies with that strategy tend to not grow or suffer from very minimal profits.

A lot of them also fail because the consumer does not want to feel cheap when they shop there. When consumers do not want to shop there and their profits cannot make up for their expenses they can only shut down. The strategy that Wal-Mart employs is mainly a low-cost leader. This is evident by the company’s purpose: “saving people money so they can live better”. Wal-Mart believes that having a lower price matters to their customers (Peter . P. & Donnelly, J. 2013). They continuously seek to reduce costs throughout their company, which will in turn reduce costs for customers.

The low-cost strategy is a strategy where companies either try to use a lower-cost edge to underprice competitors and attract price-sensitive buyers, or companies use their lower-cost edge to earn a higher profit margin on each unit sold. For the most part, Wal-Mart uses lower costs than competitors to attract customers who are price-sensitive. Many elements of a general low-cost strategy are apparent in Wal-Mart. One element is achieving meaningful lower costs by capturing economies of scale. There are quite a few ways Wal-Mart is able to have economies of scale.

Since they have so many stores, they also make sure to have enough warehouses that can quickly restock various amounts of stores located near the warehouse. This makes it so inventory levels are not high, which can be very costly. Having a company that is so large it allows for inexpensive distribution. Also, since the company is so large, they have a good amount of bargaining power with suppliers, since suppliers do not want to lose the business of such a giant company. This allows Wal-Mart to receive products as cheap as possible, and pass the savings onto the customer (Peter . P.& Donnelly, J. 2013).

What aspects of Wal-Mart do you find unimpressive? There are several aspects of Wal-Mart that I find unappealing in their business operations:

1. ) Wal-Mart workers are paid wages that are like Wal-Mart prices…Low. This forces them to rely on government benefits such as Medicaid and food stamps (Peter . P. & Donnelly, J. 2013). In addition to being eligible for government assistance for food and medical care, an average Wal-Mart employee who is married and has one child is eligible for the Earned Income Tax Credit that is refunded to certain low paid workers.

2. ) Wal-Mart has a history of hiring undocumented immigrant workers.

3. ) Recording artists, particularly alternative rock and rap artists, are often forced to produce alternate versions of their work in order for it to be sold by Wal-Mart. Wal-Mart company policy forbids the sale of any CD with a warning label. According to the PBS documentary “Store Wars: When Wal-Mart Comes to Town,” Wal-Mart has pulled magazines from its shelves for covers they consider inappropriate, and some magazines have even sent Wal-Mart photos of proposed covers for their approval.

Considering that Wal-Mart is the nation’s largest retailer, and as of 2008 accounted for about 12 percent of CD sales, their policy of censorship interferes with the right of artists to have their work judged by the free market. A simple solution would be to place potentially offending CD’s and magazines out of the reach of children and/or obscure their covers, as is often done with “adult” magazines on newsstands (PBS, 2001).

4. ) Wal-Mart moves into communities, undercuts, and eventually destroys small local businesses.

5. ) Wal-Mart puts pressure on suppliers to reduce prices. This affects the bottom line of those suppliers and forces them to look for ways to provide products at the price which Wal-Mart demands. It also means that smaller suppliers, that already may be operating on a shoestring budget and cannot afford to make cuts, are unable to avail themselves of the huge market that Wal-Mart offers.

6. ) Wal-Mart sells a lot of goods (70%) that are made in China. Wal-Mart accounted for 11 percent of the U. S. trade deficit with China between 2001 and 2006, according to the Economic Policy Institute. EPI estimates that just the Wal-Mart portion of the trade deficit resulted in the loss of approximately 200,000 American jobs in that same time period. This likely forced more Americans to seek unemployment benefits (Scott, 2007). Which of the Generic Strategies is Wal-Mart Employing? The generic strategies were defined by Michael Porter as Cost Leadership, Differentiation, and Market Segmentation (or focus). As we can see in the following chart, Cost Leadership and Differentiation are broad in market scope and Market Segmentation is narrow in scope. Wal-Mart has employed the Cost Leadership Strategy with a broad mass target market scope.

This strategy involves having the lowest prices in the market and winning market share by appealing to cost-conscious or price-sensitive customers. “ The Hallmarks of Wal-Mart’s strategy were a deeply ingrained dedication to cost-efficient operations, everyday low prices, multiple store formats, wide selection, a mix of both name-brand and private-label merchandise, a customer-friendly store environment, astute merchandising , limited advertising, customer satisfaction, disciplined expansion into new geographic markets, and the use of acquisitions to enter foreign country markets” (Peter . P. & Donnelly, J. 2013).

Cost-Efficient Operations and Everyday Low Prices Wal-Mart has always pursued a low-cost leadership strategy. “None of the world’s major retailers could match Wal-Mart’s zeal and competence in ferreting out cost savings and finding new and better ways to operate cost-efficiently” (Peter P. & Donnelly, J. 2013). Wal-Mart’s low cost achievement extends to each chain activity of its operations. Wal-Mart applies a very efficient supply chain management system where almost all product data can be tracked to and from the manufacturer, warehouse, and the store shelf. Wal-Mart saves millions of dollars by using this system because it prevents losses.

Wal-Mart is able to maintain low prices by obtaining the lowest price possible from the suppliers. According to Peter and Donnelly, Wal-Mart is the biggest customer of all of its 66,000 suppliers allowing Wal-Mart to bargain and obtain the desired bottom prices. Because of this Wal-Mart can offer better prices than other competitors such as Kroger, Safeway, Albertson’s, etc. Wal-Mart’s low price strategy forces its competitors to lower their prices. If they are unable to compete, they have to close their stores. This strategy has allowed Wal-Mart to limit the entry of new competitors to the market.

Wal-Mart also maintains low cost operations by using the following spending approaches: Limits its advertisement to 0. 3 percent of sales revenues because its stores are clustered together; expands into adjoining geographic areas; built new stores within 200 miles of the distribution centers for cost-effective deliveries; advertising expenses are shared across all the area stores; builds inexpensive constructions; the stores are renovated and redecorated once every seven years; and the distribution centers and corporate offices are also built and furnished economically.

In about 2007, Wal-Mart began making its stores both more energy efficient and supplied by 100% renewable energy for energy-savings innovations. High-efficiency stores use 20 percent less energy than a typical Supercenter. (Peter, P. & Donnelly, J. 2013) Multiple Store Formats

Wal-Mart employs four different retail concepts to attract and satisfy customers’ needs: Discount stores offering as many as 80,000 different items; Supercenters to offer families a one- stop shopping experience with general merchandise discount store and full-line supermarket; Neighborhood Markets with a full-line supermarket and limited assortment of general merchandise; and Sam’s Clubs cash-and-carry members-only warehouses offering brand-name items in bulk quantities with some other big-ticket merchandise. Wide Product Selection and a Mix of Name-Brand and Private-Label Merchandise

According to Peter and Donnelly, the core element of Wal-Mart’s strategy is to provide customers with a wide assortment of products at affordable prices in one place. The Supermarket format is Wal-Mart’s approach to provide customers with a one stop shopping experience because it offers a big selection of merchandise and full line supermarkets. Customer Friendly Store Environment Wal-Mart stores present merchandise in easy-to-shop shelving and displays. Stores layouts are constantly improved so customers can find products easier. Astute Merchandising Wal-Mart is proactively testing and experimenting new merchandising techniques.

According to Peter and Donnelly, Sam Walton not just imitated good ideas and merchandising practices, he strengthened them. Wal-Mart upgraded the quality of the merchandise offered in certain departments to be more competitive with Target which was considered its major rival in discount retailing. Expansion into New Geographic Markets According to Peter and Donnelly, Wal-Mart always expanded into adjacent geographical areas. They will saturate the market area before moving to a new territory. New stores were always built within 200 miles of distribution centers to allow for cost-effective deliveries.

By 2008 Wal-Mart had 4,141 stores in the United States. Expansion into Foreign Markets Wal-Mart expanded into Canada, Mexico, Brazil, Japan, Puerto Rico, China, Germany, South Korea, and Great Britain by acquiring existing general merchandise or supermarket chains. Wal-Mart’s international strategy was to “remain local” so it used local suppliers to sell the merchandise according to the local customers preferences. By 2008, Wal-Mart had 3,126 international stores and by 2009 Wal-Mart had become the largest retailer in the United States, Canada, and Mexico. Is Wal-Mart’s strategy working well?

Yes, Wal-Mart’s strategy is working well. Many factors have a part in the success of Wal-Mart’s strategy. “The hallmarks of Wal-Mart’s strategy were a deeply ingrained dedication to cost-efficient operations, everyday low prices, multiple store formats, wide selection, a mix of both name-brand and private label merchandise, as customer friendly store environment, astute merchandising, limited advertising, customer satisfaction, disciplined expansion into new geographic markets, and the use of acquisitions to enter foreign country markets”. (Peter and Donnelly, Jr.)

The company’s financial information shows success in the most important aspect “the bottom line” and that being sales and profits. Wal-Mart had overwhelming success during a time of strategic change and store concept growth. In 2000, sales were $153 billion and profits were $5. 3 billon. In 2006, the store implemented its new strategy to curtail Wal-Mart bashing. By 2008, the company has sent it sales increase to $375 billion and $12. 7 billion. Sales increase by 145% and profits by 139% and this was done by increasing amount of stores now open from 3,884 in 2000 to 7,262 in 2008.

In 2009, sales were expected to exceed $400 billion. (Peter and Donnelly, Jr. ) Successful strategy is about transforming a company to meet the needs of the customers and in 2008 Wal-Mart was reaching nearly a 180 million people in 14 countries. In the U. S. alone they were averaging 127 million customers per week. (Peter and Donnelly, Jr. ) What does the information in case Exhibit 1 reveal about the company’s strategic and financial performance during 2000-2008? The information in Exhibit 1 reveals increases across the board from 2000 to 2008.

Net Sales and Net Income have increased by 145% and 139% (as stated earlier). In addition, Cost of Sales and Operating expenses have gone up in large part to 3, 378 more stores being opened and operated in 14 countries. Current assets have more than doubled since 2000 to $47. 6 billion (106%). The Financial and Operating summary reveal the strategy is working and Wal-Mart continues to grow and meets their stock holder and customer’s needs. (Peter and Donnelly, Jr. ) What policies, practices, support systems, and management approaches underlie Wal-Mart’s efforts to execute the company’s strategy?

Many factors have a part in the success of Wal-Mart’s strategy. “The hallmarks of Wal-Mart’s strategy were a deeply ingrained dedication to cost-efficient operations, everyday low prices, multiple store formats, wide selection, a mix of both name-brand and private label merchandise, as customer friendly store environment, astute merchandising, limited advertising, customer satisfaction, disciplined expansion into new geographic markets, and the use of acquisitions to enter foreign country markets”.