Wal-mart

Wal-Mart

Key sources of competitive advantage  Consumers became increasingly well informed.. Discount retailing flourished

Year

Discounters’ Sales($)

1960

2 billion

1985

68 billion

 First mover advantage  Competitive prices

Key sources (cont..)  Stores in areas inhabited by its competitors  Purchasing and Distribution Dept  Terminals wire merchandise requests to a central computer  The central computer passes the information onto the distribution center  Stock out situations never arise  Intricately webbed distribution system

Key sources (cont..)  Store Operations  More than 70000 SKU’s  Computerized system to keep a track on their sales, inventory and accounting  Electronic scanning of Uniform Product Code at the point of sale

 Marketing  Competitive pricing strategy  Mostly Cash and Carry basis  Also accepted Master Card, Visa and other credit Transactions

 Human Resource  Walstreet – “ Wal-mart is known for having different human resource practices  Shrinkages were reduced to 1.3% of sales

Will Sam’s wholesale clubs prove as successful? •

Limited gross margins to 9%-10%.

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Sell merchandise before its payment is due

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Located in areas with populations of 4-5 lakh people

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Storing top-selling items

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Unique concept of “memberships”

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In 1985 their sales had reached $4.4 billion and expecting this to exceed to $20 billion by the early 1990s.

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Stores were on lease making the exit option easy

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Very low cost of initial setup

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Service – Cost evaluation by the customer.

Sustainability of Wal-Mart’s advantage in the Discount Retailing • Trends prevalent during the early 1950’s led to the rise of this format • By 1986, the idea of Discount Stores was so engrained in the WalMart’s scheme of things that it accounted for 91% of the company’s sales and 96% of the company’s pretax profits • Discount Stores resulted in revenue rise of $2 billion to $68 billion from 1950 to 1986 • They grew at around 64% in the 1970’s • The growth fell to 8% in the 1980’s •Contrary to popular wisdom, Sam Walton believed that the real growth was in the small southwestern towns

• However, as the years rolled by, Wal-Mart realized that markets, which were its strong holds, no longer remained the same • Due to the entry of other major retailers, the margins that Wal-Mart used to deal with were drastically altered • Operating, selling and administration expenses were on a rise, resulting in a change in the balancing equation for Wal-Mart • Strength of Wal-Mart was their delivery and distribution networks and they need to capitalize on this front, to ensure that they retain their lead in the market.