Wal Mart Case Study

Discount Retailing in the United States Began in the mid - 1950s Wal-Mart, Kmart, Target - Started in 1962 Stagnated during the 1970s 1980s – Kmart – largest discount retailer Wal-Mart – Second largest Innovations – Denser display, UPC scanning Hypermarket failed evolved smaller format

Continued… 1990s- Came Supercenter 2001- Supercenters to account for more than 1 billion dollars Blurred the traditional boundaries between discount retailers and traditional markets 2002- Kmart, biggest retail bankruptcy ever

Wal-Mart Stores, Inc. Headquarter – Bentonville 2003 Stores - 4,688 Area - 561 million square feet 73% stores - located in united states

Sam Walton ,[object Object], Good athlete Student leader Entrepreneur ,[object Object]

1962 – First Discount city store in Rogers, Arkansas

Sam overcame early problem and took company public in 1970 & raised $3.3 m,[object Object]

Retailing Formats Discount Store Supercenter Neighborhood Markets Sam’s Club

Backward integration – Saved 2-3% on goods

Sam time – Retail Link Data ware house consisted 250 terabyte of analytic database - Less than 10 minutes August 1997 to July 1998 – left to work for Amazon.com

Included top 75% - strategic decisions

Small shared suppliers – Poor performed

Large shared supplier – Better performed

Wal-Mart - P & G’s largest customer,[object Object]

Distribution Building stores within a day’s drive At the end of 2003 - 43 distribution centers

A typical distribution center Area - 1 million square feet Investment - $70 m Operated – 24 hours a day Staff – 700 associates Paid - $12-18/day Served – 150 stores (radius 150 miles)

Inventory turns Inventory turns - 3.2 in 1973 t 4.4 by 193 - 7.6 by 2003 Scan N Pay model

Distribution Cost Wal-Mart – 2-3% revenue Other retailers – 4-5% revenue

McLane A wholesale distributer acquired in 1990 Sold to Berkshire Hathaway Lost - $1.29 b on volume of $22 b

Merchandising and Marketing Product Assortment Pricing Other Marketing

Merchandising and Marketing Walton’s life with merchandising. Merchandising principle: Achieving very high sales per square foot by offering broad assortment of merchandise at constantly low prices in cheap but cheerful stores.

Product assortment/ collection More sales per square foot, more traffic, and require fewer markdowns. Low profit margin.

Dynamics of Wal-Mart Stores Dominated the market 15% Sales in 1995 20% Sales in 1999.

Private Products Sam’s American Choice detergents= ½ prices of P&G’s Tide. Sam’s American Choice detergents= ¼ shelf space of P&G’s Tide.

Modular Capacity Assortment Planning System (MCAPS) Exclusivity Impulse/ destination purchasing Ease of in-store display/ stocking Volume producing items based on season or month Local demographics Local community through fund raising events.

Cont’d Merchandising mix Loss of non-purchaser accounted to $9 billion per year

Pricing “Always low price. Always.” Rollback programmed 10% discount on three to four key items per category Discount may be continuous Which facilitate bulk purchase benefitted unto 100’s % cause increase in revenue

Price-War Managers were allowed to match or beat the lowest competing price (Max. 5%) Wal-Mart makes price checks 99.8% of Kmart Stores 98.7% of Target Stores (10-15% Premium charge)

Other Marketing Wal-Mart’s advertising to sales= 0.3% Kmart’s advertising to sales= 1.2% Target’s advertising to sales= 2.2% Media Local TV, radio, market-level promotions, In-store television (nation’s largest media provider- half of the consumer purchase decision is made in store itself)

Stores More on operational part rather than cheerful ambiance. They wanted to create “Big Box” in all rural and urban area. 50 Stores 8 Stores

Characteristics Discount stores open 24 hours a day from Monday to Saturday Limited time on Sundays. Supercenters open for 24*7. Inbound sides. Outbound sides. Credit cards services.

Sales/ (Foot) 2 $440 $249 $221 Autonomy of Sales

People Wal-Mart success ingredient is its “associates”. Institutionalized policies and practices- Sharing performance information with associates Soliciting their ideas Offering them incentives Offering profit sharing Maintaining open door policy.

Payroll Expense Growth of Supercenter format

Cont’d Payroll expenses= Labor related costs per employee Sales per employee (S/E) $175,000 $144,000 $144,000 Sales per Employee in 2003

Cont’d Labor related costs per employee

Store within a STORE Receive detail information in sales Receive detail information in profits Adjusting the merchandising mix Being reward for the results

Frame of Reference “Very competitive benefits and very competitive wages” Wal-Mart emphasizes that it offered more training than any other retailer. Promotion rate is high- 2/3 of its managers had been promoted to higher level. Successful, caring and fun place to work.

Critique argued that… Wal-Mart’s paying $2-3/hour less than supermarket. Less wages cause high turnover of employee.

Cont’d Health insurance benefits to over 90% employees. 2.2 million employees base is necessary to maintain. 2/3 of hourly employees are female, they hold 1/3 of store management jobs and 15% store management position.

Management What management practices made Walmart Giant?

1.Responsibility & trust - Learned from variety store business

2.Establising check & control -Facilitated by technology

“Commit to your business. Believe in it more than anybody else. I think I overcome every single one of my shortcomings by the sheer passion I brought to work.” - From Sam Walton’s Autobiography

Wal Mart Case Study

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