|OVERALL COST LEADERSHIP :CASE STUDY | | | |WAL-MART (Global) | |ABSTRACT: | |By successfully adopting a cost leadership strategy over the decades, Wal-Mart has emerged as the largest company (in terms of revenues) | |in the world. | | | |The case examines in-depth the key elements of the cost leadership strategy followed by Wal-Mart. It discusses how the cost leadership | |strategy generated above-average returns for the company and acted as a defense against competition in the industry. | |INTRODUCTION: |
For the financial year ending January 31, 2003, retailing giant Wal-Mart reported revenues of $244.5 billion, making it the world's largest company. The company topped Fortune's list of the world's largest companies for the second year in succession Wal-Mart to emerge such a dominant player in the retailing industry. Wal-Mart's success story is a classic example of a company, which became successful by rigorously pursuing its core philosophy of cost leadership, right from the day it began operations in 1962. Wal-Mart was founded by an ambitious entrepreneur, Sam Walton (Walton), who figured out early that retailing was a volume-driven business, and his company could achieve success by offering consumers better value for their money. Wal-Mart's growth during the first two decades was propelled primarily by following the strategy of establishing discount stores in smaller towns and capturing significant market share. The company was able to foster its growth in the 1980s by making heavy investments in information technology (IT) to manage its supply chain and by expanding business in bigger metropolitan cities. In the late 1980s, when Wal-Mart felt that the discount stores business was maturing, it ventured into food retailing by introducing Supercenters. In the late 1990s, Wal-Mart launched exclusive groceries/drug stores known as "neighborhood markets" in the US. Though Wal-Mart had achieved huge success over the decades, the company drew severe criticism from industry analysts for its strategies that aimed at killing competition. At the speed at which Wal-Mart was growing, analysts feared that the company would soon face an anti-trust suit for its monopolistic practices. Christopher Hoyt, president of Scottsdale, an Arizona-based supermarket store, Hoyt & Company, said, "The only thing that could stop Wal-Mart is if the government gets involved, just as it did with Microsoft.
WAL-MART’S AGGRESSIVE PRICING:
On July 2, 1962, Samuel Moore Walton (Walton), a merchant with over 15 years of experience in retailing, set up his first discount store in Rogers, a small town in the state of Arkansas, US. The store
During the initial years, Walton focused on establishing new stores in small towns, with an average population of 5,000. In his efforts to attract people from the rural areas to his stores, Walton introduced the concept of every day low prices (EDLP). EDLP promised Wal-Mart's customers a wide variety of high quality, branded and unbranded products at the lowest possible price, offering better value for their money. Wal-Mart's...
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