Study Case

Wal*Mart Stores, Inc

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Study Case

Wal*mart Stores, Inc

1. Sources of Wal*Mart's competitive advantages in discount retailing

After a detailed analysis of Wal*Mart's main departments it is obvious that they have many competitive advantages in comparison with their business rivals. 

Wal*Mart has developed to a leading and fast growing company with a huge market value of $ 57.5 billion. Their average 20 year return on equity is 33% and their compound average sales growth amounts to 35%. Sales per foot² is nearly $ 300,00, while the industry average is $ 210,00 per foot². The total sales volume increased from $ 16 billion in 1987 to $ 67 billion in 1993. The annual earnings went up comparatively. In 1987 the total earnings amounted to $ 628 million and in 1993 the total sum was $ 2.3 billion.
Wal*Mart‘s 5-year average corporate performance is among the best. It has the second highest earnings/share growth, the highest sales growth, the third highest return sales, return on capital and debt to capital ratio and the highest return on equity. These performances give them the chance to remain ahead of its competitors.
A further huge advantage of Wal*Mart is that their results don't depend on one format. Despite the rapid growth and the good results they don't lay back. They strive for sales of $ 84 billion, opening 100 new stores, expand and/or relocate around 70 stores and capital expenditures of $ 3.2 billion in 1994. International expansion and penetration (and expansion) into the super- center industry are prime growth targets.

A huge advantage of Wal*Mart in comparison to their direct competitors is their relatively long history in discount retailing. They opened for business in 1962 and the top 10 of that year don't exist anymore.

Wal*Mart’s strategy and philosophy to create an unpredictable, interesting and fun working situation seems to lead to committed associates, who behave customer-minded and service-oriented. Very clever is the open-door policy within the firm, which leads to more responsibility, motivation and loyalty plus the feeling that every associate matters.
At every level information is being shared and a strong focus on cost reduction is common and recognized. The “Yes we can Sam” program is a proof of the commitment of the associates. The program resulted in savings of more than $ 85 million. Incentive plans and giving more responsibility resulted also in increasing sales and lower shrinkage costs than at its competitors.
The associates benefited too by getting stocks. It is not surprising that Wal*Mart is recognized as one of the 100 best companies to work for in America. It is also not surprising that the management team generally has a long history at the firm. As a consequence information and knowledge remains within the firm.

Wal*Mart revolutionized many aspects of discount retailing. They, for example, invested very much in information technology systems. The investments lead to a detailed knowledge about local customer preferences and consumer behavior. Wal*Mart uses this knowledge to adapt shelf space, merchandise and promotions to the local conditions.
In other words, they're able to offer tailor-made products and service, which is of course an enormous distinction in comparison to its direct, more centrally priced, competitors. As a result Wal*Mart is cheaper everywhere, within almost every category. The locally adapted approach naturally does not only maximize sales volume and inventory turnover. It also minimizes expenses. A further information technology development which helped them to remain ahead of its competitors is the fact that Wal*Mart implemented “UPC” much earlier. More accurate pricing and more efficiency led to lower costs and more satisfied customers. Other information technology systems and the implementation of a satellite communication system led to reduction of shrinkage, overstocking and deep discounting. Moreover these systems enabled video transmissions, credit card...
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