What, historically, have been Wal-Mart's sources of success and competitive advantage in discount retailing? Background
Wal-Mart is the world’s largest retailer and consumer products chain. The first Wal-Mart store opened July 2, 1962 in Rogers, Arkansas. Within 5 years, the company expanded to 24 stores across Arkansas with total revenues of $12.6million. By 2005, Wal-Mart had a total of 5289 stores, with 1587 of them being international spread across all the states in US and across 15 countries worldwide. The total revenues had reached $285 billion. Sam Walton was the founder of th Wal-Mart. He was succeeded by David Glass in 1992. After David’s retirement in December, 2000, Lee Scott was chosen as Wal-Mart’s third president and CEO. Wal-Mart’s part of strategy was operating on a multiple store format. They came up with four different retail concepts: Wal-Mart Discount Stores, Supercenters, Neighborhood Markets and Sam’s Club.
house wares, consumer electronics, sporting goods, lawn and garden items, health and beauty aids, apparel, home fashions, paint, bed and bath goods, hardware, jewelry, automotive repair and maintenance, toys and games, and groceries.
Focused Low Pricing Strategy
From the very onset, they are very clear about their strategy of keeping their prices lower than their immediate competitors
• Capture economies of scale: Wal-Mart understood the concept before their competitors, that in retail industry, economies of scale can be achieved only by lowering the profit margins and increasing the scale of operation. Hence, to keep up the scales of operation, they expanded their operation on a large scale. • Putting technology into various value chain activities to achieve faster, cheaper and near perfect operation activities: Wal-Mart uses technology extensively to manage its processes. In 1989, Wal-Mart established a satellite link with 1700 vendors enabling them to use electronic purchase orders and speedier data exchanges. By 2003, they implemented a sophisticated information system to manage the operations data and made it a front-runner in cost-effective supply chain management in the industry. This system enabled them to efficiently manage just-in-time inventory and also indentify selling trends of various product categories. The influence of this extensive automation of processes on its competitors was to the extent that they too found it essential to follow the lead taken by Wal-Mart. • Automation of Distribution Center Operations: Wal-Mart has come up with various efficiency increasing measures to minimize its distribution costs. Use of sophisticated technology for managing their conveyors, bar-coding machines, handheld computers for quick sorting of shipments and routing them to various retail stores. These technological advances reduced the turn-around time for Wal-Mart by introducing effective product tracking and also reduced the overall distribution costs. • Truck Fleet Operations: Wal-Mart hires only experienced truck drivers. There is time scheduling for the truck unloading so that the process can be streamlined and structured. In cases where it is economical, Wal-Mart trucks route directly to one or more of the stores, bypassing the distributor. • Advertising expenditures: Advertising is kept to bare minimum and relied mainly on word of mouth to communicate their message. Wal-Mart spent only about 0.3% of its revenues on advertising and it did not advertise at all for its Sam Club Stores in 2005.
-- Multiple Store Format
Wal-Mart operates on a multiple store format. This means that they have a store covering every segment of consumer needs. The various store formats are Discount Stores, Supercenters, Sam’s Club and Neighborhood Market. Sam’s Club is membership based shopping while others are general retail stores.
-- Supplier Management
Since Wal-Mart operates on a large scale, it can bargain to the maximum level and hence get the goods at...
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