Walmart

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WAL-MART’S COST LEADERSHIP STRATEGY

HISTORY OF WALMART
 1962, Sam Walton starts WAL-MART

 In 5 years expanded to 24 stores revenue more than 12.6 million in sales  1972, listed in New York Stock Exchange

MARKETS OF WAL-MART (2003)
o Total Sale of Wal-mart o Total Retail Area o Total Employers US $ 313 Billion 663 Million Sq.ft. 1700,000

SALES & INCOME GROWTH (PAST 12 MONTH)

COMPANY

INDUSTRY

SALES GROWTH INCOME GROWTH

12.00% 5.20%

11.50% 5.90%

NET PROFIT MARGINS (%) COMPANY COMPANY 5YEAR AVG. INDUSTRY 3.6% 3.5% 3.6%

WAL-MART TODAY
 Operates 6,500 stores in 15 countries  Serves more than 176 million customers around the globe  Employs 1.8 million worldwide  Health plans insure more than 1 million people  Saves the average American household more than $2,300 per year

Let us start the journey….

1960’s…..

The Success Term was

EDLP
 EVERY DAY LOW PRICING  To provide customers – a wide variety of high quality, branded and unbranded products at the lowest possible price, offering better value for their money

EDLP : The strategy
 To procure products in bulk at the lowest possible prices from the manufacturers  Sharing the savings with customers  Wal-Mart’s products were usually priced 20% lower than its competitors

Wal-Mart’s advertisement describing EDLP said: “Because you work hard for your every dollar, you deserve the lowest price we can offer every time you make a purchase. You deserve our Every Day Low Price. It’s not a sale; it’s a great price you can count on every day to make your dollar go further at WalMart ”

Explaining his pricing strategy Mr. Sam Walton said:
“ By cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language; you can lower your markup but earn more because of the increased volume”

EDLP : WAS A HIT
 This led to increase loyalty from priceconscious rural customers.  The surplus generated was re-invested in - Building facilities of an efficient scale - Purchasing modern business related equipment - And employing the latest technology

Other areas where the cost was checked
 The stores were set up in large buildings, while ensuring that the rent paid was minimal  Not much emphasis was laid on the interiors of the store  Did not invest in standardized ordering programmes  Did not even have a standard distribution system in place  Accounting data were manually written-up  There was a high check in recruiting the staff

1970’s….

 Wal-Mart became public-held company  Equipped with funds, it started reorganizationing its business activities.  The foremost challenge was to put in place a standard distribution and interstore communication system  So it came up with the most popular Hub And Spoke Structure

The Hub And Spoke Structure
 Goods were centrally ordered  Assembled at the distribution center (hub)  From where they were dispatched to the individual stores (spokes) as per the orders received from stores. STORE

STORE

D.C.

STORE

STORE

The benefits of Hub and Spoke structure
 Centralized purchase of goods in huge quantities  Distribution of them through its own fast and responsive logistics infrastructure to the retail stores  By passing all intermediaries, they managed to get the goods at lowest price  The company was able to replenish the store twice a week  In 1978, Wal-Mart became the first company to establish a fullyautomated distribution center

Claude Harris once stated that :
“Don’t ever feel sorry for a vendor. He always knows what he can sell, and we want his bottom price. We would tell the vendors ‘ don’t leave in any room for a kickback because we don’t do it here.”

Massive expansion strategy
 Strategy was to build stores around the
distribution centers  That is to be effectively served by the center and controlled by...
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