The gross margin of Wal-Mart was lower than that of the discount industry. The income of Wal-Mart, however, was larger than that of the discount industry because the selling general and administration expenses (SG&A) of Wal-Mart were lower than those of discount industry. Practically, the profit difference (1.6 %) is not that huge. In spite of this, Wal-Mart has taken a superior position in the discount industry based on the following strategies; 1) an efficient purchasing and distribution, 2) a productive store operation, 3) a competitive marketing, 4) a differentiated human resources management, 5) an active administration and 6) a diversification. The following are explanation of each strategy.
Purchasing and Distribution: In terms of purchasing, Wal-Mart controlled the stocking level by using in-store terminal, not by order base. They, moreover, had lots of distribution centers, which managed the distribution and made the delivery expedite with the maximum use of truck resources. According to the component of Cost of Goods Sold (COGS) of exhibit 1, the purchase cost rate of Wal-Mart was larger than that of the industry discount. This implies Wal-Mart provided good quality product at the low price by reducing the shrinkage and inbound logistics.
Store Operation: They applied the computer system performing the sale tracking and accounting function for the inventory management. They also used a satellite network and could achieve real time communication with stores. On top of that, they started the Uniform Product Code (UPC) scanning system and simplified inventory management, reorders and post audits of merchandising programs, which resulted in payroll reduction.