Wal-Mart Stores Discount

Operations
Nidhi Kumar
Pallavi Mishra
Pranati Goswami
Ruchir Jain
Shweta Aggarwal
Utkarsh Pandey

Wal-Mart vs. Industry

Parameter

Wal-Mart

Industry

Building Rentals

1.8% of Sales

>1.8% of Sales

Inbound Logistics

2% of Sales

6% of Sales

License Fees

0.2% of Sales

0.4% of Sales

Inventory Turns

4.5x

<4.5x

Shrinkage

1.3% of Sales

2% of Sales

Soft/hard goods

Focus on hard goods

Focus on soft goods

TAKEAWAY
In spite of offering lower prices Walmart was able to lower maintain its margins by lowering

Problem Identified: Warehouse

Clubs
Diversification- Is it a sustainable
move?
Advantages

Disadvantages

High volume and Inventory

turnover

Lower Margins

Stocking top selling items

Huge Setup Cost- $5 mn to $10

mn

Located in areas of 4 to 5L
population

Low Barriers to Entry

Target Group: Low Risk

Weaker distribution n/w

Broader National Presence as

compared to competitors

Difficult to achieve economies of

scale

Early mover advantage

Regional Differences in Consumer

VS
Parameter

Discount Stores

Warehouse Clubs

Inventory Turns

4.5

12

Gross Margin

10% to 15% lower than

traditional dept. stores

20% below discounters

price

Location (population)

Sunbelt (5K-25K
population)

4L 5L population

Number of SKUs

70000

3500

Stores

859 (1985)

23 (1985)

Sales

4 bn

4.4 bn

Sales/Stores

4.6 mn

191 mn

TAKEAWAY
Despite increase in sales per store for WC, Walmarts gross margin goes down
by 1%

WAL-MART - CORE COMPETENCY

Cost leadership
First to enter the small towns with a minimum efficient scale
(regional economies of scale)
If competitors enter, it would create overcapacity; thereby making
neither firms profitable
Wal-Mart enjoys less competition in such geographies. It focussed
on strategy and positioning which is
- variety and assortment
- Location and convenience
- Customer service

Challenges faced as the company

grows
Too many players had gotten into discounting
Increasing size of Walmart stores which requires
huge investments
New state of the art distribution centers required
Full conversion of stores with UPC scanning which
costs $500000
Continuous effort to bring out new avenues of
diversification

Way Ahead
The local economies of scale is the
competitive advantage of Wal-Mart and
it should not compromise upon it just in
drive to expand beyond local markets
The company should learn from its
competitors who lost in their move to
expand beyond their geographies

THANK YOU