Sidhant Gandhi 1/17/2013 BUAD 497 Professor Sun Walmart Case Notes Walmart has a competitive advantage in discount

t retail because it creates more economic value than competitors. This can be seen by the bottom line of creating immense wealth for its stakeholders (evidenced by the Waltons family appearance on the richest Americans list). This value is created from superior and distinct strategies that Walmart has developed over the years: 1. Early on Walmarts location strategy helped it find untapped markets. Since Walmart looked for rural areas and small towns that competitors ignored, they were able to find a strong foothold market. 2. Walmart built a strong and loyal relationship with its employees. 50% of associates (even the employees title signifies that they mean something more) own Walmart shares, which makes them very invested in the companys wellbeing. Even Sam said that the most important ingredient to Walmarts success was the way it treaded its employees. Additionally through different programs aimed at giving more autonomy to individual stores, departments, and workers, Walmart further made its employees invested in the continued success of Walmart. 3. Walmarts marketing strategy is interesting because they spend only .5% of sales on marketing, but they have built a powerful brand on a simple concept: Always low prices Always. This branding will always stay with consumers, even if its competitors actually have lower prices. 4. Superior technology helped Walmart with store operations and distribution networks. It used computer and satellite technology before its competitors which allowed it to perform detailed analysis on sales data. Another technology used with vendors was Electronic Data Interchange which allowed vendors to interact with and analyze sales data and purchase order information. 5. While Walmart kept its relationships with its employees strong, it also had a strong, if sometimes grudging relationship with its vendors. When Walmart converted to a vendor-managed inventory system it allowed Walmart to flip the power relationship between them and vendors. Vendors became so depended on Walmart for sales that they were at the pricing mercy of Walmart rather than the other way around. The new system also allowed vendors to produce to order rather than inventory which improved vendors performance.

6. Walmarts superior management which visited stores often stayed very close to the front lines, not some distant board members that were not involved. This management used the satellite link system to talk to individual stores to see what was going well, and what could be improved. Each of these competitive advantages is sustainable to some degree. However, some are more so than others. Here I will go through each of the six individual CAs and discuss their sustainability: 1. Location strategy This advantage was extremely successful in Walmarts early days because the rural areas were untapped markets. However as even these rural areas become more developed, Walmarts location strategy will become less relevant. Furthermore this strategy is easily imitated any competitor can decide to open a new store in a rural area since there is no lack of available land. 2. Employee relationship I believe this is one is Walmarts most sustainable advantage. Since the employees have been hooked in with stock options, they are financially invested in the company. Furthermore since Walmart has earned a reputation for giving its employees respect and autonomy, whatever level they may be at, it receives a lot of respect back. This is something that is very hard to imitate. 3. Branding strategy marketing is a hard competitive advantage to sustain. But since Walmart spends so much less compared to its competitors on marketing, and yet has amazing brand recognition, something may be clicking in consumers this is somewhat sustainable. However it becomes easy for competitors to sell cheaper than Walmart just for the sake of undermining that value even if they were selling at a loss for a short period of time. 4. Technology Walmarts technology was extremely sustainable in the past. However with the proliferation and depreciation of technology it has become easy for competitors to obtain similar system to track inventory and sales. However, if Walmart always stays a step ahead of its competition on the technology front, it can sustain this advantage. 5. Vendor relationships this is a very tricky CA. The vendors strongly depend on Walmart for their sales, but they are not happy with it because it means that Walmart can keep squeezing pennies out of them, and can easily switch to other vendors if it is not satisfied with a particular one. This animosity is not formative of a sustainable relationship. A competitor which offers a warmer relationship for vendors may be able to steal important vendors away from Walmart (and still maintain cheap prices). This would be very difficult to do however because Walmart has essentially guaranteed sales in ridiculous volumes that competitors cannot match. Still it is a tricky and unsustainable advantage.

6. Walmarts management the learning and experience of the management team is not a sustainable advantage. The moment the managers start to change or divert from original values, this advantage can be completely wiped out. Of course Walmart can do its best to keep this from happening but it is inherent in the success of managers that guiding values may change. So Walmart should not bet on its management to always be pristine and should not count this as a sustainable advantage. Walmarts diversification into the food industry will be highly successful. Although the supermarket industrys profit margin is extremely low (%2), the traffic generated into Walmart stores because of the food sections will boost sales in non-food sections. However, I believe that a slight change in strategy would help the supercenters make even more money: In these giant supercenters, 25% of the space was dedicated to non-food items. If more space, say around 40-50% was dedicated to non-food items, then customers coming for food items would have more (high margin) non-food items to choose and buy from. The incredible growth and popularity of the supercenters can be exploited in this way in order to both get the food traffic involved with supermarkets and to sustain a high profit margin over all in those supercenters.