Strategy Decision sheet

1. Decision Making Situation Industry These stores emerged in US in mid-1950. Following the path of supermarkets these stores started selling general merchandise at 10- 15 % lower gross margins than conventional stores. Discount stores compensated this price reduction by managing costs at different ends like incorporating unluxurious fixtures, limited in store selling and scarce availability of services like credit, delivery and tailoring. With increasingly informed consumers, increasing popularity of self service, attained maturity in general merchandise and imposition of government standards people were seeking for low price products. Thus discounters sales grew from $2 billion in 1960 to $ 68 billion in 1985 to $98 billion in 2000. There was burgeoning of such stores in 1970 by 64 % and sales by 144v% but the increase was limited to 8 % in 1980-85 because of failures of many stores which were further acquired by survivors. Company It was incorporated in 1969.It started from a variety store built by Sam Walton in Arkansas .Later he built 16 variety stores but with increased competitive pressure from regional discount stores led them to open discount stores. This was done with the purpose of offering prices better than stores in ties in smaller towns so that people would shop at home. It grew to 30 discount stores in 1970. To reduce the cost of goods sold and open their own warehouses the company went public in 1985. In 1985 Wal-Mart opened 859 stores with distribution centers in 5 locations. It commanded an unmatched 10 20 % of total retail sales in the areas like metropolitan areas which were not served by any of its competitors. Wal Mart had centralized purchasing but decentralized sales forecasting. Wal-Mart had also developed a good reputation with its suppliers which ensured cheap products. Also it did not source more than a fifth of volume from any of the supplier which decreased bargaining power of its suppliers. 20 % of inbound merchandise was shipped directly from vendors to stores and the rest of the products were shipped to the distribution center and were transported to the stores from trucks (two step hub and spoke model). Stores were closely packed together in the route of distribution channel that distribution was cheap and easy. A truck could supply more than one store on a single trip. Also presence of vendors in the route allowed picking up new shipments on return trip

Its own warehouses and distribution channel helped in containing delivery time and transportation costs in addition to catering to regional preferences. Because of its own distribution centers the cost of inbound logistics got decreased which further facilitated reduction in prices for end consumers. It focused more on hard goods rather than soft goods. Store operations were leased out except for 47 stores. Building rentals did not cost much to Wal Mart. Store managers were given enough autonomy in allocating store space, display management. Inventory turns exceeded 4.5 in 1985. There was a shift in technology too with the introduction UPS scanners. Branded merchandise accounted for 95% of its non- clothing merchandise whereas most of the clothing was private label. 70 % of merchandise was common to stores and the rest was adjusted to local needs. Consumers too were influenced by the price sensitive categories like health and beauty, housewares and appliances. Wal-Mart had no questions asked policy on returns. Less than 5 % of sales in 1982 were through credit payments and the rest was through cash and carry system only. Wal- Marts promotional strategy was governed by everyday low prices as its everyday shelf prices were generally lower than any adjacent competitor stores like K Mart, Caldor. Also in 1985 there was CAD used to decide the merchandise mix according to different local parameters. Other key things thats set Wal- Mart apart from other stores: Employee participation, Top management involvement, Incentives and profit sharing systems, Any reduction in shrinkage was transferred to the employees and Administration was focused on frugality.

2. Decision Sheet Identify key decision questions (issues which requires/required strategic intervention) Is Wal Mart discount stores sustainable in long run or should the focus be shifted to Sams Warehouse stores.

My decisions (its rationale, feasibility, effects, and tradeoffs): What are my decisions (qualitative and quantitative)? Rationale and feasibility of implementing my decision What is the impact of my decisions and how will it make a difference to my inheritance? What are the trade-offs in the decisions (qualitative and quantitative)?

Expansion of Sams Warehouse clubs (Hold discount stores too)

Warehouse club sales were 4.4 billion Since it focused more dollar in 1985 and were expected to on small retailers than move to 20 billion dollar in 1990. individuals as customers, the Sams focused more on soft goods revenues would be than hard goods. Prices offered were higher as well as 20 % lower than other conventional because of increased stores. There was only 1 % reduction in gross turnover there would be less carrying cost. margin whereas the revenues were With diversification huge there had been Sam operated mainly in densely reduction in risk. populated areas to achieve high turnovers. First mover advantage at different places would be highly fruitful Initial investment was trimmed to $4 bn by leasing of warehouses. With increased competition in discount stores, this is an appropriate retail format. Specify measures to mitigate the negative consequences

Wal-Mart stores are popular, with Sam there can be dilution of brand and might eat up into sales of Wal- Mart stores. It requires consumers to attain membership to enjoy reduced prices which might not be perceived positively globally.

To avoid dilution of brands, there is a need of proper marketing to occupy a different place in mind of consumers for both of these retail formats of WalMart. There should be clear demarcation of product portfolio offered by both. Discount season should be same in both to avoid excess costs.