WAL*MART STORES, INC.

Case Study Analysis

OBJECTIVE

To understand and analyze the growth

story of Wal*Mart in order to suggest
ways to sustain the phenomenal
performance in the coming years
CASE BACKGROUND
 Sam Walton started by opening Ben Franklin
franchise store in 1945
During 1950’s, the United States witnessed a
gradual increase in the number of discount stores
– reason being the increase in consumer’s
awareness and Government’s initiatives of
bolstering their self-confidence
Wal*Mart was incorporated on October 31st ,1969

Starting with a steady expansion in rural areas,

by the beginning of 1993, the Company operated
1953 stores across the US
USP – offered low prices always
 Two key aspects :
 Locating stores in rural areas and small towns
 Gradual, systematic expansion pattern
 Wal*Mart marked its presence in most of the untapped markets
and it continued penetrating in the West Coast and northeastern
states
 Its geographic growth gave tough competition to other discount
retailing stores like Target and Kmart stores
 Wal*Mart successfully captured the #1 position in the Discount
Retailing industry
 In 1993, the sales growth had reduced to 7-8% and stock prices
fell by 22%
 Challenge for the current Management – After Sam Walton’s
death in 1992, sustaining the #1 position was a tough task as
people had started raising doubts
SAM’S LEGACY
 Walton’s Philosophy – Keeping
prices below everybody else’s
 He kept a regular check on his
competitors
 Believed in taking care of his
associates and treating them well
 Encouraged an open-door policy
of management
MERCHANDISING
 Customized merchandising for individual markets and
individual stores
 ‘Traiting’ was done to identify customer preferences and
demands for products and product categories
 EDLP was followed

 As compared to the competitors, Wal*Mart spent less on

advertising
 ‘Satisfaction Guaranteed’ policy which entertained return
of purchased merchandise to any Wal*Mart store
 ‘Buy American’ program was started in 1985 which helped
the company retain/convert over $1.7 billion in retail
purchases that would have been placed or produced
offshore
 Decentralized pricing – to meet local market
conditions to maximize sales volume and inventory
turnover and minimizing expenses
 Competitive pricing w.r.t. Kmart and other discount
retailing stores
 ‘Always low prices – Always’

 National brand strategy – nationally advertised

branded products contributed to majority of the sales
STORE OPERATIONS
 70 % stores were leased and 30 % were owned
 Rental expense was 0.3% less than the industry average (3%)

 Each store took approx. 120 days to open

 Sales per square foot was $300 which is much higher than
competition
 Focus was always on reducing cost: Inventory, construction
and other Operating expenses were much lower than
Industry average
 Most stores operated during day time, six days a week with
the exception of some which operated for 24 hours
 Electronic scanning of UPC ensured accurate pricing,
improved efficiency, tracked refunds and reduced shrinkage
 HUB- AND- SPOKE
DISTRIBUTION
CHANNEL

Distribution
Centre
 DISTRIBUTION
 80 % purchases were shipped from 27 owned distribution centers
 20 % purchases were delivered directly from suppliers

 With the use of Cross docking the COGS came to 3.7% of discount
store sales which is much lower than direct competitors

DISTRIBUTION CENTRE
• Spanned one million
square feet
• Operated 24 hours a day
• 700 Associates
• Catered to 150 stores
within an average radius of
200 miles
• Highly automated and
Computerized
VENDOR RELATIONSHIPS
 No nonsense negotiator
 Electronic Data Interchange (EDI) enabled 3600
vendor interaction electronically
 Sent daily reports of Warehouse inventory status to
selected suppliers which reduced inventory costs and
increased sales.
 Each Dept. developed computerized, annual
strategic business planning packets for vendors
 Certain suppliers caused problems but overall the
relations were smooth
 Some Vendor relationships later got culminated into
partnership
HUMAN RESOURCE MANAGEMENT
 One of the 100 best companies to work with in America.
 3rd largest employer, consisted of both full and part time
employers
 Associates were motivated by giving more responsibility
and recognition as compared to that given by the
competitors
 Information and ideas were shared with the associates

 Highly dedicated work force

 Decentralized training with seminars at distribution

centers
 New associates were trained before assigning the job
 “Yes We Can Sam”-suggestion program where
associates suggested ways to simplify the
work
 “Store within a store” policy by which
department managers became the store
managers
 Shrink incentive plan

 Managers were given incentive compensation

based on store profits
 Profit sharing benefitted the employees

 60% of Wal*Mart associates participated in

the stock purchase plans
MANAGEMENT
 Young executives handled the company
 David Glass, President & CEO - Known for his contribution in
sophisticated distribution system
 Don Soderquist- COO
 CEO visited the stores two or three days a week and conversed
with the employees through company satellite
 Planned store visits by the VPs.
 Weekly Merchandising Meetings held on Friday morning.
 Hierarchy didn’t matter, everyone’s idea was counted and
considered.
 Eminent guests were invited to meetings.
 Monday morning all the decisions were implemented and a new
innings was played
DIVERSIFICATION
 New format beyond a retail store like-
• Sam’s warehouses clubs in 1983
• Dot deep discount drug store
• Helen’s Art & craft store in Missouri
• Hyper mart- combination of grocery and general
merchandise
• Supercentres
• Western Merchandisers- a wholesale distributor of
music, videos and books
• Bud’s store- close out store
SAM’S CLUB
 Opened in early 80’s and became the largest
wholesale club in the country
 Philosophy-
• Limited number of SKU’s
• Pallet size quantity with no frills
• Venue-Warehouse type building
 Name brand merchandises - for the end consumers
and also for those who resold to their customers
 Sam’s –a separate entity, having different team of
managers
 70% of merchandise received via direct shipments
from suppliers and rest from company’s distribution
centers
 Sales rose to 19.5% in 1993

 Gross margin at 9.4% in 1993, expense ratio at 8.4%

 Sam’s sale registered for 39% of the industry’s volume

in 1993
 Promoted cannibalization by opening clubs close to
one another rather than giving openings to
competitors
 Acquired Wholesale club which operated 28 outlets
in the Mid-east
 Acquired 99 of Kmart’s 113 PACE clubs
SUPERCENTERS
 Combination of Supermarket & discount stores
averaging 1,20,000 to 1,30,000 square feet in size
 They replaced old Wal-Mart’s discount stores

 Offered limited package sizes and brands in order to

keep the costs low
 Often had grocery and convenience shops

 Stores opened 24 hours, seven days a week

 Wal*Mart had 68 supercentres with sales of $3.5

billion by the end of 1993
 Operating margins within the industry were
extremely low with hardly 2% profit margin
 Grocery section faced major competition form
other markets and local stores
 Supercenter format produced growth of $11.8
billion in 1992 , food solely accounted to 40% of
sales
 Wal*Mart purchased McLane Company, a Texas
retail grocery supplier to service supercenters
and Sam’s clubs
INTERNATIONAL EXPANSION
 Wal*Mart wanted to build a positive image of the
organization globally and planned for its future
growth
 It had a joint venture with Mexico’s largest retailer
Cifra S.A
 Wal*Mart planned to enter South America in 1995 via
Brazil & Argentina and Asia via Hong Kong
 The company purchased Woolco stores in 1994 –
made no profits in the 1st quarter
 Wal*Mart’s potential international sales – assumed to
be $100 billion
STRENGTHS
 Low pricing strategy
 Targeted untapped market

 Close check on competitors’ price

 High GMROFS (gross margin return per square feet)

 Strong distribution channel

 Incurred less expenditures(operating and advertising

expenses)
 HR policy was open door policy.

 Limited number of SKU, so high inventory turnover.

 Self dependent distribution – 80% distribution was
made from their own channels
 Heavy investment in IT

 Frequent checks on in-house operations

 Strong relationships with vendors

 Good relationship with employees- came up with

“Yes We Can Sam” suggestion program and various
incentive schemes
 Sam’s club – high contribution to the sales turnover

 Successful diversifications and expansions

 Less expenses on infrastructure-since 70% of stores

were leased
CHALLENGES
 Enormous size – difficult to maintain and sustain
 Stagnant economy – early 1990s

 Increased competition from supercentres - Kmart,

Kroger etc.
 Enjoyed the number one position - maintaining that
in itself was the biggest challenge
PROBLEM IDENTIFICATION
 Below the cost pricing that was illegal for some
products
 More imitation and lack of innovation

 All supplier relationships were not successful –

reflected a decline in their sales
RECOMMENDATIONS
 Improve vendor relationship
 Take into consideration the legal aspects of pricing
strategy
 Enter into partnership with other retail outlets in
order to sustain their position
 Enter into other retail formats apart from discounted
stores
THANK YOU

Efforts by:
Sukriti Sood
Prachi Shrivastava
Aishwarya Kumar
Esha Hendre