WAL-MART STORES’

DISCOUNT
OPERATION
QUESTIONS

• Did Walmart have a competitive advantage in the discount retailing industry during the case period? Is it sustainable?
Why (not)?

• Do you think Walmart will be equally successful in the Wholesale Club format? Why (not)?
WALMART’S POSITION IN DISCOUNT RETAILING INDUSTRY COST LEADERSHIP STRATEGY
Reduce threat of New Entrants
Providing barrier to entry to others
Demographic Location and Operation Pattern
• Population Between 5,000 to 25,000 : Over 50% Stores
• Metropolitan or Countries : 33% (No Competitor)
• Increases the Store Size : 25% exceed 85,000 Sqm
Reduce Power of Suppliers
Protecting Interest of Wallmart and Reduce Supplier Command on Price
• No Vendor account for more than 2.8% of the Compnay’s total Purchase
• Tool no more than a fifth of its volume from any one vendor.
• Strong Vendor Data base of more than 3000
• Strong bargaining power of Wall Mart
Effective Supply Chain-Reduction in Operation Cost
Low distribution Cost
• Only 20% of inbound Merchandise directly shipped from Vendor.
• 80% through DC. Utilized automatic cross docking, managed multiple
stores requirements reducing delivery times and transportation costs
• Delivery to store within 48 Hours.
• 60% running with full on backhauls
• Distribution centre circle 150-300 mile for 175 Stores.
• Distribution Cost Industry Standard : App. 4% of total Sales. Where as
Wall Mart
• 1980 : 2% | 1984 : 2.8% | 1985 : 4% | 1986 : 3% (Expected)
• Effective Logistic Reduction in Back room Storage give more sales space.
• Inventory turns exceeded 4.5 in 1985. Well above than Others
Walmart have a competitive advantage in the discount retailing industry
Product Segmentation
Better Utilization Store. Increase Profit Per SQF basis
• Focused on hard goods. 28% of Wall Mart Sales and 22% of Industry
• Soft Good Vs Hard Good = S125 vs $150 per SQF Sales
• Decrease licensing average 0.4% of sales from the industry as a whole.
Technology Implement and HR Management
Efficiently Managed Inventory and Sales. Decrease Operational Cost
• 1971 well ahead from others Installed Computerised Inventory Management
• Switching to UPC at the sales point for all new Store and 200 Existing one.
• 1986 $20 Million satellite network installed for real time communication
between stores and headquarters reduce telephone cost of 10$ and be came
superior on inventory management.
• “Our People Make The difference” & “We care about our People” additional
Programme.
• All of the result Shrinkage from 2.2% to 1.3% of Sales
Intensity of Rivalry
Efficiently Cost focused. Lower Cost than Competitor
• Philosophy everyday low Price. No Question Return
• 13 Promotion every year. When Runtwo Prices were 10%-20% below every days
ones.
EXHIBIT 1 CORPORATE HISTORY ($ IN MILLIONS)
Exhibit 1 Corporate History ($ in millions) Year to Year Growth of
Operating Flows
1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
• Operating Income
Net sales $479 $678 $900 $1,248 $1,643 $2,445 $3,376 $4,667 $6,401 $8,451
License fees and other income
Cost of goods sold
5
353
8
504
10
661
10
919
12
1,208
18
1,787
22
2,458
36
3,418
52
4,722
55
6,361
• Net Income
Operating, selling, general and administrative expenses 95 135 182 252 332 495 677 893 1,181 1,485
Operating Income 26.00 31.00 47.00 67.00 91.00 145.00 219.00 320.00 446.00 550.00
Growth Change (Y-Y) 19% 52% 43% 36% 59% 51% 46% 39% 23%
Interest cost 5 7 10 13 17 31 39 35 48 57
Taxes
Net income
15
16
20
21
27
29
33
41
44
56
66
83
100
124
161
196
231
271
276
327
Year to Year Change
Growth Rate (Y-Y) 31% 38% 41% 37% 48% 49% 58% 38% 21% • License fees and other income
Balances
Current assets
Property, plant, equipment, and capital leases
99
68
151
101
192
131
267
191
345
246
589
333
721
458
1,006
628
1,303
870
1,784
1,303
• Cost of Good Sold
Current liabilities
Long-term debt
43
19
75
21
99
26
170
25
178
30
340
105
347
106
503
41
689
41
993
181 • Operating, selling, general and administrative expenses
Long-term obligations under capital leases 41 59 72 97 135 154 223 340 450 595
Growth Change (Y-Y) 64 97 126 166 248 323 503 750 993 1318 • Operating Income
Common shareholders' equity
Growth Change (Y-Y)
$64 $96
50%
$127
32%
$165
30%
$248
50%
$324
31%
$488
51%
$738
51%
$985
33%
$1,278
30% • 1983-1984
No. of Stores at End of Period
Discount stores
Sam's Wholesale Clubs
153
0
195
0
229
0
275
0
330
0
491
0
551
0
642
3
745
11
859
23
• 1985
• Net income
Growth Rate (Y-Y) Discount stores 27% 17% 20% 20% 49% 12% 17% 16% 15%
Sam's W holesale Clubs 267% 109%
Source: A nnual reports.
Note: Numbers may not add due to rounding, deferred income taxes, etc.
• 1983-1984
• 1985
Exhibit 3 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985
Industrywide Economics
93.70% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Trend in Growth
1.10% License fees and other
income
1.04% 1.18% 1.11% 0.80% 0.73% 0.74% 0.65% 0.77% 0.81% 0.65%
• Top Line Growth
71.90% Cost of goods sold 73.70% 74.34% 73.44% 73.64% 73.52% 73.09% 72.81% 73.24% 73.77% 75.27%

12.10% Operating, selling, general 19.83% 19.91% 20.22% 20.19% 20.21% 20.25% 20.05% 19.13% 18.45% 17.57%
• Bottom Line Growth
and administrative expenses
5.90% Operating Income 5.43% 4.57% 5.22% 5.37% 5.54% 5.93% 6.49% 6.86% 6.97% 6.51%

2.70% Net income 3.34% 3.10% 3.22% 3.29% 3.41% 3.39% 3.67% 4.20% 4.23% 3.87%
Industry age more than 36 Years
Market is reached its Maturity Level and Start Declining.

The Industry Start declining Phase. Hence Losses Could be expected in future.
WALMART IN THE WHOLESALE CLUB FORMAT