Professor: Dr. Mary Flannery Teaching Assistant: Jia-Yuh Chen ECON 136 – Business Strategy February 27, 2006
The retail industry is dominated by few retail giants, with Wal-Mart competing in several retail categories. Wal-Mart competes against Kmart and Target in the general merchandise retailing; against Costco in the warehouse club segment; and against Kroger, Albertson’s and Safeway in the supermarket retailing. Competition among retailers centers on pricing, store location, variations in store format and merchandise mix, store size, shopping atmosphere, and image with shoppers. Further analysis provided by the following figure diagnoses the
Wal-Mart achieves a cost advantage by controlling its cost drivers and relentlessly wringing cost efficiencies out of its supply chain. COMPLEMENTARY STRATEGIES To strengthen its competitiveness, Wal-Mart collaborates closely with suppliers with strong brand-name who are dominant in their category, who have full product lines, and who can bring in new and better products to retail shelves. Wal-Mart’s procurement personnel spends
considerable time meeting with vendors, understanding their cost structure, and learning how a vendor could cut down its costs in order to capture win-win relationships for both parties. To expand its geographic coverage, Wal-Mart’s domestic strategy is “backward expansion.” The company opens stores in small towns surrounding a targeted metropolitan and saturates each area before moving into new territory. International expansion involves a combination of new store construction and acquisition. As Wal-Mart enters foreign markets, it intends to “remain local” by customizing its offering to match the taste and preferences of local buyers and operating through the management of natives of the foreign countries.
Wal-Mart also employs simultaneous offensive initiatives on many fronts. Experiments in store layout, merchandise displays, store color schemes, and promotions are always under way. Wal-Mart also engages in preemptive strikes especially when it enters a new market by securing a dominant position in the geographic area and forcing smaller retailers out of business. SUPPORTING STRATEGIES Marketing and Sales: Wal-Mart meets customers’ needs with four different retail concepts: Discount stores, Supercenters, Sam’s Clubs and Neighborhood markets. Technology: Wal-Mart is a first-mover in upgrading and improving its technological capabilities. It uses computers, satellite, and information systems in communicating with vendors, electronically purchasing orders, tracking sales and inventory, identifying slow-selling items and squeezing costs out of the supply chain. Distribution Center Operations: Several labor-intensive tasks had been automated and cost-efficient system of conveyors, bar-coding and handheld computers have been utilized to continuously streamline distribution operations. 3
Sales Profits Number of Stores
1970 $31 million $1.2 million 32
2004 $256 billion $9.0 billion 4,906
CAGR 30.38% 30.00% 15.95%
success, Wal-Mart’s sales since it became a public company in 1970 to 2004
grew at a compound average growth rate (CAGR) of 30.38%, which is unprecedented growth. The company’s profit growth rate of 30% is exceptionally attractive and clearly shows the profitability and sustainability of its strategies. The increase in the number of stores is quite lagging and this is an indication of Wal-Mart’s expansion potential. Overall, Wal-Mart’s financial results indicate that the company is doing exceptionally well.
Strengths ♦ Cost advantages over...