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Case Study of Wal-Mart In a world where most retailers are categorized as having a monopolistic competition market structure, Wal-Mart Stores Inc. appears to have an oligopoly market structure. Nevertheless, because there are far too many retailers to deal with, then they also have a monopolistic competition market structure. Regardless, Wal-Mart would rather have it this way because it has not hurt them at all by having competition. When Wal-Mart Stores Inc.
opened its doors to their first discount store in 1962, Sam Walton had no idea his business would take off like it has to this day. The reason for Wal-Mart's success has been their ability to create a basic structure for their very own business ecosystem. Wal-Mart came to conclusion that if they offered a variety of well-known brands and sold them about 15 % cheaper than other retailers, then this would make them a powerful force in the retail business. This business ecosystem may be similar to what other retailers may use, such as Kmart, but Wal-Mart did not follow the norm by opening stores in the suburbs where the money was.
Wal-Mart decided that it was in their best interest to stay put in rural and small-town markets. They felt that the people from the suburbs would come to them, which is exactly what ended up happening. Their simple strategy worked; one store would cater to several different towns. The key features of Wal-Marts approach to implementing the strategy put together by Sam Walton emphasizes building solid working relationships with both suppliers and employees.
By paying attention to every detail in the store layouts, merchandising techniques, capitalizing and taking advantage of every cost saving opportunity proves to the difference in successes. This strategic formula is used to provide customers access to products when and where customers want them. Wal-Mart Stores, Inc. has enjoyed success by adhering to three basic principles since its founding in 1962. The first principle is the concept of providing value and service to our customers by offering quality merchandise at low prices every day.
Wal-Mart has built the relationship with its customers on this basis, and we believe it is a fundamental reason for the Companys rapid growth and success. The second principle is corporate dedication to a partnership between the Companys associates (employees), ownership and management. This concept is extended to Wal-Marts Vendor Partners who have increased their business as Wal-Mart has grown. The third principle is a commitment by Wal-Mart to the United States and the communities in which stores and distribution centers are located. All of the Wal-Mart stores live by their Everyday low Prices philosophy. Wal-Mart has been able to stay on top because it has been better at containing its cost, which has allowed it to pass on the savings to its customers.
Wal-Mart store cut cost everywhere they can, so in return the customer will receive a quality product at a cheaper price. Wal-Mart has been regarded as an industry leader in testing, adapting, applying a wide range of cutting-edge merchandising approaches (Wal-Mart Stores). Walton was known for his ability to learn quickly from his competitors successes and failures. Wal-Mart has invested heavily in its unique cross-docking inventory systems. Cross docking has enabled Wal-Mart to achieve economies of scale, which reduces its cost of sales.
With this system, goods are continuously delivered to stores within 48 hours and often without having to inventory them. Lower prices also eliminate the expense of frequent sales promotions and sales are more predictable. Cross docking gives the individual managers more control at the store level. Assisted by a company owned transportation system Wal-Mart can ship goods from warehouse to store in less than 48 hours. This enables Wal-Mart to stock the shelves 4 times faster than its competition.
Wal-Mart owns the largest and most sophisticated computer system in the private sector. It uses a MPP (massively parallel processor) computer system to track stock and movement, which keeps it abreast of fast changes in the market. All of the sales and inventory is distributed with its advance satellite communications system. Wal-Mart has increase their buying power buy negotiating with its vendors. They expect a commitment of quality merchandise. As it has worked out it has been profitable for both sides.
Even though Wal-Mart is tough in negotiations with the vendors to get rock bottom Prices, they develop respect and form long-term connections that value both Parties. Wal-Mart has some of the highest technology working for them. For example, they have an automated recording system linking computers between Proctor & Gamble. The computer recognizes when an item is low on stock and sends a signal straight to the P&G distribution center. Next sends a re-supply order, via satellite, to the nearest P&G factory, which then sips the item to a Wal-Mart distribution center or directly to the store. This method allows P&G to lower its cost and pass on some of the savings to Wal-Mart.
Wal-Mart shows its concern for the community in many ways. One is by building environmental friendly stores. These stores contain environmental education and recycling centers. They have also adopted a low cost theme for its facilities. All of the offices including the corporate headquarters are built economically and furnished simply. They also conserve energy by having computerized temperature controls.
Sam Walton believed that Wal-Mart would almost double its stores to about 3000 by the year 2000. He wanted to perfect the Supercenter format to expand Wal-Marts retailing reach into the grocery and supermarket area. The Supercenter was intended to give Wal-Mart improved drawing power in its markets by providing a one-stop shopping destination. As if Wal-Marts domination of discount stores was not enough, they are looking to take over the grocery retailing industry. Wal-Mart has gotten into the grocery industry by opening stores known as supercenter's. Supercenter's are simply the original Wal-Mart discount stores, but now they contain a grocery store as well.
The first Wal-Mart Supercenter was opened in 1988. The Supercenter's would have the same items as a typical Wal-Mart, but in addition customers could get groceries, take family portraits, get clothes dry cleaned, pick out optical wear, and even get there hair done. The Supercenter division more than doubled in size during 1993, then again in 1994. Because of the ingenious idea of having a sort of discount mall, the Wal-Mart Supercenter will most likely make Wal-Mart the nations largest grocery retailer. In less than three decades of existence, Wal-Mart grew from a single small discount store in Rogers, Arkansas, to the largest retailer in the nation. This title was previously held by Sears Roebuck and Co. , but during the early 1990 s they were surpassed by Wal-Mart and Kmart.
Sears has since regained the number two spot as the nation's leading retailers, but it appears that Wal-Mart may never be caught. A prime example why they may never catch Wal-Mart is by looking at their sales volume over the years. In 1994, Wal-Mart sales volume exceeded the combined sales volume of Kmart and Sears, the number two and three retailers in the nation, respectively. By 1996, Wal-Mart sales volume exceeded the combined sales volume of Sears, Kmart, and Target.
Wal-Marts stranglehold on its competition has continued to grow constantly over the years. Industry analyst Al McClain, who writes a commentary for web said in his June 19 column that the really scary part about the supercenter's is that they combine discount prices and freshness. If Wal-Mart can get its service and perishables areas up to even par with the rest of the industry, look out, he said. Price alone might be enough to succeed, but if its produce is good, that takes away a key advantage of competitors. Nevertheless, McClain considers the Neighborhood Market format extremely worrisome to traditional food operators because it has Wal-Marts low prices, helps cut delivery costs by being right on the way to other stores, and gets consumers thinking of Wal-Mart as their local store.
He predicts a swift rollout in the number of Neighborhood Markets once Wal-Mart has the formula down pat. Wal-Mart executives are endearingly modest in describing their business. The company, in actuality, is simple and uncomplicated, Executive Committee Chairman David Glass told the shareholders meeting. He said success comes from nothing more than focusing on individual customers and completing one task at a time. CFO Tom Schoewe said Wal-Marts strength is our ability to think small, think one store at a time, one associate at a time. Nevertheless, Schoewe also said noted, the momentum we have should not be underestimated.
In fact, this momentum derives in part from Wal-Mart's willingness to be a local company, especially in foreign countries. Though it does not go as far as Carrefour - the French company that is the worlds No. 2 retailer after Wal-Mart - in stocking locally produced products, Wal-Mart goes further than one might expect from a company that grew largely by standardizing its logistics and information systems. For example, in late June it announced an agreement with Canada Post that makes Wal-Mart the exclusive retailer for a range of commemorative keepsakes that celebrate Canada's heritage. The company has no full-fledged grocery stores in Canada, but it operates small Pantry Shops, similar to convenience stores, in 17 of the 166 Wal-Mart stores there. (Wal-Mart Canada spokesperson told the Globe and Mail newspaper that Canadian grocers fears that Pantry Shops will morph into grocery stores...
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