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Founded by Sam Walton, the first Wal-Mart store opened in Rogers, Arkansas in 1962. Seventeen years later annual sales topped $1 billion. By the end of January 2005, Wal-Mart Stores Inc. was the world’s largest retailer, with $2888 billion in sales. In 1995 Wal-Mart sold no grocery; by 2005 the company was the market leader among supermarket in the US. Wal-Mart was the largest private sector retailer in the world. The information technology that powered Wal-Mart’s supply chain and logistics was the most powerful, next only to the computer capability at the Pentagon. The company owned over 20 aircraft – which were used by managers to travel to its stores in far flung locations. The number of miles flown by Wal-Mart managers in the company owned aircraft would place Wal-Mart on par with a medium sized commercial airline. Wal-Mart had the largest privately owned satellite communication network in the U S and broadcasted more television than any network TV.
Wal-Mart’s winning strategy in the US was based on selling branded products at low cost. Each week about 138 million customers visited a Wal-Mart store somewhere in the world. The company employed more that 1.6 million associates (Wal-Mart’s term for employees) worldwide through more than 3,700 stores in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany and the United Kingdom. The first international store opened in Mexico city in 1991.Wal-Mart also obtained a 38% controlling share in the Japanese retail chain Seiyu in order to capture a slice of the world’s second largest market estimated at $1.3trillion.
In 2002 Wal-Mart was presented with the Ron Brown award for Corporate Leadership, a presidential award that recognizes companies for outstanding achievement in employee and community relations. In 2004 Fortune magazine placed Wal-Mart in the top spot on its “most admired companies” list for the second year in a row.
By 2005 Wal-Mart held an 8.9% retail store market share in the United States. Put simply, of every $100 that Americans spent in retail stores, $8.90 was spent in Wal-Mart. Proctor and Gamble, Clorox and Johnson and Johnson were among its nearly 3000 suppliers. Though Wal-Mart may have been the top customer for consumer product manufacturers, it deliberately ensured that it did not become too dependent on any one supplier; no single vendor constituted more than 4% of its overall purchase volume. In order to drive up supply chain efficiencies, Wal-Mart had persuaded its suppliers to have electronic ��hook up’ with its store and adapt to the latest supply chain technologies like RFID which could increase monitoring and management of inventory.
Wal-Mart used a ��saturation’ strategy for store expansion. The standard was to be able to drive from a distribution centre to a store within a day. A distribution centre was strategically placed so that it could eventually serve 150-200 Wal-Mart stores within a day. Stores were built as far away as possible but still within a day’s drive of the distribution centre; the area was then filled back (or saturated back) to the distribution centre. Each distribution centre operated 24hours a day using laser guided conveyor belts and cross-docking techniques that received goods on one side while simultaneously filling orders on the other. Wal-Mart’s distribution system was so efficient that they incurred only 1.3% of sales as distribution costs compared to 3.5% for their nearest competitor.
The company owned a fleet of more than 6100 trailer trucks and employed 7600 drivers making it one of the largest trucking companies in the United States. Most competitors outsourced trucking. Wal-Mart implemented a satellite network system that allowed information to be shared between the company’s wide network of stores, distribution centres and suppliers. The system consolidated orders for goods, enabling the company to buy full truckload quantities’ without incurring inventory costs.
In its early years, Wal-Mart’s strategy was to build large discount stores in small rural towns. By contrast, competitor’s such as Kmart focused on large towns with populations greater than 50,000. Wal-Mart’s marketing strategy was to guarantee ��everyday low prices’ as a way to pull in customers. Traditional discount retailers relied on advertised ��sales’.
Management Systems
Each store constituted an investment centre and was evaluated on its profits relative to inventory investments. Data from over 5300 individual stores on items such as sales, expenses and profit and loss were collected, analyzed and transmitted electronically on a real time basis, rapid revealing how a particular region, region, district, store, department within a store, or item within a department was performing. The information enabled the company to reduce the likelihood of stock outs and the need for markdowns on slow moving stock, and to maximize inventory turnover. The data from ��outstanding’ performers among the 5300 stores was used to improve operations in the ��problem’ stores.
One of the significant costs for retailers was shoplifting, or pilferage. Wal-Mart addressed this issue by instituting a policy that shared 50% of the savings from decreases in the store’s pilferage in a particular store as compare to the industry standard, among that store’s employees through store incentive plans.
Early in Wal-Mart’ history, Sam Walton implemented a process requiring store managers to fill out ��best yesterday’ ledgers. These relatively straightforward forms tracked daily sales performance against numbers from one year prior. Recalled Walton” We were really trying to become the very best operators – the most professional managers – that we could….I have always had the soul of an operator, someone who wants to make this work well, then better, then the best they possibly can”. His organization was really “a store within a store”, encouraging department managers to be accountable and giving them an incentive to be creative. Successful experiments were recognized and applied to other stores. One example was the “people greeter”, an associate who welcomed shoppers as they entered the store. These greeters not only provided a personal service, their presence served to reduce pilferage. The “10 foot attitude” was another customer service approach Walton encouraged. When the founder visited his stores, he asked associates to make a pledge, telling them, “I want you to promise that whenever you come within 10 feet of a customer, you will look him in the eye, greet him and ask him if you can help him.”
In return for employee’s loyalty and dedication, Walton began offering profit sharing in 1971. “Every associate who had been with us for at least one year, and who has worked at least 100 hours a year, was eligible for it”, he explained. “Using a formula based on profit growth, we contribute a percentage of every eligible associate’s wages to his or her plan, which the associate can take when they leave the company either in cash or in Wal-Mart stock.” In fiscal 2005, Wal-Mart’s annual company contribution totaled $756 million
Wal-Mart also instituted several other policies and programs for its associates: incentive bonuses, a discount stock purchase plan, promotion from within, pay raises based on performance not seniority, and an open door policy.
Sam Walton, the founder of Wal-Mart believed in being frugal. He drove an old beat up truck and flew economy class, despite being a billionaire. He instilled frugality as part of Wal-Mart’s DNA.
Questions:
1- What is Wal-Mart store strategy?
2- What is the basis on which Wal-Mart store builds its competitive advantage?
3- How do Wal-Mart store control system help execute the firm strategy?
4- From the case explain how Wal-Mart store is employing its assets to the best of its ability? Be specific about the assets it is employing?
– Inventory
– Equipment
– People
– Store, building
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