wal mart case study

Sam’s Clubs

GLOBAL INDUSTRY ANALYSIS - CASE STUDYWal*Mart Stores, Inc.

a presentation Anthony, Crystal, Sandy From YZU university

1

2

WALMARTBackground

Sam Walton Founder of Wal*Mart

Stores, Inc.Performance of

Wal*Mart20-year average return

on equity of 33%Compound average sales

growth of 35%Market value = $57.5

billionWal*M

artIndustry average

Sales per square foot $300 $210

3

WALMARTBackground

Year 1988 CEO: David GlassCOO: Don SoderquistHow to sustain the

company’s phenomenal performance?

1987 1993Net sales 15,959 67,345

Net Income 628 2,333

Number Of StoresDiscount Stores 1,114 1,953

Sam’s Wholesale Clubs 84 419

Supercenters N.A. 68

4

WALMARTBackground

Number of Stores (1994)

5

WALMARTDiscount Retailing

Where Emerged in the U.S.WhenMid-1950sTop 10 discounters in

1962 Wal*Mart remained onlyThe industry became

more concentratedDiscount store companies

operated 5 or more stores accounted for 62%

6

WALMARTDiscount Retailing

7

WALMARTDiscount Retailing

Comparative Pricing Study, 1993

8

WALMARTDiscount Retailing

Overall Performance of Discounters

9

WALMARTWal*Mart’s Discount Stores

and History of Growth

Year 1945Ben Franklin franchise

storeIn 1950s15 storesYear 1962Wal*Mart Discount City

storeYear 196918 Wal*Mart stores15 Ben Franklin

franchise stores

10

WALMARTWal*Mart’s Discount Stores

and History of Growth

Year 197030 discount stores in

rural statesSouth and MidwestCost of good soldBuild its own

warehouse− Buy in volume at attractive prices − Store the merchandise

Year 1972Took the company publicRaised $3.3 million

11

WALMARTWal*Mart’s Discount Stores

and History of Growth

Year 1993West coast and

northeastern states Year 1994Operated in 47 states

13

WALMARTWal*Mart’s Discount Stores

and History of Growth

Key strategies for growing

Locate store in isolated rural areas and small towns (population 5000~25000)

Pattern of expansionAlways push from

inside outMid-1980sOne third were located in

areas that were not served by any of its competitors

14

WALMARTWal*Mart’s Discount Stores

and History of Growth

Year 1993Wal*Mart faced 55%

(Kmart), 23% (Target)Kmart 82%, Target 85%

from Wal*Mart

15

WALMARTWal*Mart’s Discount Stores

and Sam’s Legacy

PhilosophyKeep prices below everybody elseTrip expenses can’t exceed 1% of the

purchasesSpent lots of time in his own store

and observe competitorsCultureDo not show off buying luxury goodsSuccessThe way it treated its associates

16

WALMARTWal*Mart’s Discount Stores

and Sam’s Legacy

Management styleMaintain an open-door

policyEmpowering associatesMaintain technology

superiorityBuild loyalty among

associates, customers, and suppliers

18

WALMARTWal*Mart’s Discount Stores

and Merchandising

Tailor to individual market or individual storeInformation systemA process which indexed product movements in the store to over a thousand store and market traits Using inventory and sales data

20

WALMARTWal*Mart’s Discount Stores

and Merchandising

Promotional strategyEveryday-low-prices Few promotions13 major circulars per year1993

Satisfaction guaranteed policy

21

WALMARTWal*Mart’s Discount Stores

and Merchandising

Marketing sloganLower price Store managers set up prices2-4% pricing differential between Wal*Mart and its best competitors in most markets in early 1990s

22

• Transportation cost 圖

23

WALMARTWal*Mart’s Discount Stores

and Merchandising

National brand strategyPrivate label apparel25% of apparel salesOther private label26% price advantageAlso sold in Sam’s Clubs and supercenters

“Buy American” program

Strength WeaknessCost advantage Low price & customer-orientedStrong supply chainPeople are key to success

Ignore store decorationSince Wal-Mart sell products

across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.

Opportunity ThreatBuild its own brandPut efforts on social welfare better imageNew locations and store typesOverseas markets

Other competitorsIntense price competition

WALMARTWal*Mart’s Discount Stores

and SWOT Analysis

25

WALMARTWal*Mart’s Discount Stores

and Store Operation

26

WALMARTWal*Mart’s Discount Stores

and Store Operation

27

WALMARTWal*Mart’s Discount Stores

and Store Operation

Electronic scanning of uniform product code (UPC) at the POS Ensure accurate pricingImprove efficiencyReduce ShrinkageImprove communications

28

WALMARTWal*Mart’s Discount Stores

and Store Operation

Satellite system Data collected and analyzedObserving Merchandise flow, overstock, discountVideo transmissions, credit card authorizations, and inventory control

29

WALMARTWal*Mart’s Discount Stores

and Distribution

Phenomenal distribution network Two step hub-and-spoke

30

WALMARTWal*Mart’s Discount Stores

and Distribution

Phenomenal distribution network Cross-docking technique

31

WALMARTWal*Mart’s Discount Stores

and Distribution

Phenomenal distribution network Distribution center

Cost advantage

Stable price

32

WALMARTWal*Mart’s Discount Stores

and Distribution

Phenomenal distribution network Computerized pick to light system

33

WALMARTWal*Mart’s Discount Stores

and Distribution

34

WALMARTWal*Mart’s Discount Stores

and Vendor Relationships

Backward integrationNo nonsense negotiatorEconomies of scaleMaintain long term

relationship with supplier, as powerful partner (RSP)

35

WALMARTWal*Mart’s Discount Stores

and Vendor Relationships

36

WALMARTWal*Mart’s Discount Stores

and Vendor Relationships

Backward integrationElectronic data

interchange (EDI)CPFR

ForecastingPlanningReplenishingShipping applications

37

The CPFR Process

Buyer

Seller

FRONT END AGREEMENT

JOINT BUSINESS PLAN

CollaborativePlanning

CREATE SALES FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

CollaborativeForecasting

CREATE ORDER FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

CollaborativeReplenishment

GENERATE ORDER

38

WALMARTWal*Mart’s Discount Stores

and Vendor Relationships

Backward integrationVendor-managed

inventory (VMI) systemWranglerGE

39

WALMARTWal*Mart’s Discount Stores

and Vendor Relationships

Backward integrationFrom EDI to Retail link

40

WALMARTWal*Mart’s Discount Stores

and Vendor Relationships

Whole Supply chainEconomies of scaleCost leadership

competitive advantageJIT inventorPOS and retail linkCRS & VMIEDICPFR

42

WALMARTWal*Mart’s Discount Stores

and Human Resource Management

Non-unionizedDecentralized: full

autonomyProfit sharing programYes we can SamStore within storeShrink incentiveStock sharingAdministrative styleFrugality No hierarchy in

organization

Non-unionized, Full autonomy to associates, Decentralized, profit sharing program, Job rotation, Stock purchase plan

UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite system, CPFRMaintain long-term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy

Inferior fixtures standardization, Trucks, Average store size 84,000 square feat

Everyday low priceAlways low price, alwaysSelf serviceCash and carrySave money, live bettercredit card, Layaway plan

OutboundLogistics

Marketing & Sales

After SalesService

InboundLogistics

PrimaryActivities

FirmInfrastructure

Human ResourceManagement

TechnologyDevelopment

Procurement

VMI systemRetail linkEDICPFR

Six days a week(9~21)

Monday(12:30~17:30)

Two step hub and spoke distributing system

ECR Satisfaction

guarantee policyQuick response (QR)

Operations

Margin

WALMARTWal*Mart’s Discount Stores

and Value Chain

WALMARTDiversification

44

Historical Time Series Wal*Mart opened the

first three Sam’s clubs in 1983

Sam’s sales surpassed Price Club’s, making it the largest wholesale club in 1987

In 1987, Wal*Mart introduced its first supercenter

In 1991, Wal*Mart acquired “The Wholesale Club” with 28 outlets in the Midwest

WALMARTDiversification

45

In 1993, Sales at Sam’s Club rose 19.5% as the highest in national warehouse club chains, which Sam’s was nearly twice the size of Price Club

Sam’s Club acquired 99 of Kmart’s 113 “Pace club” in 1993

WALMARTDiversification

46

Comparison

WALMARTDiversification

47

Backward IntegrationAcquire “McLane

Company”Texas retail grocery

supplierTo service both Sam’s

Clubs and supercenters

48

WALMARTDiversification

and Sam’s Clubs

Warehouse clubs

49

Operating philosophyTo offer a limited

number of SKUs in pallet-size quantities in a no-frills, warehouse-type building

LocationOften locate next to a

Wal*MartSam’s chose to

cannibalize its own sales rather than give competitors any openings WALMART

Diversificationand Sam’s Clubs

WALMARTDiversification

and Sam’s Clubs50

PaymentDiscover cardCash- and-carryMembership Free$25 annuallyBusiness HourSeven days a weekSupplyDirect shipment from

supplier - 70%Company’s

distribution centers - 30%

WALMARTDiversification

and Sam’s Clubs51

Top Warehouse Clubs by 1993

WALMARTDiversification

and Supercenters52

Motivation

Operating margins within the industry were extremely low- a typical supermarkets was lucky to squeeze out a 2 % profit margin.

Industry trend

WALMARTDiversification

and Supercenters53

Definition

A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000 square feet in size

It contains bakeries, delis and convenience shops

WALMARTDiversification

and Supercenters54

FamiliarityLow-price image

Operating

Philosophy

WALMARTDiversification

and Supercenters55

Layout

WALMARTDiversification

and Supercenters56

Staff

450 associates

Full-time - 70%

Part-time - 30%

WALMARTDiversification

and Supercenters57

24 hours Seven days a

week

WALMARTDiversification

and Supercenters58

59

1994, MarchAcquire 122 Woolco

storesWoolworth Corp.

WALMARTDiversification

and International Expansion

60

Year 1992 Joint ventureCifra S.A. (Mexico’s largest

retailer) 63 stores (22 Sam’s Clubs,

11 Wal*Mart supercenters)

WALMARTDiversification

and International Expansion

61

South AmericaPlan to enter

in 1995Brazil &

Argentina

WALMARTDiversification

and International Expansion

WALMARTDiversification

and Five Force Analysis

Discount StoreKmartTargetCaldorWarehouse ClubsPrice ClubCostcoPaceSupercenterMeijerFred Meyer

CompetitorsHigh degree of

concentrationHigh industry growthHave excess capacityCost structure of firms:

sensitive to costBuyer’s switching cost is

lowFirm can adjust prices

quicklyPrice elasticity of demand

WALMARTDiversification

and Five Force Analysis

SupermarketKrogerSafeway Stores

Potential EntrantThey have distribution

channelsAccess to raw materialsAllocate favorable

locations

WALMARTDiversification

and Five Force Analysis

Key playersProcter & Gamble GEWrangler

SuppliersIndustry is concentratedMany suppliersNo-nonsense

WALMARTDiversification

and Five Force Analysis

Target Market??????

CustomersLow switching costTransportation cost