wal-mart - aerosmith final

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Evaluation of Wal-MartStrategic Management Case STUDY

Group

Aerosmit

h



h

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Discount Retailing

q Emergence of discount retailingduring Mid 50s.

q Gross margins lower by 10%-15%

lower than conventionaldepartmental stores.

q Cost Cutting – Un-luxurious Fixtures,

Limited in-store sellingq Limited ancillary services : tailoring,

delivery and credit.

q Sales : $2B (1960) to $68 B (1985)



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History



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Size does matter !



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Sourcing and Distribution

q Centralized purchasing.

q Central server connected directly to

3000 vendors.q Reputation of a tough bargainer.

q 400+ Truck Tractors



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Network of Distributioncenters

q 1970 : First distribution center-72000sq. ft. at headquarters Bentonville.Arkansas

q 1978 : Radius of operation widenedto 400 miles.

q

Each center catered to 175 storeswithin 150-300 mile radius.

q Cost of inbound logistics :

q 1980s - 2% of sales.



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Store Operations

q 1985: 47 Owned stores , 812 leasedstores

q

Building Rentals : 1.8% of sales (inlate 70s)

q Timings : 9:00 AM to 9:00 PM, 7 Days

a weekq Merchandise Dept. : 36



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Product Categories



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MARKETING

q Marketing Mantra - “We

Sell for Less”

q Price sensitivity – Prime

reason why consumers

shopped at Wal-Mart

q Price setting by Store

Managers rather than



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MARKETING

q Average of 13 promotions every year

q Expenditure as high as $16.3m on spot TV in

1985

q Terms of sale – Primarily ‘cash and carry’

q “No questions asked” policy on returns

q Use of CAD to suggest a merchandise mix foreach store since 1985



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HR MANAGEMENT

q Over 100,000 full time and part time Non

unionized employees

q “Our people make the difference!” , “We

Care about Our People” philosophy

q Top Management involvement in day to day

functioning of the stores

q Tight pay scales

q Incentive based approach – Profit sharing,

ESOPs

q One of the to 100 com anies to work with,



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ADMINISTRATION

q Frugal administrative style with heavy

emphasis on communication

q Strong feedback mechanism

q Plan to install Satellite network to for ease

of communication



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DIVERSIFICATION

q Failed attempt in mid-1970s – Hardware and

Lumber stores

q 3 new ventures in 1983 – dot Discount Drug,

Helen’s Arts and Crafts and Sam’s Wholesale

Clubs

q Wholesale clubs emerged out to be the

most exciting retail format

q Typically targeted Small businesses and

prescreened individual customers



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Competencies

q Lean process management

q Fast commissioning (Agility)



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Core Competency: LeanProcess



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Porter’s 5 Forces Model – Discount Stores

BargainingPower of

Suppliers

BargainingPowers of

Buyers

Entry Barriers Threat of Substitutes

Threat of Competitors

Low Moderate High Moderate High-Moderate

• Discount storechains purchasedin huge volumes

• High number of vendors.E.g. Wal-Martalone dealed withmore than 3000vendors

• Discount storechains limited theshare of purchases from asingle vendor

• Number of Discount Storessuch as Wal-

Mart, K-Mart, Target

• Competitiveprices wereoffered by veryfew large

players

• Initial investmentrequired is very high

•

Economies of scale arevery significant for survival

•Critical to have lean andefficient inventorymanagement system

•Experience curve effectsare important

• Grocerystores,Supermarkets

•Specializedstores forelectronicgoods,householdappliances

• Number of large playerssuch as K-

Mart, Target,Sears

•Use of technology bylarge playersto reduce

costs andimproveproductivity•E.g. Use of UPC scanning



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SWOT Analysis – Wal-Mart

Strength Weakness Opportunity Threat

• Economies of scale

•Lean and efficientInventory

Management

•Named as one of thebest 100 companiesto work

•Heavy emphasis on

communication

•Ignored storeembellishment

•Selling products

across multiplesectors such as food,clothing, electronicsetc. limited itsflexibility and varietyoffered by focusedplayers. E.g Electronic

goods

•Further expansion inwarehouse clubsegment throughSam’s Club

• Scope to expand inrural markets in thefar western andeastern regions of theUS

•

Procuring goods fromforeign countries forcost reduction

•Expand in globalmarkets

• Diversificationstrategy does notseem in alignmentwith core competency

e.g. Discount Drug,Helen’s Arts andCrafts

• Operating marginsmay come underpressure due to price

reduction tactics bycompetitors



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Value Chain Analysis



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Recommendations

• Diversify in businesses aligned withits core competencies

• Continue expansion of Sam’sWholesale Clubs business

• Focus on smaller areas and gettingan ‘early- mover’ advantage



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wal-mart - aerosmith final

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