Wal-Mart

Discount Retailing in the United States

• Began in the mid - 1950s• Wal-Mart, Kmart, Target - Started in 1962• Stagnated during the 1970s• 1980s – Kmart – largest discount retailer Wal-Mart – Second largest Innovations – Denser display, UPC scanning Hypermarket failed evolved smaller format

Continued…1990s- Came Supercenter2001- Supercenters to account for more than 1 billion

dollars Blurred the traditional boundaries between

discount retailers and traditional markets 2002- Kmart, biggest retail bankruptcy ever

Wal-Mart Stores, Inc.

• Headquarter – Bentonville• 2003 Stores - 4,688 Area - 561 million square feet 73% stores - located in united states

Sam Walton

• Born on 29 march 1918 in Kingfisher, Oklahoma Good athlete Student leader Entrepreneur• 1945 – First variety format franchised Ben Franklin• 1962 – First Discount city store in Rogers, Arkansas • David Glass – Said...• Sam overcame early problem and took company

public in 1970 & raised $3.3 m

Cont.…

• Hired Senior executives including David Glass• Installed private satellite network – 1980s • Obsessed with work• 1988 – CEO - David Glass – 2000 – Lee Scott

Retailing Formats

• Discount Store• Supercenter• Neighborhood Markets • Sam’s Club

Procurement

• Expenses – should not exceed 1% value of purchases

• Backward integration – Saved 2-3% on goods• Early 1990s – EDIs • Sam time – Retail Link Data ware house consisted 250 terabyte

of analytic database - Less than 10 minutesAugust 1997 to July 1998 – left to work for

Amazon.com

Continued..

• Supply and Demand information helped• 8% products – out of stock• 1/3 Goods – Down prices • Included top 75% - strategic decisions• Small shared suppliers – Poor performed • Large shared supplier – Better performed • Wal-Mart - P & G’s largest customer

Continued..

• Wal-Mart – China’s single largest importer• China’s eighth largest trading partner, ahead of

Russia and Britain• 28-40% - Cost reduction on imports of high

velocity friends• Child labor issue• Early 2003 - Sweetshop retailer of the year

Distribution

• Building stores within a day’s drive• At the end of 2003 - 43 distribution centers

A typical distribution center

• Area - 1 million square feet • Investment - $70 m• Operated – 24 hours a day• Staff – 700 associates• Paid - $12-18/day• Served – 150 stores (radius 150 miles)

Inventory turns

• Inventory turns - 3.2 in 1973 t 4.4 by 193 - 7.6 by 2003• Scan N Pay model

Distribution Cost

• Wal-Mart – 2-3% revenue• Other retailers – 4-5% revenue

McLane

• A wholesale distributer acquired in 1990• Sold to Berkshire Hathaway• Lost - $1.29 b on volume of $22 b

Merchandising and Marketing

• Product Assortment• Pricing• Other Marketing

Merchandising and Marketing

• Walton’s life with merchandising.

• Merchandising principle:– Achieving very high sales per square foot by

offering broad assortment of merchandise at constantly low prices in cheap but cheerful stores.

Product assortment/ collection

Soft Goods (Apparel, linen, and fabrics)

Hard Goods (Hardware, Housewares, automobile supplies, etc.)

More sales per square foot, more traffic, and require fewer markdowns. Low profit margin.

Cont’d

60% Wal-Mart’s revenue

Consum-able

Goods

Soft Goods

Hard Goods

Dynamics of Wal-Mart Stores

National Branded Products

Private Label Products

Dominated the market

15% Sales in 1995 20% Sales in 1999.

Private Products

• Sam’s American Choice detergents= ½ prices of P&G’s Tide.

• Sam’s American Choice detergents= ¼ shelf space of P&G’s Tide.

Modular Capacity Assortment Planning System (MCAPS)

• Exclusivity• Impulse/ destination purchasing• Ease of in-store display/ stocking• Volume producing items based on season or

month• Local demographics• Local community through fund raising events.

Cont’d

• Merchandising mix

• Loss of non-purchaser accounted to $9 billion per year

Pricing

• “Always low price. Always.”• Rollback programmed– 10% discount on three to four key items per

category– Discount may be continuous– Which facilitate bulk purchase benefitted unto

100’s % cause increase in revenue

General Merchandise

Prices Nationally

Food Prices by

Zones

Increase in Sales

Price-War

• Managers were allowed to match or beat the lowest competing price (Max. 5%)

• Wal-Mart makes price checks– 99.8% of Kmart Stores– 98.7% of Target Stores (10-15% Premium charge)

Other Marketing

• Wal-Mart’s advertising to sales= 0.3%• Kmart’s advertising to sales= 1.2%• Target’s advertising to sales= 2.2%

• Media– Local TV, radio, market-level promotions,– In-store television (nation’s largest media

provider- half of the consumer purchase decision is made in store itself)

1975

19851996

Stores• More on operational part rather than cheerful

ambiance.• They wanted to create “Big Box” in all rural

and urban area.

8 Stores

50 Stores

Wal-Mart enters in New Market

• Low Prices• Saturated

Market

Local Market

• Low Prices• Competitors

Move

New Market• More Stores• Fight for gaining

Less Profit

EXIT or Survive

Characteristics

• Discount stores open 24 hours a day from Monday to Saturday– Limited time on Sundays.

• Supercenters open for 24*7.• Inbound sides.• Outbound sides.• Credit cards services.

Sales/ (Foot)

KmartTarget

Wal-Mart

2

$221

$249

$440

Autonomy of Sales

People

• Wal-Mart success ingredient is its “associates”.• Institutionalized policies and practices-– Sharing performance information with associates– Soliciting their ideas– Offering them incentives– Offering profit sharing– Maintaining open door policy.

Payroll Expense

Every 10% increase of sales in the 1990s

Decrease in Payroll expenses

Growth of Supercenter format

Cont’d

Payroll expenses= Labor related costs per employee

Sales per employee (S/E)

Target Kmart

Wal-Mart$144,000

$144,000

$175,000

Sales per Employee in 2003

Cont’d

1

•$7/ hour for entry level retail position in U

S

2

•Part tim

e who w

orked for 28 hours a week

to account for 30% of the retail w

orkforce

3

•Full tim

ers who w

ork for 45 weeks in a

fiscal year accounted for 15% w

orkforce

Labor related costs per employee

Store within a STORE

• Receive detail information in sales• Receive detail information in profits• Adjusting the merchandising mix• Being reward for the results

Frame of Reference

“Very competitive benefits and very competitive wages”• Wal-Mart emphasizes that it offered more

training than any other retailer.• Promotion rate is high- 2/3 of its managers had

been promoted to higher level.• Successful, caring and fun place to work.

Critique argued that…

• Wal-Mart’s paying $2-3/hour less than supermarket.

• Less wages cause high turnover of employee.

Federal poverty line is of$14,630 in the US

A lady got $16,300 after working 3 years

Wal-Mart’s average wages is $14,000

Cont’d

• Health insurance benefits to over 90% employees.

• 2.2 million employees base is necessary to maintain.

• 2/3 of hourly employees are female, they hold 1/3 of store management jobs and 15% store management position.

Management

What management practices made Walmart Giant?

1.Responsibility & trust

- Learned from variety store business

2.Establising check & control

-Facilitated by technology

3. Commitment to work

“Commit to your business. Believe in it more than anybody else. I think I overcome every single one of my shortcomings by the sheer passion I brought to work.”

- From Sam Walton’s Autobiography

4. Strategic analysis

5. Centralization

- More managers in HQ

6. Regional Vice President

-RVP as information carriers

7. Saturday meetings

8.AGM

9. Lawsuits against Wal-Mart

10. Special Units

• Media relations unit• Government affairs unit

Future

• 1000 new stores in US in 5 years• International retailing & beyond• Vacation planning, internet access etc• Financial services

• Regional HQs• Saturday morning meeting• AGM• Lawsuits• Special units

Future

• 1000 new stores in US in 5 years• International retailing & beyond• Vacation planning, internet access etc.• Financial services

Thank You