A case study of Wal-Mart

Introduction

Porter (2002) states that root of the problem lies in the lack of distinguishing between operation
effectiveness and strategy. The expedition for productivity, quality and speed has resulted in management
tools and techniques, total quality management benchmarking, time based competition, outsourcing,
partnering, reengineering, change management.  In any organization, strategy management is the key to its
success. There are many theories based on this assumption that without a proper strategy and planning, it
is difficult for any industry to survive irrespective of its size. It is necessary to understand here that all the
major corporate organizations have established themselves, thanks to superior strategic planning and
implementation. The retail industry is making news everywhere with not only the traditional industries
increasing their outlets but some major corporate industries also intruding into this industry like Fresh @
Reliance of Reliance Industries, More of Aditya Birla Group in India. Wal-Mart, a US based retail industry,
which is known as the giant in the retail industry has survived and is still the huge enterprise in the world
which deals with almost all the F&B products, apparels, etc. It is not only the largest company in world but
also the largest company in the history of world.(Fishman, 2006) The present paper is divided into four
sections to understand and answer as what makes Wal-Mart the best in the industry, 1) retailing industry at
the time of Wal-Mart's innings, 2) Wal-Mart's Competitive advantage and key components, 3) Wal-Mart's
Strategy and 4) Sustainable growth of Wal-Mart.

I. Retail Industry – Wal-Mart says Hello!

Strategic decisions are ones that are aimed at differentiating an organization from its competitors in a way
that is sustainable in the future. (Porter, 2002) Porter strongly advocates that decisions in business can be
classified as strategic if they involve some innovation and difference that results in sustainable
advantage. According to Patrick Hayden et al (2002) the retailing industry adopted the style of discounting
on its merchandise after the Second World War. It is learnt that discount retailing was not the strategy at
the time Kmart, Target and Wal-Mart first started operating their business. Frank (2006) states that when
Sam Walton was franchising for Ben Franklin's variety store, invented an idea of passing on the savings to
his customers and earning his profits through volume. Prior to Wal-Mart's entry into the market, Sidney and
Hebert from Harrison founded Two Guys discount store in the year 1946 which dealt in hardware,
automotive parts and later on groceries. Two Guys was the forerunner as compared to today's retailers like
Super Target, Wal-Mart which succumbed to the economic recession. Another discount store set up by
Eugene as E.J. Korvette, which is often cited as first discount store which did not raise from 5 & 10 cents
roots and eventually declared bankruptcy due to inability to compete with the new entrants.

Porter (2002) states that combination of operational effectiveness and strategy is essential for superior
performance which is the primary goal of any organization. He also says that a company can perform its
rivals only if it can operate in different ways which are not in practice. Much emphasis had been laid on
strategic positioning like variety based positioning, needs – based positioning and access based positioning.

Along with Wal-Mart, other stores that started operating were Target, Woolworth (Woolco) and K-Mart.
However, Target has been functioning successfully, courtesy Wal-Mart, but other two failed in their
operations and filed bankruptcy.( Michael Bergdahl, 2004) Porters five forces model explains what strategic
decisions should be made and on what basis.  The model explains the basic strategies to be considered while
starting a business like bargaining power of suppliers. While franchising of Franklin he always looked for
cheaper deals and thought of passing his savings to the customers and earning through the margin on
volume of bulk purchases. Through the way of discount stores, shoppers were given the cheapest price as
compared to any other store. In regard to threats of new entrants, Wal-Mart has been constantly in the
news for acquisition of other small retail shops in view of its expansion. But nevertheless it has stiff
competition from likes of Super Target, Tesco, etc. it is the world's biggest retail industry.

II. Key Components of Wal-Mart Business Model

Wal-Mart is the leader in retailing industry with fiscal revenue of $244.52 billion in 2003 making it the
world's largest corporation. Mike reports that Wal-Mart as of 2002 had 1,283,000 employees growing at
11.2%. The above data explains that strategy of Wal-Mart is extraordinary which manages and operates
over 4150 retail facilities globally.The key components of Wal-Mart (The Value Chain), which offers cheap
prices than its competitors includes firm infrastructure like frugal culture, no regional offices and pleasant
environment to work. Managements take lots of visits and it is learnt there are no rehearsals before any
meeting which is usually scheduled on every Saturday. In any organization, human resource is the key to
development and Wal-Mart efficiently manages its sources. Wal-Mart terms its employees as associates.
Manager compensation is linked to the profit of store operated by him, within promotions, compensation
offered to associates depending on company's profits and also offered some incentives on their
performances. The workforce at Wal-Mart is not unionized as the company takes all the measures of their
benefits and provides them training on related issues. Technology plays a vital role in development of the
organization and Wal-Mart is well equipped with technological innovations like POS, store performance
tracking, real time market research, satellite system and UPC. Wal-Mart procurement measures like hard-
nosed negotiations, partnerships with some vendors, centralized buying, planning packets, etc. helps at
large the cause of providing the goods and services on cheap prices. The other factors that increase the
margin of profit for Wal-Mart are inbound logistics with frequent replenishment, automated DCs cross
docking, pick to flight, EDI, hub and spoke system. Wal-Mart strategy of operation is innovative with big
stores in small towns with monopoly in the market at low rental costs, local prices, concentric expansion,
merchandising in brand name, private labels, little space for inventory, store within store, etc. In relation to
marketing and sales, merchandising is tailored from locals, spent less on advertising and the prices are fixed
low and it depends on the store manager to fix the latitude of pricing. All the above factors combined
together form the key components of Wal-Mart which not only increase the margin of profits through bulk
sales but also boost the confidence of the customers with services like point of sale information system and
everyday low prices.

III. Wal-Mart Strategy

Wal-Mart dominates the American retailing industry due to number of factors like its business model which
is still a mystery and its effectiveness in not letting the rivals let know about the weaknesses. Wal-Mart
made strategic attempts in the its formulation to dominate the retail market where it has its presence,
growth by expansion in the US and Internationally, create widespread name recognition and customer
satisfaction in relation to brand name Wal-Mart and branching into new sectors of retailing.

It is learnt that Wal-Mart strives on three generic strategies consisting of Focus Strategy, the Differentiation
Strategy and overall cost leadership. Managers strive hard to make their organizations unique, distinctive
and identify key success factors that will drive the customers to buy their products.Thus, firm specific
resources and capabilities are crucial in explaining the firm's performance. The Resource Based View (RBV)
explains competitive heterogeneity based on the premise that close competitors differ in their resources and
capabilities in important and durable ways. The company's capability can be found through its functionality,
reliable performance, like Wal-Mart superior logistics. (Helfat, 2002) Wal-Mart has firm infrastructure, well
equipped in human resource with management professionals and technologically too.

Any organizations thrive hard to be successful for which it needs to have better resources and superior
capabilities. Wal-Mart has strong RBV with economically and financially very strong enough to stand still in
the time of crisis. Pereira states that dominating the retail market is its key strategy. Wal-Mart operates on
low price strategy which is operated as every day low prices (EDLP) which builds trust among the
customers.(Brunn, 2006)The strategy lies in purchasing the goods at lower prices and selling the goods to
customer at much lower prices, cutting the price as far as possible and increasing the profit by increasing
the number of sales. This ferociously increases the competition in the market and Wal-Mart competes with
all its competitors till it is dominant it the market.

Wal-Mart is expanding seriously and rapidly which is also its strategic goal. Wal-Mart employs over 1.3
associates, owns over 4000 stores out of which 3000 are in US and serves around 100 million customers
weekly. Wal-Mart has acquired many international stores and merged with some super stores like ASDA in
UK. Wal-Mart far flung network of retail outlets has ensured that Wal-Mart interacts with and has impact on
virtually every locality within US. (Helfat, 2002) The expanded strategy has led the hunger of Wal-Mart to
many European Countries. It is learnt that three countries with no Wal-Mart stores became part of
corporation's international presence wherein the domestic retail chains were taken over by Wal-Mart
including 122 Woolco stores in Canada, 21 Wertkauf stores in Germany and 229 ASDA units in United
Kingdom. The takeover strategy by Wal-Mart keeps the company at forefront when entering into the new
market and the number of competitors is also minimized. The strategies have helped the Wal-Mart to rein in
number one position in international countries making it the largest retailer in the world.

It is seen that Wal-Mart has significantly the Porters five force model wherein through proper strategic
planning and strategic implementation has led to removal of barrier entry, rivalry from competitors and
pricing norms. In regard to substitutes, Wal-Mart in order to achieve its aim of customer satisfaction has
selling goods under its own legal brand.  Wal-Mart's big box phenomenon has changed the retailing industry
in the United States which is often considered as discount stores and makes profit through high volume of
purchases and low markup on profits.(Parnell, 2008)Wal-Mart with its low cost and ever expanding strategy
has made a dramatic impact since 1962 when Sam Walton first started his business. With this strategy, Wal-
Mart has now over 4000 stores and outlets in US and other countries through acquisition and mergers.

IV. Sustainability in Discount Retailing – Wal-Mart

According to Porter, (2002) operational effectiveness and efficiency are the key elements of success in any
organization. A company can outperform its rivals or competitors in the market only with superior
management and efficient control creating a difference from the others which eventually attracts customers.
Porter defines operational effectiveness as performance of similar activities as its rivals but better than
them. In a study, it is stated the Wal-Mart is expert in manipulating perceptions. It is termed that low price
is not the strategy of Wal-Mart but the advertisement manipulates the consumer perceptions by making
them think that its prices are lower than its competitors' price using ‘price spin'. Wal-Mart makes the
consumer addicted coming to its stores by convincing them the prices are lower than in the other stores by
selling itself cheaper by advertising that ‘we have lower prices than anyone else' and placing a ‘opening price
point'. The ‘opening price point' is the lowest price in the store which is kept at high visibility which makes
consumer believes that the products in this store are really cheaper. (Race Cowgill, 2005)

The SWOT analysis of Wal-Mart reveals that it is most powerful retail brand, reputation for money, value,
commitment, and provides wide range of products. It is growing at a brisk pace with expanding its horizon
to other parts of world through acquisition and merger. Wal-Mart has good opportunities in markets of
Europe and China and focuses on acquiring the market through acquisition of smaller stores and merger
with leaders in the specific markets. Wal-Mart is always under threat to sustain its top position in market
nationally and internationally. Global leader in the industry leaves the organization vulnerable to many
socioeconomic and political problems of the country.

Sustainability at the top place is the most important job that makes its managers strives hard to frame the
policies and strategy to compete with its rivals in the market. Slack, Imitation, Substitution and Hold-up are
some of the threats to any organization in retail industry. However, Wal-Mart with its visionary goal of
attaining zero waste status and reaching 100% renewable energy has planned to launch number of
sustainability initiatives. (GreenBiz, 2008) Imitation increase profits by increasing the supply. But imitation
puts reputation, relationship at stake. James Hall reports that Wal-Mart is planning to open convenience
stores as Tesco has started and operating in US called Fresh & Easy Neighborhood Markets. (James,
2008) Such tactics will create mixed response among the consumers while degrading the reputation of the
leader in market. Substitution reduces the demand for what a firm uniquely provides by shifting the demand
elsewhere due to changes in technology. The threats of substitution can be subtle and unexpected like
minimizing expenses through videoconferencing instead of air flights to long distance meetings with its
managers of other stores, etc. Therefore, substation is an especially effective way of attacking dominant
rivals in the market. Substitution offers mixed responses after identifying and understanding the threats.
The organization should fight the threat and merging with them, switching to different options of
substitution to be in the market. Hold-up diverts the value to customers, suppliers or complementors who
have some bargaining leverage which results in tough negotiations, contractual agreements and vertical
integration.

Wal-Mart is having great network with almost over 7800 stores       and Sam's Club locations in 16 markets
worldwide. It employs more than 2 million associates and serves more than 100 million customers every
year. According to Fishman (2006) Americans spend $26 million every hour at Wal-Mart which makes it
believable that Wal-Mart is financially very strong and is capable of combating any threat from its rivals in
the market. Wal-Mart is ever expanding its boundaries by way of acquisition and mergers. Thus Wal-Mart
with such a vast network of stores and alliances in the forms of ASDA, Target and many other stores is well
protected enough to sustain its top position in the retail industry.

SWOT Analysis Wal-Mart

Strengths

 Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and a
wide range of products all in one store.
 Wal-Mart has grown substantially over recent years, and has experienced global expansion (for
example its purchase of the United Kingdom based retailer ASDA).
 The company has a core competence involving its use of information technology to support its
international logistics system. For example, it can see how individual products are performing
country-wide, store-by-store at a glance. IT also supports Wal-Mart's efficient procurement.
 A focused strategy is in place for human resource management and development. People are
key to Wal-Mart's business and it invests time and money in training people, and retaining a
developing them.

Weaknesses

 Wal-Mart is the World's largest grocery retailer and control of its empire, despite its IT
advantages, could leave it weak in some areas due to the huge span of control.
 Since 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.
 The company is global, but has has a presence in relatively few countries Worldwide.

Opportunities

 To take over, merge with, or form strategic alliances with other global retailers, focusing on
specific markets such as Europe or the Greater China Region.
 The stores are currently only trade in a relatively small number of countries. Therefore there are
tremendous opportunities for future business in expanding consumer markets, such as China
and India.
 New locations and store types offer Wal-Mart opportunities to exploit market development.
They diversified from large super centres, to local and mall-based sites.
 Opportunities exist for Wal-Mart to continue with its current strategy of large, super centres.

Threats

 Being number one means that you are the target of competition, locally and globally.
 Being a global retailer means that you are exposed to political problems in the countries that
you operate in.
  The cost of producing many consumer products tends to have fallen because of lower
manufacturing costs. Manufacturing cost have fallen due to outsourcing to low-cost regions of
the World. This has lead to price competition, resulting in price deflation in some ranges.
Intense price competition is a threat.

'Wal-Mart Stores, Inc. is the world's largest retailer, with $256.3 billion in sales in the fiscal year
ending Jan. 31, 2004. The company employs 1.6 million associates worldwide through more than
3,600 facilities in the United States and more than 1,570 units. Read more...

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Walmarts global expansion strategy

The year 2006 marked the most significant retrenchment for Wal-Mart since it undertook its international expansion
in the early 1990s, in an effort to rejuvenate sales growth. Wal-Mart, the world's largest retailer, admitted defeat in
its long-standing effort to penetrate successfully the German retail market. On July 30, 2006, the behemoth
announced that it was selling its operations in Germany to German retailer Metro AG. Wal-Mart had been trying to
make its German stores profitable for eight years. Wal-Mart announced a pretax loss on the sale of $1 billion. Wal-
Mart had previously announced in May that it would sell its 16 stores in South Korea.

     Wal-Mart apparently underestimated the ferocity of German competitors, the frugality of German shoppers, and
the extent to which regulations, cultural differences, and labor unions would impede its ability to apply in Germany
what had worked so well for it in the United States. German discount retailers offer very low prices, and German
shoppers have shown they can be very demanding. Germany's shoppers are accustomed to buying based primarily
on price. They are willing to split their shopping activities among various retailers, which blunt the effectiveness of
the "superstores" offering one location for all the shoppers needs. Employees filed a lawsuit against the retailer's
policy against romantic relationships between employees and supervisors. Accustomed to putting their own
groceries in shopping bags, German shoppers were alienated by clerks who bagged groceries. Moreover, German
regulations limited Wal-Mart's ability to offer extended and weekend hours, as well to sell merchandise below cost
in an effort to lure consumers with so-called loss leaders. Strong unions also limited the firm's ability to contain
operating costs.

     Wal-Mart also experienced a loss of seasoned executives when it acquired several German retailers. The two
retailers were headquartered in different cities. Following the mergers, Wal-Mart consolidated the two headquarters
in one city, prompting many executives to leave rather than relocate. Perhaps reflecting this "brain drain," Wal-
Mart's German operations had four presidents in eight years. Wal-Mart has not been alone in finding the German
discount market challenging. Nestle SA and Unilever are among the large multinational retailers that had to change
the way they do business in Germany. France's Carrefour SA, Wal-Mart's largest competitor worldwide, diligently
avoided Germany.

     With the withdrawal from the German and South Korean markets, Wal-Mart is currently operating in 11
countries. This compares to Carrefour of France (29 countries), and Metro of Germany (30 countries), the second
and third largest global retailers, respectively. Wal-Mart's international ambitions are now centered in Asia and
Latin America, with India and China the firm's most promising growth markets. However, Wal-Mart can expect to
experience similar growth challenges in these countries. For example, India does not permit foreign firms to
establish stores unless they sell only one brand. In late 2006, Wal-Mart agreed with China's state-run union to set up
unions at its 60 stores in that country. Moreover, China is limiting the size of large-scale retail outlets, which is
likely to limit Wal-Mart's plans to introduce the superstore concept.
 

WalMart in Mexico Case Study

Case Study on WalMart in Mexico - Walmex
Wal-Mart has a winner in its Wal-Mart de Mexico operations, as sales growth in that country
has outshined that of U.S. operations for quite a while now.

Walmart set to open banks in Mexico

WalMart Stores, Inc. (WalMart), the world's largest retailer's Mexican arm WalMart de Mexico
SAB de CV (Walmex), laid out plans to open its first in-store bank branch in Mexico by June
2007. Walmart's branches of the venture will be known as Banco Wal-Mart de Mexico
Adelante. Walmart is the second retailer to gain entry to Mexico's banking sector after
Mexican retail and financial services group Elekra (Banco Azteca, in 2002).

In 1991, WalMart began its operations in Mexico by forming a joint venture with Mexico's
retail chain Grupo Cifra SA de CV (Cifra). Cifra, a major player in Mexican organized retail
was the family-owned retail business of Mexican businessman, Jeronimo Arango. In 1994,
Mexico suffered due to economic setbacks. During this period, retailers like Sears Roebuck &
Co. and Kmart sold out their stakes and quit the country. However,Wal-Mart stayed on.

Walmex got government approval easily to set up in-store bank branches in Mexico. This was
because of its reputation as a successful retailer that met the daily needs of the Mexican
people. Walmex entry aimed at making financial products more cheaper to millions of
Mexicans, even those who did not have bank accounts. And by having banking operations
within its stores Walmex would improve the customers to its stores and also increase sales.

WalMart Background
In 1962, Sam Walton founded Wal-Mart. Sam Walton had earlier worked at JC Penney
Corporation, Inc. and also ran Ben Franklin franchises. Sam's vision that constantly changing
consumer behavior would lead to discount stores led to Wal-Mart's success.

In 145 cities across Mexico, Wal-Mex has more than 900 stores and restaurants in Mexico
including Bodega food and general merchandise discount stores and Superama supermarkets,
Suburbia apparel stores and Vips and El Portón restaurants. Wal-Mex also runs about 195 Wal-
Mart Supercenters and SAM'S CLUB warehouses, which generate about 55% of the company's
sales. More Soon...