Wal-Mart
Strategy of Wal-Mart
Wal-Mart, one of the biggest world retailers, is the company that was founded in 1962. And from the very beginning, the strategy of Wal-Mart was to be a best discounted retailer that has lowest prices and is close to its customers. This strategy was performed through two main instruments – costs minimization and stores locations.
As for cost minimization, it is a core competitive advantage for Wal-Mart. In other words, it is nature and spirit of Wal-Mart. And this aim was indicated just from its foundation in 1962. But how Wal-Mart succeeded in cost minimization? Generally, it was achieved by few factors – direct contracts with suppliers, strict contracts’ framework, and by focusing on volume (effect of scale).
Wal-Mart understood that cooperation with suppliers in direct way is harder from operational point of view, but it gives much more benefits from financial side. On those times, there were a lot of companies that were agents (or distributors) between producer (supplier) and retailer. Mostly, they took nearly 25-30% of producers’ price for their support. And first step of Wal-Mart was to make a direct cooperation with suppliers in order to omit these costs. And Wal-Mart succeeded in it by signing direct contracts with some suppliers and scaling this practice to all of its stores. It helped to reduce costs and prices, as result.
Moreover, contracts with producers were very strict with focusing on costs minimization. The terms of payment were relatively high (Wal-Mart proceeded a payments to suppliers after goods were sold longer than average retailers). Also, contracts were signed without any special costs that were a norm in other retailing practice (cross-advertising, special terms of transportation, etc.). These steps also allowed Wal-Mart to reduce its operational costs by shifting some costs to the suppliers’ side. Moreover, the contracts were long-termed, so the company got the ability to plan its financial streams in better way. Also, Wal-Mart performed the strategy of wide suppliers’ branch (it develop the situation, when suppliers compete with each other’s in order to cooperate with Wal-Mart). That’s why producers agreed on such hard frames of cooperation with Wal-Mart (on the other hand, they were sure that if their products are on the Wal-Mart’s shelves, they will be sold in short-term). All this cooperation strategy with suppliers provided the Wal-Mart the ability to reduce costs as much as possible and to get the best conditions in business planning as they could even be (due to strict long-term contracts). \
Wal-Mart is one of the brightest examples of successful realization of effect of scales. From the very beginning on its business performance, it was focused on increasing the volumes of goods sold. Company realized that in retail industry the rule “the more is volume the lower are costs” is extremely truthful. So, it started to expand its stores of network all over the country (and all over the world, in future). For example, after opening the first store in 1962, Wal-Mart’s network was exceeded to 18 stores by 1970 and to nearly 4,700 stores by 2003. The effect of scale helped the company to reduce its operational costs and achieve its goals of costs minimization.
Wal-Mart’s competitive level
In 2003, nearly 20 million of buyers visited Wal-Mart’s stores each day. And Wal-Mart’s market share was more than 35% of retail market. All in all, it was always a leader in its industry and now let’s analyze what was the factors of Wal-Mart’s competitiveness.
A basis of Wal-Mart’s competitiveness
Wal-Mart’s high competitiveness had a lot of pillars. The most important were: Wal-Mart was a pioneer in the industry of discounted retail with all relevant benefits; extremely good team that was developed from people, who not always were “familiar” with the industry; Wal-Mart used experience from other industries as well as from its competitors; it was highly innovative. All these factors formed a basis of Wal-Mart’s competitiveness.
As was mentioned before, Wal-Mart was one of three national retailers that focused in its performance on discounted goods. The pioneer position of the company allowed it to use all the relevant benefits. Wal-Mart was the company, who created this industry, so there were no any rules on market, and Wal-Mart was one of those, who created them. This position of pioneer allowed Wal-Mart to create a gap from its further competitors and built a framework, when Wal-Mart is always ahead and others try to catch it.
But Wal-Mart wouldn’t be so competitive without its team of professionals. It is a core factor of success in any type of business, but the case of Wal-Mart is special even in such common thing. The difference in Wal-Mart’s case is that the team that created Wal-Mart was not always “familiar” with the retail industry. Walton (founder of Wal-Mart) tried to involve the best professional from different fields. And sooner or later he succeeded in it. For example, David Glass, one of the greatest financial managers of those times, was hired as a Vice President of Finance and Distribution. Also, many other specialists joined the Wal-Mart’s team during its development. The combination of managers from different industries gave a great opportunity to have different and non-standard points of view. Each business case was analyzed from different sides and solutions, often, were extraordinary for the industry of retail. Good team of professionals was a core competitive advantage in Wal-Mart.
Nevertheless, not only the team was a success factor in case of strategy competitiveness. Walton tried to incorporate all successful practices from different businesses he knew as well, as from his competitors. Wal-Mart was always looking for any improvements and innovative practices all over the whole business world. For example, Walton included in his business such solutions as self-service 9from his previous work place); company cheers; greeters; etc. Wal-Mart was an open-minded company and it still is. The absorption of best practices from other companies helped the Wal-Mart to develop a unique system that was focused on endless improvements.
And the last important factor of Wal-Mart’s competiveness was a general ability of innovations absorption. Company was focused on innovations from the very beginning and makes it a core principle of its business performance. Wal-Marts always tried to create something new, something better that it is and all management system was built on such principles. For example, Wal-Mart was the first company who provided the market with 24 hours working discounted stores all over U.S. The culture of general innovations always helps the Wal-Mart to be on edge of market.
