How has Wal-Mart grown from a small region chain to the largest discount retailer in the world? How has its strategy contributed to the firm's growth?
The company was founded by Sam Walton in 1962. The first Wal-Mart store was opened in Rogers, Arkansas. Seventeen years later, annual sales were more than $ 1 billion. In January 2006, Wal-Mart was the largest retailer in the world, with a turnover of $ 218 billion (for the same period, Kmart’ turnover $ 37 billion, Sears’s $ 40,9 billion, Target’s $ 36,9 billion, Walgreen’s $ 21,2 billion). However, the biggest figure of net income for the same period received Walgreen $ 3,7 billion, Target $ 3,4 billion, Sears $ 3,3 billion, the same as Wal - Mart$ 3,3 billion).
In the early years of its existence, the strategy of Wal-Mart was to open large stores with big discounts in small rural settlements. Unlike competitors such as Kmart, Wal-Mart is focused on small towns with a population of about 50.000 people. The marketing strategy of Wal-Mart was to guarantee "everyday low prices", as a way to attract customers. Traditional retail discounts are offered on a special place, advertised as "sales".
Thus, a successful strategy for Wal-Mart in the U.S. was based on the sale of goods at low prices. Currently, almost every week, nearly 100 million customers visit the Wal-Mart around the world. The company employs more than 1.3 million employees. There are 3,200 Wal-Mart stores in the U.S. and more than 1100 stores outside the U.S.: in Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, Germany and the UK. (The first store outside of the U.S. was opened in 1991 in Mexico City.)
What challenges does Wal-Mart currently face at home and abroad in its attempt to maintain industry dominance? Is it feasible that Wal-Mart will fall from the top position in the next decade? Why or why not?
In 2001, Fortune magazine named Wal-Mart as the third-best company in America and the Financial Times and PricewaterhouseCoopers considered Wal-Mart the eighth most respected companies in the world. In 2002, Wal-Mart was named number one Company in the Fortune 500 list, and the Company received the highest award of Ron Brown in the area of corporate governance. The company also received the President Award for excellent stuff achievements and public relations.
Wal-Mart has 50% market share in the retail industry. Procter & Gamble, Clorox and Johnson & Johnson are among their almost 3.000 vendors. Although Wal-Mart, perhaps the number one consumer for product manufacturers, the company intentionally keeps its independent position on any single supplier. Thus, the proportion of one distributor from one vendor in the total supply of goods is not more than 4 percent.
About 85 percent of all products sold in Wal-Mart stores, have been obtained through its own distribution system. (Competitor’s share of goods shipped to their retail stores, is an average of less than 50 percent of the goods sold through theirs distribution centers.) Wal-Mart uses a strategy of "saturation" to expand its network of stores. The company has stores in such a way as to be able to visit the store from the company’s distribution center within a day.
Distribution centers strategically are located in a way that the center staff can visit within a day Wal-Mart stores. The store’s area is filled by distribution center. Each distribution center works 24 hours a day and marks the goods with the help of laser-guided conveyor belts and cross-docking method. So that upon receipt of goods from the vendor, distribution center at the same time fulfills the orders from Wal-Mart stores.
According to the research of Zenith Management consulting about how consumers' assessment of each of the criteria such as Convenience, Service, Price, Scope and Quality meet the expectations of customers. Consumers were asked to evaluate each individual criterion on the basis of its conformity to expectations. So at Wal-Mart stores the criterion Convenience got only 2 points out of 10, Service was evaluated at 3 points, Price – at 6 points, Scope - at 9 points and Quality - at 10 points which is maximum.
Compare to the pear group how well customer expectations are met (aggregate raw data) for the same period that Target is the leader of the group and got 70% of customer expectations, Kmart got 58%, Wal-Mart got only 56%, Agv. Grocery Chain 64%, Agv. Drug Chain 52%.
Nevertheless, public opposition to Wal-Mart is growing. Increasingly, society is trying to block Wal-Mart plans to expand the business and openings of Wal-Mart stores in their communities. It seems that no other business in the United States does not generate so much resistance to open new stores. This is a clear sign that Wal-Mart does not meet the expectations of society.
Wages of employees Wal-Mart, as well as claims of employees against the company, can serve as evidence that the company needs to work on his policy of increasing staff’s credibility to the company.
According to Zenith Management Consulting research, Wal-Mart got the lowest percentage of fulfillment expectations from vendors, community and workers (within 20%) compare to its competitors Target and Agv. Grocery Chain which got more than 50% of fulfillment expectations from vendors, community and workers. At the same time, Wal-Mart got the highest percentage of fulfillment expectations from stakeholders 100%, which is the highest in the pear group.
Any business that serves only one of its five stakeholders cannot survive. The less well served a stakeholder group is, the more problems that occur:
- If customers are not served: fewer customer purchases, higher returns, higher customer turnover, smaller customer wallet-share.
- If shareholders are not served: higher cost of capital, lower available capital for improvements, higher management turnover.
- If vendors are not served: higher vendor turnover, lower vendor profitability and higher vendor failure, higher procurement and vendor management overhead, slower processes.
If the community is not served: higher litigation costs, greater regulation, higher overhead to meet regulations, restrictions on new operations or new operations prohibited altogether. - If workers are not served: decreased productivity, higher turnover, lower customer service, higher errors, slower processes, greater sick-time, lawsuits.
- It is the reason why Wal-Mart could fall from the top position in near future.
Suppose you are the manager of a small electronics store in a community of 10,000. Wal-Mart has just opened a store across the street? What changes would you make to survive «and thrive» now that Wal-Mart has come to town?
It will be difficult to compete with such giant as Wal – Mart. So it would be better to close the store, sell or lease property and open the store in the other place. If the owner has confidence he could keep doing business and compete with Wal – Mart. To survive in this situation the manager should be sure that the level of prices at his/her store is lower and service is higher than that in Wal-Mart because only these conditions can attract customers.
References:
1. Govindarajan, V., Gupta, A., 2001. The Quest for Global Dominance: Transforming Global Presence into Global Competitive Advantage. John Wiley & Sons, Inc. Chapter 4.
2. Magretta, J., 2002. What Management Is: How it works and why it’s everyone’s business by Joan Magretta, The Free Press.
3. Walton, S., 1992. Made In America: My Story by Sam Walton, Doubleday.
4. Thomson, J., Martin, F., 2005. Strategic Management: Awareness, Analysis and Change, Thomson Learning.
5. Williams, D., Ellis, J., 1993. Comparative Financial Analysis. Corporate. Strategy and Financial Analysis: Managerial, Accounting and Stock Market Perspectives. Financial. Times/Pitman Publishing, London, pp.203-247.
Internet Resources:
6. Official Company’s site. Available at: http://www.walmart.com [Accessed 22 April 2011].
