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Austin Carroll

on 25 March 2014

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Transcript of Wal-Mart


Case Summary
Wal-Mart in 1994
Lost 22% of stock price due to decrease in same store sales from over 10% to 7%
Stagnant economy in early 90’s
More competitors in the grocery field and wholesaler areas

Porters 5 Forces
Competitive Advantages
Possible Options
Our Decision
Discount Retailer
Grocery Industry
Warehouse Clubs
Expand in Current markets
Expand Internationally
Cost Cutting & Revenue Growth
Buyer Power
Continue International Expansion
Joint Venure with Mexican retailer (1992)
Expanded into Canada (1994)
Wanted to expand into South America (1995)
Predicted International Sales could be $100 Billion
1983-1993: Operating Results and Financial Position have improved every year
Pay attention to discount stores, not just super center
Take note of legal and public challenges
Don't be afraid to pay off smaller businesses in court

Public Challenges
Small Groups accuse Walmart of forcing them out of business
Legal Problems in Vermont
"This never would happen if Sam Walton were alive" (Target)
Pricing controversy
They are the big dog
Based on Jim Harvey's speech structures
Substitutes (Low but increasing)
Rivalry (High)
Barrier to entry
Supplier Power
(High and then low)
Industry Statistics
Top 5 competitors have 71% of market
$124 Billion Industry
K-Mart and Target are major competitor
Key External Drivers
Per capita disposable income
External competition for department stores
Consumer confidence index
Current Performance
Discount department stores thrived during recession, while traditional stores saw declining sales
Increasing competition has limited growth
Industry Outlook
Predicted to enter decline over next 10 years
Highly concentrated industry
Other major competitors: Target, Sears, Macy’s, JCPenny
Key Success Factors
Ability to control stock on hand
Experienced workers
Ability to adjust operations to market demand
Price advantage and economies of scale are difficult to achieve
Huge capital requirements (The owners put up 95% of the costs in the first couple years)

The larger a company becomes the less bargaining power the suppliers have (P&G)
Wal-Mart has a huge amount of suppliers (over 60,000)
Target and (in the future) Amazon for products
Costco for food
10 rivals that were around when Wal-Mart opened, none remain
Hugely concentrated
It’s all about low pricing and customer satisfaction
Leads to Low Margins (supercenters even lower)

Consumer Protection (fraudulent claims)
Employment laws
Competition Regulation

Fair Labor Standards Act
Expansion restrictions
Environmental regulations
Mergers and Acquisitions

Consumer disposable income
Pass on low costs to consumers
Bulk discounts
Vendor relations
Low-income consumers
Part-time employment opportunities
Distribution centers
Electronic scanning
Satellite tracking systems
Carbon footprints
Packaging waste
Environmental Protection Agency
Vendor selection
Joint Venture
Greenfield Operation
Expand Wal-Marts
Expand Superstores
Expand Sam's Club
Tailored to individual markets
Information systems “traiting”

Growth Strategy
“Our key strategy was to put good-sized stores into little one-horse towns which everybody else was ignoring”
Mid-1980s: about ⅓ of stores in areas not served by competitors
Rural areas and Small Towns; Minimal competition percentages
Sam Walton
“He believed in the value of the dollar and was obsessed with keeping prices below everyone else’s”
Knew competition from top to bottom
Counting cars and measuring shelf space
Customer Service
“The most important ingredient in WalMart’s success is the way it treated its associates”
Treat employees well → Customers get treated well
Info Systems
One of the first to have a UPC (uniform product bar code)
Inventory linked directly to point of sale
System tracking for refunds and check authorizations reduced shrinkage
Satellite systems linked all stores and distribution centers
Info is looked at daily
Consistently priced below competitors
Used cost advantages to do so
Very frugal company
Sam Walton was known to spend a lot of time at competitors stores
Ordinary people doing extraordinary things
Profit Sharing
Focus on Customer service
Saturday meetings for management
Open books
Implementation of employee recommendations saved $85 million
Vendor Relationship
Many customers, most of which are individuals
Customers usually make small purchases
Operational Advantages
Key External Drivers
Per capita disposable income
Consumer confidence index
External competition for the grocery industry
Store Operations
Competitive Advantage
Industry Outlook
Consumers are purchasing more premium brands
Competitive strategies will increase
FTC is expected to tighten regulations on M&A activity
Key Success Factors
Proximity to key markets
Access to flexible workforce
Ability to control stock on hand
Key External Drivers
Per capita disposable income
External competition to warehouse clubs and supercenters
Industry Outlook
Forecast to increase its share of the retail sector
Will not be able to tap into urban markets
Key Success Factors
Having a loyal customer base
Ability to control stock on hand
Having a wide product range
Source: IBISWorld
Why International Expansion
1. There is a crowding out of the market
2. Expansion is projected to be 5% a year
3. Gain first mover advantages
4. Competitive advantages will allow them to thrive in high growth markets
Expand Sam's Club Brand
Continue to Increase Operational efficiency and give advantage over competitors
Could get rid of some competitors
No risk
Does not take much effort
Profit to gain
Could drive suppliers to bakrupcy if push too hard
Could ruin HR and associate advantage if they start cutting costs that way
Not as much profit in this option as others
Only have so much of a market they can achieve
Marginal gain from the expense and time may not be worth it
All the easy cost savings are gone
May be seen as obsessing over the numbers
Not know the region or culture
Will make mistakes in setting up distribution networks
May not be able to adapt quickly
High risk
Lots of money to set up
Do not have to share profits
Are in control of every aspect of the operation
Will not be held back by biases that a JV company may have
Expands the market quickly
Easily get an expertise in a country or region
Could convert into more profitable greenfield ventures afterwards
High profits
Will have help with setting up distribution chains
Less competition
Share Profits
May disagree on things
May have cultural differences
Low Competition (only Costco)
Not much focus on customer service
Gain guaranteed revenue through membership fee's
Focus on businesses not individual consumers
Low margins but large opportunity
Not as much mainentance or attention to detail when building because of warehouse style
Not as profitable (from a margin standpoint)
May take away from Wal-mart sales
Have typically cannibalized in the past
New competitors could easily take some market share
Bread and butter
They know how to do Wal-marts very well
Low risk
Uses competitive advantages
Locations are becoming increasingly hard to find
Cannabilism is a real possibility
New distribution centers must be set up
Large store locations are hard to find
Costs a lot of money to develop
Systems are hard to manage
Larger investment
More competition
One stop shop
Very profitable
Uses all competitive advantages Wal-Mart offers
Expands market by offering grocerys
Easy to set up
New market
Low cost
Great use of distribution network
Sets up some diversification
Other Challenges
Continue to take care of employees
Work on image by giving back
Listen to employee's
Continue to be on the cutting edge of technology
Two Step Distribution Network
80% of sales were shipped from Wal-Mart distribution centers (50% from K-Mart)
"Cross-Docking": Transfer directly from in-bound to outbound vehicles
1993: Opened One Million square foot distribution centers
No Nonsense Negotiator
Proctor and Gamble ran the show early on
Wal-Mart began creating partnerships with vendors
Electronic Data Interchange (EDI)
Full transcript