1|PageCost Leadership and Differentiation Strategies @Walmart Submitted by: Samrat Basu 2|Page INDEX Walmart Origin Walmart Mission/Vision Corporate Culture@ Walmart Competitive Position of Walmart Strategies @ Walmart Private Label and Store Layout Conclusion Appendix References and Bibliography PAGE Page-3 Page-4 Page-4 Page 5-6 Page 6-9 Page 9-11 Page-11 Page 12 Page 13-14 . Origin Wal-Mart was the product of Sam Walton. guaranteed satisfaction. the first Supercenter comprising of grocery and 36 departments of merchandise opened. or pretends you're invisible. he was introduced to Butler Brothers. friendly. In his autobiography. convenient hours. 15 Walmart stores were opened. • 8692 stores . 123 Sam's Club locations opened and revenue increased to $26 Billion. You love it when a store exceeds your expectations."(Walmart. you want everything: a wide assortment of quality merchandise. •In 1972 Walmart was listed in New York Stock Exchange. he could better earn profit by volume and pass on the savings to his customers. a retailer who was successful in obtaining a sufficient discount for his products from the whole-seller. Arkansas and called it “Walton’s Five and Dime”. •By 1970 . 1993) Incidentally while working there. Sam was a firm believer of the fact that his customers should be provided with what they want. used to sell the products at full price to the customers and thus enjoyed a substantial amount of profit. And really if you think about it from the point of view of the customer. a big retailer who had chains of variety stores known as Ben Franklin and Sam was offered a store in Arkansas.3|Page Wal-Mart. Sam Walton during that time was working as a retailer at a J. gives you a hard time. •Put 95% money for the 1st Walmart store they launched in Arkansas. Source: www.1 million associates. There Sam excelled in operating the stores and soon huge amount of sales were generated which far exceeded the expectations. Penney store in Des Moines.(Walton & Huey. 1402 Walmart stores. But during the lease renewal of the store. This drove Sam in opening a new Ben Franklin franchise in Bentonville. •In 1988. and you hate it when a store inconveniences you. Sam said "The secret of successful retailing is to give your customers what they want. 2010) 1962-Walmart Begins 1972-Walmart Goes Public 1980-Walmart Comes Of Age 21st Century-One Of The Most Successful Retailers in the World •Sam studied discount retailing and undertook an extensive tour round the country. In the late 1940s. there were some problems and as a result an agreement could not be reached.176 million customers in a year.walmartstores. •In 1983. the lowest possible prices. The prices of the goods were marked quite low than the competitors. knowledgeable service. •By 1980 Walmart had grown to 276 stores in 11 states in USA and sales revenue touched $1 Billion.C. and a pleasant shopping experience. Iowa. in USA.com . 15 countries • 2. the first Sam's Club members -warehouse opened. •Came to conclusion that American consumers needed a new type of stores. Walton realized that instead of pocketing the extra money that was generated through retailing. a businessman from Arkansas. •By 1989. He had a simple idea of starting a discount retail store which would provide discount margins and would be similar to a wholesale price and it would also offer a friendly and an easy shopping experience with a friendly service.4|Page Walmart’s Mission/Vision Statement Sam Walton initially started his career in the retail trade for a Chicago-based retail store. (Murphy.” The company’s vision gradually went on changing as it expanded. So he had developed this idea of giving the people a retail store with some differences from the “J. Walmart follows the culture as shown below:- Sundown Rule-Any queries from stakeholders would be solved the day it would be received Grass Roots Process-Capture ideas from the associates and work on concern and suggestions 3 Basic Beliefs and Values-Respect for the Individual. the company has a statement of purpose for their stakeholder that is the Vision Statement that says: “If we work together. The USP of the stores would be that it would be located in the small towns as he believed “there was a lot more business in those towns than people ever thought”. The values and ethics followed by Walmart have helped it in gaining respect as one of the most admired companies in the world. greeting and offering to help customers who come within 10 feet Open Door Policy-Managers are easily approachable by any employees. It strives hard to build and maintain relationship with the stakeholders. Culture Walmart Cheer-A typical hymn created by Sam Walton and Sou used as an anthem by all associates everyday. Corporate Culture@ Walmart Walmart’s business has been built upon unique values and morals.com Servant Leadership-Leaders are always available for their teams. Pennies” of the time. Source: www. .C.walmartstores.” Apart from the mission statement.7 Billion. Service to our customers. 2010) The Mission Statement of Walmart and its advertising slogan when it first started were the same: “We save people money so that they can live better. Striving for Excellence Ten-Foot RuleMaking eye contact. So we can say that Walmart has been able to achieve its vision. While working there he felt that the retail industry had a lot of opportunities and that the disposable incomes of the people in USA were on the rise. we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life. The Vision for Walmart in 2000 was to “Become a $125 billion company by the year 2000” However from the 2000 Annual Report of Walmart we can see that revenues of the company had shot to $219.8 Billion with a profit of $6. It is used to make decisions about the different aspects of competition the organization is facing and how effectively it could try to cope up with the competition.5|Page Competitive Position of Walmart The Five Force analysis of any organization helps to determine and analyze its competitive environment. Low Pressure Medium Pressure Low to Medium Pressure Low Pressure Medium Pressure . but the convenience and low pricing that is provided by Walmart is very rare for any competitors. Moreover the online shopping also provides another advantage as the customer need not be physically present to buy the product and can simply make an order and have the items delivered at his doorstep.6|Page Bargaining Power of Customers Walmart faces comparatively very low pressure or no pressure at all from the customers or the individual buyers. 2010) Strategies @Walmart Walmart focuses on its strong distribution. However some consumer advocate groups have raised certain issues or complaints on the pricing technique used by Walmart. So the switching cost for Walmart to another supplier is also very less as that supplier might only be supplying about 5% of Walmart’s requirements. differentiated pricing. Though many suppliers have criticized but they are forced to meet the requirements as Walmart is a very big buyer and accounts for almost 40-50 % of their supply. Walmart however forces its suppliers to cut their margins and provide quality products. So Walmart holds a great amount of power and hence bargaining power is practically nil. So Walmart has to constantly check its profit margins. Threat of New Entrants Walmart faces medium to low pressure from the other retailers who provide discounts or the grocery shops as the most important task they would be faced with upon entry is that they have to cost leaders as the wholesale giant has already achieved a tremendous amount of economies of scale as it is already in the market for decades. but still that is very negligible. cost leadership strategies coupled with a strong usage of IT and innovations in developing its strategies which has led Walmart in growing to the top retailer of the world. but Walmart wholesales every item under one roof and that too at a price which is much lesser than the outside individual shops. Threat of Substitute Products Though there are a lot of similar products which any retail store like Walmart can offer. Walmart has to adopt a cost leader generic strategy. inventory management. For this reason. Competitive Rivalry within Industry The retail sector is quite heavily associated with many different big players including some biggest US Grocery/Discount Retailer Industry. Bargaining Power of Suppliers The bargaining power of suppliers is very negligible. Moreover the brand recognition of Walmart is very much higher and its vast product portfolio under a single roof is its most important differentiating factor from the new entrants. However most firms have failed time and again to match with the slogan of Walmart “everyday low prices”. However the apprehension is that Walmart’s economies of scale and efficient supply-chain management could easily be ravaged and imitated by its competitors who could provide more discount than Walmart. . (Walmart Five Force Analysis. However these new entrants can temporarily drop prices but in the long run it is very difficult to oust the giant from the industry. but still the expediency that is provided by Walmart is its unique selling proposition. Some of the major competitors which Walmart faces are K-Mart and Target which in turn again faces stiff competition from big wholesalers such as Costco. Though the customers can also purchase items from its other competitors at a comparable price. Though the customers can go to different specialty stores for each of their different products. As a result. you can lower your markup but earn more because of the increased volume. “A very low- . pg 152). 2005. According to Cowgill of Zenith Management Consulting. 2010) Some people however have a different opinion about the pricing of Walmart. Walmart maintains a high-class relationship with its suppliers and has been called as “market-making phenomenon” as it literally shapes. Even its slogan says “everyday low prices”. “Walmart’s strategy is not low price”. Walmart’s greatest strength is its inventory control which is achieved through its effective distribution centers which he labels as “Walmart symphony with no finale. pg 87) noticed the cross-docking process and how the company eliminates third party product handling and receives goods directly from the manufacturers. the mantra has been to price the products at the minimum so that more and more consumers can buy from Walmart and as a result. imports and broad supplier and labor relations. You deserve our Every Day Low Price”.”(Walmart. it just plays over and over” (Friedman. This has helped in all the major decisions at Walmart including the use of technology. This EDLP had promised customers of a wide variety of products ranging from branded and unbranded products at a low price. the Balance Sheet of Walmart showed higher and higher profits. According to Friedman (2005). Grant (2003. pg 108). which have an average population of about 5000. Inbound and outbound trucks are immediately unloaded and reloaded to minimize warehouse inventory time. Walmart removed the entire concept of wholesalers/distributors and they became the pioneers in discount format leader. you deserve the lowest price we can offer every time you make a purchase. Pricing Strategy @Walmart Walmart has always been known for its low prices. focus was made to target small USA towns. Rather Walmart has been called as “Master of Manipulating Perception”. contracts and conducts a set of standards. (ICMRIndia. According to Petrovic & Hamilton (2006. Walmart has strategic locations where in it efficiently brings the products and uses a technique known as cross-docking. Walmart creates a perception in consumers that the prices of its products are lower and they become “stuck” in a self-reinforcing loop that keeps them shopping at Walmart. marketing. The Walmart stores are located in vicinity of its distribution center and Walmart closely associates with the suppliers to simplify the deliveries. the store inventory overflows are eliminated. the concentration can be made into volume sales rather than margin. Cut costs to the bone. which the manufacturers must follow in order to supply goods to Walmart. branding. Inventory and Supply Chain Strategies@ Walmart Walmart’s urge in becoming the number 1 retailer in the world was only possible through its effective pricing strategies and the use of technology. Even the advertising communication of Walmart said “Because you work hard for every dollar. and keep cutting so you can offer the lowest price. you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price.” Ever since inception of Walmart. 2010) According to Walton “By cutting your price. According to Ortega (1998). So the manufacturers cannot compromise with the quality of goods they are supplying to Walmart. Initially when Walmart was started. The products were usually 15-20 % cheaper than the other competitors and as a result Walmart gained the loyalty of the rural masses and as a result of larger volumes.7|Page Distribution. These towns were neglected by the competitors at that time and so to grab their potential. and distribution. Many argue that Walmart has this unique ability to cut down their complex business strategies by focusing more and more on a centralized communication channels rather than focusing more on the design intricacies. Sam Walton had introduced the concept of “every day low price” (EDLP). Walmart’s simple mission was “offer the lowest price. In retailer language. 8|Page priced. With barcodes all that was needed was a quick scan and the computer did the rest. “From the start. sales. Any firm who would like to be a cost leader should try to imitate and learn from Walmart. Walmart has created competitive advantage by a proper mixing and use of IT and innovations. According to data published by Harvard Business School. 2002) The company has a very strict monitoring process and has established a Universal Code in an attempt to keep a constant check in the product flows within one area to another. Walmart’s first major use of IT came in 1975. etc. Another revolutionary use of IT was Walmart’s implementation of Barcodes for scanning products in 1983. The company imposed an upper limit for its rent payment at $1. you have to be a cost leader so as to drive the competition away. “This is why it is an exemplary cost leader.0% cost differential in all its value chain activities over its direct competitors. (Bradley & Ghemawat. This is however acceptable as Walmart’s superior IT helps in the effective operations”. Walmart maintains a 0. 1992) IT and Innovations @Walmart The stores for the world’s largest company and world’s largest private employer can be found everywhere in USA. Walmart has often evicted many of the small retailers and carved out a giant retail space for itself and as a result is often regarded as an evil. The stores were set up in large buildings. This greatly sped up check out time . It has even created a culture of cost-cutting measure even among the executive posts. The new entries would think twice that they have to compete with Walmart when they would like to enter the retail market.” (Cowgill. 2005) Cost Leadership Strategies @ Walmart One of the most important strategies that an organization should take into account is that it has to be a market leader and especially in the retail sector when there is a huge competition from the different large players.” (ICMRIndia. “The only exception is in the area of Information Technology where their costs exceed their competitors by 0. Effective data analysis from a huge Walmart’s database is efficiently done and all these improvements have helped Walmart in reducing wastage and hence minimize the cost of production. high-velocity item is placed at the “opening price point” spot in each store section. When the managers need to travel from one location to another the company pays for the coach rather than a flight ticket and they are even encouraged to put up in an affordable hotel so as to minimize costs. 2010) Moreover the employee number is also not that great. Walmart buys goods in bulk at lower costs per unit.3% to 3. A key senator has often called Walmart as a “giant money grabbing evil corporation.” (Sedy.” It also comes under fire for outsourcing a majority of its manufacturing particularly in China. Not much emphasis was laid on the interiors of the stores. The company can thus efficiently have a check on its inventories. Wal-Mart imposed a strict control on its overhead costs. Walmart specially has used this cost leadership strategy and integrated cost leadership with the Porter’s five forces and has created some sort of a price barrier for the new entries. when the company leased an IBM computer system for tracking inventory and distribution centers. The slogan of Walmart “Always Low Prices. Moreover the store layouts and designs of the Walmart stores are very simple and not at all complicated like other mega marts.00 per square foot during the late 1960s. In 1975 it was a cutting edge and gave Walmart advantage over other retailers. Walmart has made cost leadership their philosophy. As a result the customer perception is such created that since the staring item is less priced hence all other items are low-priced. process orders.2%. Always” has given the company a unique selling point as the consumers are always attracted to buy items from a place where they can get a good value for money proposition. Infact the store locations are such that each one of them is about an hour drive from each other. while ensuring that the rent paid was minimal. From 1st August. sodas juices etc in huge volumes through these private labels. David Glass had introduced this concept of private labels in Walmart. including J. 2010) Private Label The big retailers have already been using the private labels and the local brands of the different stores in order to increase profitability and enhance the store image. In 1992. Walmart has started using RFID tags for the men’s wear at the initial level. According to Walmart. this RFID interferes with the privacy of the buyers as the RFID constantly emits a signal and could be used by anybody. The Wall Street Journal reports that “several other U. It was like a giant bunker and surrounded by barbed fence. It could accommodate data twice the size of the internet. 2010 onwards. one can easily track the person if he/she wants and thereby affects his/her privacy directly. During the recession these private labels really play a good role in increasing sales for the company. According to analysts. However by the use of this technology. Walmart also focuses on today’s teens as they would be the future prospect buyers of the products. snacks. for the purpose of identification and tracking. these private labels account for about 10% of the sales of Walmart and so they have huge prospects of growth. In 1987 as information became more essential for the company. So it could be seen that Walmart through its constant innovation and technology carved its path to be at the top. 2002) .” crows Raul Vasquez. So a lot of teen-targeted cosmetics and youth-targeted clothes are produced at Walmart.” (The NewAmerican. At that time it was the largest private satellite network across the globe and allowed the company to relay information around the globe.9|Page and made tracking inventory and data collection easier for both customer and employees alike and had since become an industry standard for products. (Branding and Private Label. Walmart takes a step ahead than many of its competitors and could have a timely check at its inventories. So even after the goods are brought home. have begun experimenting with smart tags on clothing to better ensure shelves remain stocked with sizes and colors that customers want. the implementation of the tags has helped in speeding up of the operations and accuracy level with a check on inventory levels. Thus it could be said that Walmart is a pioneer in the usage of this technology as many of the other big retailers like JC Penny. Some tags can be read from several meters away and beyond the line of sight of the reader. The tags can be implanted in the garments and can be read by scanners. (http://www. Walmart has started store brands containing pet foods. According to Walmart officials. sales could be viewed directly by the upper management.com/watch?v=b5K1yrICMII) RFID@ Walmart Radio-frequency identification (RFID) is a technology that uses communication via electromagnetic waves to exchange data between a terminal and an electronic tag attached to an object. etc are also on the verge of implementing this technology.youtube. Wal-Mart’s representative for its stores in the western states.C. Penney and Bloomingdale’s. “This ability to wave the wand and have a sense of all the products that are on the floor or in the back room in seconds is something that we feel can really transform our business. retailers. However. Walmart completed its own private satellite network. the tags are crucial and they could improve the logistics and help in proper maintaining of the inventory levels. Walmart built a 125000 sq ft data centre near its headquarter Arkansas. according to many critics.S. This network allowed for a direct two way communication between the head quarter and individual stores so that the instant information on inventory. Walmart has been one of the pioneers in using RFID. So it can be inferred that Walmart has efficient operations and hence it has been able to turnover its inventory approximately in 7 days. Inventory turnover measures how quickly the company is moving merchandise through the warehouse to customers. In 2009 it was about 8.68. as we see there are two entry gates.com Inventory and Financials@ Walmart “Analyzing a company’s inventories and receivables is a reliable means of helping to determine whether it is a good investment play or not. Store layouts generally show the size and location of each department. Each floor plan and store layout will depend on the type of products sold. the economies of the country suffered from the greatest recession of all times and hence the buying power of the common man has decreased to some levels. Companies stay efficient and competitive by keeping inventory levels down and speeding up collection of what they are owed. while in 2008 it was about 7. fixture locations and customer traffic patterns. the building location and how much the business can afford to put into the overall store design. For example in the diagram below.google. Dairy and Bakery entrance where all the food items are available.” (Investopedia.images. 2010) Walmart’s inventory ratio (cost of goods sold/average inventory) in 2007 was about 7.9. one is for the shopping entrance where all the shopping can be done and the other is for the Grocery. So it is a clear indication about the efficient planning ideas as people can come for shopping or some might come for buying food items only. The net sales had .10 | P a g e Store Layout of Walmart The layout of a store plays an important role in the operations of the store and maximizes sales by minimizing retail space loss. any permanent structures. In 2008 however. Source: www. Walmart had great financial performance with annual revenues exceeding $370 Billion which was a sharp increase from previous year. We can see that the inventory ratio has slightly been increased in 2009. This could be due to the fact that in 2008-09. The WalMart stores are of different layouts depending upon the local needs and the type of the retail format.96. after Walmart. the customer-oriented focus and its steady aim in achieving its vision has made it different from rest of the competitors. Its pricing and cost leadership strategies coupled with the effective use of technology has helped transform Walmart to a huge corporation. Walmart generated $23. Both Walmart and Target however efficiently made use of comparatively large amount of short term and long term debts to finance their operations.5 %. (Walmart Annual Report. 2010) Conclusion The above small attempt to analyze the world’s largest private employer brought into light a few concrete conclusions about the company. (Fuhrmann. .If we compare financials of Walmart with Target which also one of the top retailers. They even utilized sufficient amount of cash flow to pay dividends and repurchase shares. Walmart invests in providing a better shopping experience to customers. advancements in healthcare. The working culture.5 % which was also impressive considering the fact that comparable growth in USA was about 1. 2009) Walmart vs Target: . pharmacy and efficient implementation of IT systems to control the operations all over its stores has paved the way to experience a sustainable growth in the future.1 Billion in cash from its operations while Target had taken up a blow of $1. we can see that Walmart generated 4 times more cash flows than Target in the past year.11 | P a g e grown by about 8. The new product lines such as energy saving products. The company showed a steady performance even during the financial crisis and it turned out to be the top out of the competitors.3Billion to cover its future bad debts. but Walmart was able to outperform Target by utilizing more than $7 Billion. 12 | P a g e Appendix:- . RC. Cases in Contemporary Strategy Analysis. P.oppapers. Straus& Giroux 7) Walmart’s Aggressive Pricing[Online] [Available http://www. Huey.html . S. 2010] [Last Updated: Jan 26.org/casestudies/catalogue/Business%20Strategy2/WalMart%20Cost%20Leadership.co.. The Two Sides of Wal-Mart.idxs.33 PM] 12) http://www.. Case Study: How to Exploit Walmart’s Weaknesses[pdf] [Available at:www. 2010] 2) Walton.htm] [Accessed on: 29th November. 1992.zenith-consulting. 2010] at: 8) Cowgill. G.Making Global Markets:Wal-Mart and its suppliers Pg.uk/articles/articles-vision-mission/] [Accessed on: 26th November..com] [Accessed on: 26th November. M. JJ. R. 2010.. 1993. 2010] 9) Bradley. May 2002. [Accession Number: ISBN 0-553-56283-5] [Available at: www.com/stock-analysis/2010/Wal-MartOutmuscles-Target-TGT-WMT-SHLD-M-DDS0126.com/research/walMart/Wal-Mart-Strategy. Inc.13 | P a g e References and Bibliography 1) Murphy.aspx] [Accessed on: 3rd December.. 2006.2005. 2003. .. 2010] 4) Petrovic.. Oxford Blackwell. 14. R.The World Is Flat: A Brief History of the Twenty-First Century. 3rd Edition. The Concepts of Vision & Mission Revisited[online] [Available at: http://www.. 10) Sedy. Stephen. 2010. H..com/essays/Walmart-Five-ForcesAnalysis/165282] [Accessed on 26th November. Pg 71-97.. New York: Bantam.P.google. J. Sam Walton: Made in America: My Story.investopedia.. Case Study 9-794-024. Hamilton.eu/technology/technology. 2010] 3) Walmart Five Force Analysis[Online] [Available at: http://www. New York: Farrar.107–41 5) Grant... Wal-mart Outmuscles Target[online] [Available at: http://stocks. Harvard Business School Publishing. 2002..Wal-Mart Stores. Ghemawat.pdf] [Accessed on: 29th November. Inc.TL. pg 71-97 6) Friedman..icmrindia. The New York Times 11) Fuhrmann.calumcoburn.2005. Wal-Mart Stores. ed. com/articles/stocks/05/04405. 28 July 2010 11:45] 14) http://www.walmart.com/watch?v=b5K1yrICMII 15) Branding and Private Label[pdf] [Available at: www. J.14 | P a g e 13) Wolverton.supermarketalert. 2010] 16) http://www.com .thenewamerican.Wal-mart to Embed RFID Tags in Clothing Beginning August 1[online] [Available at: http://www.youtube.com/pdf%20docs/2Brand&PrivateLabel.php/tech-mainmenu30/computers/4157-wal-mart-to-embed-rfid-tags-in-clothing-beginning-august-1] [Accessed on: 30th November. 2010. pdf] [Accessed on: 1st December.investopedia. 2010] [Last Updated on: Wednesday.asp 17) www..com/index.