Walmart
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Transcript of Walmart
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Group 11Rachit DM15244 |Sarvagya DM15250 |Keerthi DM15267 |Vaibhav DM15262 |Seerat DM15251
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Strategy• Low cost – Lower operating expenses than industry average. Primary cost
advantage: superior distribution capabilities (location of stores, inside-out growth patterns, cross-docking, information management). Cost of inbound logistics in 1993 was 3.7% of discount store sales vs. 4.8% for competitors. Operating expenses from 1983-93 average at 16% of discount store sales. The company has successfully reduced operating expenses y-o-y.
• High Volume: Low prices and lower operating costs indicates a strategy that aims at capturing more market share by selling higher volumes
• Customer Satisfaction: Low prices, efficient IT and control systems and highly motivated and committed employees have helped in providing the best customer experience in the discount retailers segment.
WalMart Industry
Operating Expenses 18.1% 24.6%
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Competition: HIGH
Lack of differentiation in product offeringsLow switching cost for consumersIncrease market share at the cost of profitability (Price Wars)
Substitutes: MODERATEFood supermarkets,
grocery store, dept store, specialty store, etc
Direct Sales Channels like e-commerce
Barriers to entry: HIGHExtensive distribution
networkLarge number of stores
State-of-the-art data management systems
Bargaining Power of Buyers: MODERATEEasy availability of
substitutesLow Switching costs
Lack of differentiation among players
Bargaining Power of Suppliers: LOW
Availability of alternative suppliers
Retailers have high negotiation power due to high volumes purchased
Porter’s Five Force Analysis – Discount Retail Industry
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Competitive
Advantage of Walmart
Distribution Capabilities. Cross
docking helped reduce costs by 2-
3% by avoiding usual inventory handling costs
Intranet to connect stores: Retail Link gives
vendors and suppliers access to extensive data
Expertise in store
management. High Sales/sq.ft
of $300 vs. industry average
of $210
Excellent Human Resource
Management. Employees are call
associates and treated as partners with profit sharing
too
Economies of Scale. From
642 stores in 1962, it grew to 1953 discount stores by 1993
Sophisticated IT and control
systems allow for efficient
data management
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Recommendations• International Expansion:
– Walmart could not continue to expand in the US alone because the domestic markets had saturated and the US accounts for only 4% of the World population.
– The strategy of Walmart is relevant in any country and in emerging markets where disposable incomes are low, the opportunity for discount retailing is high
– It can leverage its two main resources :- a) High buying power with domestic suppliers to procure good in a cost effective manner. b) Its skill in efficient store management, effective use of IT, merchandising skills, etc.
• Convert discount stores to supercenters:– Supercenters are more profitable than discount stores as it combines discount and
supermarket format. Walmart superstores were twice as profitable (EBIT/Investment=66%) compared to supermarkets (33.3%)
• Diversify into new product categories and services: – Increase availability of high quality products to attract a new customer base– Offer more services to increase its position as a one-stop-solution. Example:- banking,
home and garden improvement, entertainment, etc.
• New Store Formats