MGSSS

• Went from just over 100 stores to 859 by end of 1985

• Average store size from 47,000 to 63,000 in 1985

• Highest sales per square foot amongst discount stores

• Lowest inventories and highest inventory turnover in industry

• Successful entry into warehouse clubs in 1983

External Factors

Environment• PEST Analysis

Industry•Porter’s Five Forces

Competition•Side-by-Side Comparison

Market Opportunities

Resources & Capabilities

Environment

Industry

Competition

Strengths & Weaknesses

Architecture, Routines &

Culture

Nature of Change

Impact Opportunities

Threats Strategic Response

POLITICAL

Establishment of Standards i.e.Fair Packing and Labeling act, 1970

Customers were interested in lower priced goods from Self Service Retailers

Sell branded products through discount stores

95 % of non clothing merchandise was branded and nationally advertised

ECO-NOMIC

Stagflation, Oil Crisis of 1973,Stock Market Crash, 1973 – 1974,Recession, 1980 -1982

Rise in price of products because of Cost push inflation ; Consumers looking for Cheap products (following Oil Crisis)

Earn profits by opening discounted stores in less populated areas

Highly volatile USD (1973-1985) could raise the price of goods imported by Wal-Mart, Decrease in household demand on account of listed economic events

Opening Discount stores throughout South west US,Use of Inexpensive fixtures to keep fixed costs lower

PEST AnalysisPEST Analysis

SOCIAL

Rise in population in Sunbelt, Better informati0n, TV advertising Increased demand

Increased demand ,Customers would try the product with right to return the product

Increased population means overall increase in demand

More competition from other discount stores, including K - Mart

Large no. of discount stores in less populated areas, Use of “No questions asked return policy”

TECHNOLO-GICAL

Birth of Modern Computing, Micro processor was launched in 1970

Use of modern Technology to reshape operations

Improve efficiency in purchasing & distribution,Reduce labor costs & overheads by investing in technology

In store terminals linked to Central computer, Central Computer linked to the computers of multiple Vendors. Distribution Center located close to Wal-Mart stores, Electronic Scanning of Uniform Product code, Use of computer program to generate relevant merchandise mix for different stores

Threat of New Entrants

Power of BuyerIntensity of Competitive Rivalry

Threat of Substitutes

Power of Supplier

High

Medium

Low

Other discount stores:- Dayton-Hudson

- Heck’s- K-Mart

- Ross’s Stores- Zayre

Potential of Supermarkets

In this market, there are not many substitutes that offer low pricing.

Require high capital investment:- Warehouse ($5M) 1970- UPC ($500K/store) 1983

- Real Time Communication ($20M) 1986- IT infrastructure: Inv, Sales, Central Comp

1971- Distribution Centre ($5M) 1971

- Opened 3 more in next 7 years

Wal-Mart bargained very hard with its suppliers.

Took no more than a fifth of its volume from any one vendor. In 1985, no vendor

accounted for more than 2.8% of the company’s total purchases.

No buyer controls the major supplyof Wal-Mart.

Wal-MartWal-Mart CompetitionCompetition

Store Mgmt orders product based on store forecast

Centralized Sales Forecasts

Executives are located at HQ with wkly presence in geo.

locations

Executives are located in geographic regions across the

countryStore Mgmt set prices Centralized pricing

Advertising was scheduled 13 times per year

Advertising was sporadic to drive sales

Focused on volume of hard goods

Focused on volume of soft goods

Lowest pricing Low pricing

Proactive in marketing Reactive in marketing

Low in-store inventories High in-store inventories

Direct shipping form vendors Smaller portion was shipped directly from vendors

Competitive Competitive AnalysisAnalysis

Internal Factors

ArchitectureRoutinesCulture

Strengths & Weaknesses

Market Opportunities

Resources & Capabilities

Environment

Industry

Competition

Strengths & Weaknesses

Architecture, Routines &

Culture

Architecture Routines Culture

859 stores, 5 distribution centers

Entered markets where no competition existed

Tightfisted pay scales

One third of stores in areas with no competition

Kept minimal inventoryStore managers have

considerable autonomy

Product orders based on store needs rather than

centralized forecasts

Emphasized branded hard goods

“Our people make the difference”

Two-step hub and spoke distribution with cross-

docking

Adopted new technology early

Executives spent most of their week in the individual stores

• Lowest cost structure

• Highest sales per square foot of store space

• Unmatched efficiency in distribution and communications

• Margins on hard goods not as high as soft goods

• Employee compensation not aligned with emphasis on “people”

• 95% of all stores leased