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WAL-MART STORES
DISCOUNT OPERATIONS

HISTORY OF WAL-MART

In 1945 Sam
Walton
opened the
first Ben
Franklin
franchise in
Newport
Arkansas

In July 2, 1962,
Sam Walton
opened the
first Wal-Mart
store. in 1969
the company
officially
incorporated as
Wal-Mart
stores.

In 1970 Wal-Mart
became a publicly
traded co. In
1971 first
distribution
center was
opened

In 1980 Walmart
reached $1 billion
in annual sales
and had 276
stores by then

In 1983 First
Sams Club was
opened in
Midwest City.

PORTERS FIVE FORCES ANALYSIS

Competitive Rivalry

Many existing players like Sears,

K-Mart

Customers have low loyalty to

Wal-Mart. If it loses cost
advantage it loses customers

Wal-Marts high scale of

operations threatens the
suppliers
Wal-Mart could vertically
integrate

Threat of substitutes
Not many substitutes to offer
convenience and low price
Wal-Mart exerts a great deal of effort to
be innovative and meeting customer
demands

Threat of New Entry

Wal-Mart has outstanding distribution

systems, location etc.

Wal-Mart has an absolute cost

advantage
over other competitors

Cost to build retail enterprise like WalMart is formidable

Low pricing strategy of WalMart

Convenience is lost when
consumer shop at a competitor

SWOT ANALYSIS

Branded as world's largest retailer

Central computer systems linked stores

Focus on consumer and employee satisfaction
Huge economy of scale & huge buying power

Cost effective supply chain and inventory

management

Explore new locations and store

types
Opportunities in foreign countries
Online marketing and sales
Work towards image building

Less luxurious ambience

Lack of Flexibility due to operation
in many sectors
Over Dependency on Sam Walton
Less diversification - over
dependency on Discount Stores

Competition by Kmart,
Target etc.
Criticism over their pricing
strategy
Competition over prices

BCG MATRIX

Sams Club
International
Segment

Wal-Mart
Supercenters

Neighborhood
Markets

MAJOR STRATEGIES
Low Cost strategy
Underlying simple strategy

First Mover Advantage

Opening Discount stores in thinly populated,
small isolated towns - 1/3rd stores located in
areas not served by competitors- 10-20% of total
retails sales
Sams Warehouses

Support Functions

Management Information System

Bargain basement
acquisition
Highly efficient
supply chain

Better
bargaining over
vendors

Centralised :
Low cost of
inbound
logistics

Lease: Cheapest
as compared to
competitors

Never Filled out

of stock with diff
merchandise

Highly
productiveStore
Operations
Very Low price

Superior IT
Infrastructure

Computer Program
to suggset
merchandise mix
for each store

No more than 2.8%

of total sales from
one vendor

Everyday low
price

Centralised computer
for communication
regarding Inventory
requiremens

Use of UPC
(Uniform Product
Code)
Price
competitive

People
Oriented
HR

 No centralized sales
forecast
JIT inventory management
model
Supplier Warehouse
Retail model two step
Hub and Spoke model
Economies of scale more
the stores, more the sales.
Calls for more number of
distribution centers
One truck supplying 2 or 3
retailers. Backhauls 60%
full
Cost of Inbound logic 2% of
sales, half of the industry
average

Store operations

Procurement and Distribution

a.

Pushing from inside out

strategy
Building rentals only
1.8% of sales
Less in store inventory More area available for
selling space,
Hard goods vs Soft goods
hard goods more sales per
sq ft
Adoption of UPC
Less luxurious, low costs

Marketing
We Sell for Less leaders in price sensitive category health and beauty
aids, housewares, appliances
Price variation according to the store location
EDLP-low promotion cost, better inventory management
Region dependent advertising
Customer centric no question asked return policy

Human Resource Management

Culture of frugality - Employees/Store managers keep expenses to bare
minimum
Servant Leadership
Profit based salary for managers
Store managers given complete ownership of store operations
Yes We Can Sam program
Shrink Incentive Plan
Non-unionized 1,00,000 workforce

Administration
VPs located at one place cost saving

a.
b.

managers

Weekly meetings-plans updated

b. VPs District managers Store

a.

Department managers

Management Information System

a. Use of in store terminals to wire merchandise
requests to a central computer and it is transmitted
to Wal-Mart distribution center
b. UPC reduced checkout times, bypass paperwork,
simplify inventory management
c. Computer aided design to develop a
program(100 variable included), suggesting
merchandise mix for each store
d. Computerized inventory tracking-weekly updated
e. Satellite network for real time communicationcost reduction

WALMARTS VALUE CHAIN

Suppliers
Distribution
centers

Retail Store

Consumers
SUPPLY CHAIN

VALUE

 Parallel
supply
chains in
new
venturesdot
Discount
Drug,
Helens
Art, Sams
Wholesale
Club

Diagonal

Sams
Wholesale
Club
Flexibility
in price
structure
due to
highly
sorted
vendor
informatio
n

Horizontal

Vertical

WALMARTS VALUE GRID

Multiple
vendorsno vendor
had more
than 2.8%
of net
purchases
Creating
demand by
EDLP

PORTERS FIVE FORCE ANALYSIS FOR

WHOLESALE CLUBS (1/2)
Threat of new entrants : LOW
Economies of scale is high
Capital requirements is high
Getting access to favourable locations is difficult for new and unestablished players
Access to distribution channel is low for un-established players

Threat of substitutes : LOW

Goods offered at lower prices than discount stores and supermarkets

Bargaining power of suppliers : LOW

Vendors supplied in small amounts (only few provided in large amounts)

PORTERS FIVE FORCE ANALYSIS FOR

WHOLESALE CLUBS (2/2)

Bargaining power of Buyers: MEDIUM

Marginally Concentrated and purchase in Large volumes - Increases
Bargaining power
Product is undifferentiated - Increases Bargaining power
Threat of backward integration low Decreases Bargaining power

Rivalry among existing competition : HIGH

Goods offered at lower prices than discount stores and supermarkets

 Hailed as the most

exciting
Located in areas of
high population
Stocked only top
selling items
Targeted owners of
small business and
pre screened
individual customers
Can use existing
distribution system

NO

YES

WILL SAMS WHOLESALE CLUBS PROVE

SUCCESSFUL?

Growing
Growing competition
competition
at
at the
the same
same locations
locations
Only
Only 100
100 metropolitan
metropolitan
areas
areas with
with population
population
of
of half
half aa million
million or
or
larger
larger
Cannibalization
Cannibalization of
of
Walmarts
Walmarts discount
discount
store
store sales
sales can
can
happen
happen

FINANCIAL ANALYSIS
Discount
stores sales ( $ million)

Sam's warehouse club sales ($ million)

9000

900

8000

800

7000
6000
5000

CAGR : 36
%

700
600
500

4000

400

3000

300

2000

200

1000
0

CAGR :
325 %

100
0

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

First 3 year CAGR :

37 %

1985
Indust 4400
ry CAGR
Sam's 777

1990
20000
35%
6500

CAGR 53%

1983

1984

1985

Warehouse
clubs look
promising

FINANCIAL ANALYSIS
(in
millions)
327

Net Income
Number of Equity
Shares (assuming)
Earning per share
P/E (given)
Market Price of share

140
2.335714
286
26
60.72857
143

Intrinsic value of share

comes out to be 770 $
(approx.)

Shares highly
undervalued

RECOMMENDATIONS
1. Based on the analysis done, wholesale clubs
seem to be an attractive proposition for
Walmart.
2. Since first mover advantage is huge for
wholesale stores, Walmart should quickly grab
the opportunity.
3. Walmart can also look at the option of
replicating its discount stores model in other
countries like China etc.

THANK YOU