Walmart

WAL-MARTS COST LEADERSHIP STRATEGY HISTORY OF WALMART ? 1962, Sam Walton starts WAL-MART ? In 5 grades expanded to 24 stores revenue more than 12. 6 million in sales ? 1972, listed in New York Stock Exchange MARKETS OF WAL-MART (2003) o Total Sale of Wal-mart o Total Retail Area o Total Employers US $ 313 Billion 663 Million Sq. ft. 1700,000 SALES & INCOME GROWTH (PAST 12 MONTH) association INDUSTRY SALES GROWTH INCOME GROWTH 12. 00% 5. 20% 11. 50% 5. 90% NET PROFIT MARGINS (%) COMPANY COMPANY 5YEAR AVG. INDUSTRY 3. 6% 3. 5% 3. 6% WAL-MART TO twenty-four hours ? Operates 6,500 stores in 15 countries ?Serves more than 176 million customers around the mankind ? Employs 1. 8 million worldwide ? Health plans insure more than 1 million people ? Saves the average American household more than $2,300 per year Let us start the journey. 1960s.. The Success Term was EDLP ? EVERY DAY LOW PRICING ? To provide customers a wide variety of high quality, branded and unbranded products at the lo west possible price, offering better economic value for their money EDLP The strategy ? To procure products in bulk at the lowest possible prices from the manufacturers ? Sharing the savings with customers ?Wal-Marts products were usually priced 20% lower than its competitors Wal-Marts advertisement describing EDLP said Because you work hard for your all dollar, you deserve the lowest price we can offer every time you make a purchase. You deserve our Every Day Low Price. Its not a sale its a great price you can count on every day to make your dollar go further at WalMart Explaining his pricing strategy Mr. Sam Walton said By cutting your 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.In retail merchant language you can lower your markup but earn more because of the increased volume EDLP WAS A HIT ? This led to increase loyalty from priceconscious rural customers. ? The plain generated was re-invested in Building facilities of an efficient scale Purchasing modern business related equipment And employing the latest technology Other areas where the cost was checked ? The stores were set up in large buildings, while ensuring that the rent paid was minimal ? Not much emphasis was laid on the interiors of the store ? Did not invest in standardized ordering programmes ?Did not even have a standard distribution system in place ? Accounting data were manually written-up ? in that location was a high check in recruiting the staff 1970s. ? Wal-Mart became public-held federation ? Equipped with funds, it started reorganizationing its business activities. ? The foremost challenge was to put in place a standard distribution and interstore communication system ? So it came up with the most popular Hub And Spoke Structure The Hub And Spoke Structure ? Goods were centrally ordered ? Assembled at the distribution center (hub) ?From where they were dispatched to the individual stores (spokes) as per the orders received from stores. STORE STORE D. C. STORE STORE The benefits of Hub and Spoke structure ? Centralized purchase of goods in big quantities ? Distribution of them through its own fast and responsive logistics infrastructure to the retail stores ? By passing all intermediaries, they managed to get the goods at lowest price ? The company was able to replenish the store twice a week ? In 1978, Wal-Mart became the first company to establish a fullyautomated distribution centerClaude Harris once stated that codt ever feel sorry for a vendor. He always knows what he can sell, and we want his bottom price. We would tell the vendors dont commit in any room for a kickback because we dont do it here. Massive expansion strategy ? Strategy was to build stores around the distribution centers ? That is to be effectively served by the center and controlled by district managers and to management at Bentonville ? The store needs to be a max imum of a days drive away from the center Benefits of massive expansion strategy Wal-Mart was able to accelerate its revenue growth and reap significant economies of scale ? As the event of store increased the popularity of the company increased ? Since the company generated tremendous word of mouth publicity, it was able to minimize spending on advertising and promotion activities 1980s..Maintaining cost through re-investment ? In 1983, Wal-Mart ventured into the membership club business called Sams Club ? Installed the Point of Sale (POS) scanning system to further trim back the cost Maintaining cost through re-investment (contd. ) In 1987, it installed a Satellite Communication System (SCS) ? In December 1987, Wal-Mart opened its first hyper-mart in the US 1990s.. ? Supercenters and Sams club were more focused to fuel the growth ? In 1994, Wal-Mart bought 99 Pace membership warehouses Wal-Marts store count (1991-2003) Format________ year 1991 1992 1993 1994 1995 Discount Sams club stores 1573 1720 1850 1953 1990 Super center 3 6 30 68 143 Neighbourhood markets 148 208 256 419 428 1996 1997 1998 1999 2000 2001 2002 1995 1960 1921 1869 1801 1736 1647 433 436 443 564 721 888 1066 219 44 441 451 463 475 500 1 1 7 19 31 2003 1568 1258 525 49 Source Wal-Mart Annual Report 2003 ? Employed improved inventory management practices and upgraded its IT systems ? Electronic Data Interchange (EDI) AND THE RESULTS WERE penny-pinching. ? Amount of inventory reduced by an estimated $ 2 billion ? Savings of $ 150 million on interest cost were generated 2000s.. ? Wal-Mart launched a programme called Store of the community ? Global Sourcing was initiated (2002) Strengths of Wal-Mart Wal-marts SUBSIDIARIES Discount stores Neighbourhood market Sams Club Super centerYearly sales Total employees across the globe (approximately) Number of stores worldwide Number of new stores opened in 2003 (worldwide) Total number of suppliers Wal-Marts rank/position among all retailers acro ss the globe (in terms of sales) Number of pallets shipped by Wal-Mart truck every week (2002) Total occupied floor area of Wal-Mart (2002) Yearly advertising expenditure (2002) Highest one-day sales record coin bank date (November 28, 2003) Number of customers every week at Wal-Mart stores worldwide (approximately) Estimated market capitalization of Wal-Mart in 2020 Source Wal-Mart Annual Report 2003 244. 5 billion 1. 3 million 4,688 274 65,000 1 50 million 18. 3 square miles $498 million $1. 52 billion 138 million $11. 1 trillion Revenue (%) of the major consumer goods companies in the US through Wal-Mart Company P&G Tandy Brands Accessories RJR Tobacco Dials Del Monte Foods Clorox Revlons % Share (As a % of follow sales) 17 % 39 % 20 % 28 24 % 23 % 23 % Source BusinessWeek, October 2003 . and the journey still continues PRESENTED BY o o o o o o Prashant Wankhede Prajakta Sane R. Maruthi Yeshwanth Vikram Gharmalkar Mehul Chheda Nitin Agrawal