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Sam’s Clubs
GLOBAL INDUSTRY ANALYSIS - CASE STUDYWal*Mart Stores, Inc.
a presentation Anthony, Crystal, Sandy From YZU university
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WALMARTBackground
Sam Walton Founder of Wal*Mart
Stores, Inc.Performance of
Wal*Mart20-year average return
on equity of 33%Compound average sales
growth of 35%Market value = $57.5
billionWal*M
artIndustry average
Sales per square foot $300 $210
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WALMARTBackground
Year 1988 CEO: David GlassCOO: Don SoderquistHow to sustain the
company’s phenomenal performance?
1987 1993Net sales 15,959 67,345
Net Income 628 2,333
Number Of StoresDiscount Stores 1,114 1,953
Sam’s Wholesale Clubs 84 419
Supercenters N.A. 68
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WALMARTBackground
Number of Stores (1994)
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WALMARTDiscount Retailing
Where Emerged in the U.S.WhenMid-1950sTop 10 discounters in
1962 Wal*Mart remained onlyThe industry became
more concentratedDiscount store companies
operated 5 or more stores accounted for 62%
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WALMARTDiscount Retailing
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WALMARTDiscount Retailing
Comparative Pricing Study, 1993
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WALMARTDiscount Retailing
Overall Performance of Discounters
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WALMARTWal*Mart’s Discount Stores
and History of Growth
Year 1945Ben Franklin franchise
storeIn 1950s15 storesYear 1962Wal*Mart Discount City
storeYear 196918 Wal*Mart stores15 Ben Franklin
franchise stores
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WALMARTWal*Mart’s Discount Stores
and History of Growth
Year 197030 discount stores in
rural statesSouth and MidwestCost of good soldBuild its own
warehouse− Buy in volume at attractive prices − Store the merchandise
Year 1972Took the company publicRaised $3.3 million
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WALMARTWal*Mart’s Discount Stores
and History of Growth
Year 1993West coast and
northeastern states Year 1994Operated in 47 states
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WALMARTWal*Mart’s Discount Stores
and History of Growth
Key strategies for growing
Locate store in isolated rural areas and small towns (population 5000~25000)
Pattern of expansionAlways push from
inside outMid-1980sOne third were located in
areas that were not served by any of its competitors
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WALMARTWal*Mart’s Discount Stores
and History of Growth
Year 1993Wal*Mart faced 55%
(Kmart), 23% (Target)Kmart 82%, Target 85%
from Wal*Mart
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WALMARTWal*Mart’s Discount Stores
and Sam’s Legacy
PhilosophyKeep prices below everybody elseTrip expenses can’t exceed 1% of the
purchasesSpent lots of time in his own store
and observe competitorsCultureDo not show off buying luxury goodsSuccessThe way it treated its associates
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WALMARTWal*Mart’s Discount Stores
and Sam’s Legacy
Management styleMaintain an open-door
policyEmpowering associatesMaintain technology
superiorityBuild loyalty among
associates, customers, and suppliers
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WALMARTWal*Mart’s Discount Stores
and Merchandising
Tailor to individual market or individual storeInformation systemA process which indexed product movements in the store to over a thousand store and market traits Using inventory and sales data
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WALMARTWal*Mart’s Discount Stores
and Merchandising
Promotional strategyEveryday-low-prices Few promotions13 major circulars per year1993
Satisfaction guaranteed policy
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WALMARTWal*Mart’s Discount Stores
and Merchandising
Marketing sloganLower price Store managers set up prices2-4% pricing differential between Wal*Mart and its best competitors in most markets in early 1990s
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• Transportation cost 圖
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WALMARTWal*Mart’s Discount Stores
and Merchandising
National brand strategyPrivate label apparel25% of apparel salesOther private label26% price advantageAlso sold in Sam’s Clubs and supercenters
“Buy American” program
Strength WeaknessCost advantage Low price & customer-orientedStrong supply chainPeople are key to success
Ignore store decorationSince Wal-Mart sell products
across many sectors (such as clothing, food, or stationary), it may not have the flexibility of some of its more focused competitors.
Opportunity ThreatBuild its own brandPut efforts on social welfare better imageNew locations and store typesOverseas markets
Other competitorsIntense price competition
WALMARTWal*Mart’s Discount Stores
and SWOT Analysis
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WALMARTWal*Mart’s Discount Stores
and Store Operation
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WALMARTWal*Mart’s Discount Stores
and Store Operation
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WALMARTWal*Mart’s Discount Stores
and Store Operation
Electronic scanning of uniform product code (UPC) at the POS Ensure accurate pricingImprove efficiencyReduce ShrinkageImprove communications
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WALMARTWal*Mart’s Discount Stores
and Store Operation
Satellite system Data collected and analyzedObserving Merchandise flow, overstock, discountVideo transmissions, credit card authorizations, and inventory control
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WALMARTWal*Mart’s Discount Stores
and Distribution
Phenomenal distribution network Two step hub-and-spoke
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WALMARTWal*Mart’s Discount Stores
and Distribution
Phenomenal distribution network Cross-docking technique
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WALMARTWal*Mart’s Discount Stores
and Distribution
Phenomenal distribution network Distribution center
Cost advantage
Stable price
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WALMARTWal*Mart’s Discount Stores
and Distribution
Phenomenal distribution network Computerized pick to light system
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WALMARTWal*Mart’s Discount Stores
and Distribution
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WALMARTWal*Mart’s Discount Stores
and Vendor Relationships
Backward integrationNo nonsense negotiatorEconomies of scaleMaintain long term
relationship with supplier, as powerful partner (RSP)
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WALMARTWal*Mart’s Discount Stores
and Vendor Relationships
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WALMARTWal*Mart’s Discount Stores
and Vendor Relationships
Backward integrationElectronic data
interchange (EDI)CPFR
ForecastingPlanningReplenishingShipping applications
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The CPFR Process
Buyer
Seller
FRONT END AGREEMENT
JOINT BUSINESS PLAN
CollaborativePlanning
CREATE SALES FORECAST
IDENTIFY EXCEPTIONS
RESOLVE EXCEPTIONS
CollaborativeForecasting
CREATE ORDER FORECAST
IDENTIFY EXCEPTIONS
RESOLVE EXCEPTIONS
CollaborativeReplenishment
GENERATE ORDER
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WALMARTWal*Mart’s Discount Stores
and Vendor Relationships
Backward integrationVendor-managed
inventory (VMI) systemWranglerGE
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WALMARTWal*Mart’s Discount Stores
and Vendor Relationships
Backward integrationFrom EDI to Retail link
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WALMARTWal*Mart’s Discount Stores
and Vendor Relationships
Whole Supply chainEconomies of scaleCost leadership
competitive advantageJIT inventorPOS and retail linkCRS & VMIEDICPFR
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WALMARTWal*Mart’s Discount Stores
and Human Resource Management
Non-unionizedDecentralized: full
autonomyProfit sharing programYes we can SamStore within storeShrink incentiveStock sharingAdministrative styleFrugality No hierarchy in
organization
Non-unionized, Full autonomy to associates, Decentralized, profit sharing program, Job rotation, Stock purchase plan
UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite system, CPFRMaintain long-term relationship, No single supplier accounting for more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy
Inferior fixtures standardization, Trucks, Average store size 84,000 square feat
Everyday low priceAlways low price, alwaysSelf serviceCash and carrySave money, live bettercredit card, Layaway plan
OutboundLogistics
Marketing & Sales
After SalesService
InboundLogistics
PrimaryActivities
FirmInfrastructure
Human ResourceManagement
TechnologyDevelopment
Procurement
VMI systemRetail linkEDICPFR
Six days a week(9~21)
Monday(12:30~17:30)
Two step hub and spoke distributing system
ECR Satisfaction
guarantee policyQuick response (QR)
Operations
Margin
WALMARTWal*Mart’s Discount Stores
and Value Chain
WALMARTDiversification
44
Historical Time Series Wal*Mart opened the
first three Sam’s clubs in 1983
Sam’s sales surpassed Price Club’s, making it the largest wholesale club in 1987
In 1987, Wal*Mart introduced its first supercenter
In 1991, Wal*Mart acquired “The Wholesale Club” with 28 outlets in the Midwest
WALMARTDiversification
45
In 1993, Sales at Sam’s Club rose 19.5% as the highest in national warehouse club chains, which Sam’s was nearly twice the size of Price Club
Sam’s Club acquired 99 of Kmart’s 113 “Pace club” in 1993
WALMARTDiversification
46
Comparison
WALMARTDiversification
47
Backward IntegrationAcquire “McLane
Company”Texas retail grocery
supplierTo service both Sam’s
Clubs and supercenters
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WALMARTDiversification
and Sam’s Clubs
Warehouse clubs
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Operating philosophyTo offer a limited
number of SKUs in pallet-size quantities in a no-frills, warehouse-type building
LocationOften locate next to a
Wal*MartSam’s chose to
cannibalize its own sales rather than give competitors any openings WALMART
Diversificationand Sam’s Clubs
WALMARTDiversification
and Sam’s Clubs50
PaymentDiscover cardCash- and-carryMembership Free$25 annuallyBusiness HourSeven days a weekSupplyDirect shipment from
supplier - 70%Company’s
distribution centers - 30%
WALMARTDiversification
and Sam’s Clubs51
Top Warehouse Clubs by 1993
WALMARTDiversification
and Supercenters52
Motivation
Operating margins within the industry were extremely low- a typical supermarkets was lucky to squeeze out a 2 % profit margin.
Industry trend
WALMARTDiversification
and Supercenters53
Definition
A supercenter is a combination supermarket and discount store averaging 120,000 to 130,000 square feet in size
It contains bakeries, delis and convenience shops
WALMARTDiversification
and Supercenters54
FamiliarityLow-price image
Operating
Philosophy
WALMARTDiversification
and Supercenters55
Layout
WALMARTDiversification
and Supercenters56
Staff
450 associates
Full-time - 70%
Part-time - 30%
WALMARTDiversification
and Supercenters57
24 hours Seven days a
week
WALMARTDiversification
and Supercenters58
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1994, MarchAcquire 122 Woolco
storesWoolworth Corp.
WALMARTDiversification
and International Expansion
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Year 1992 Joint ventureCifra S.A. (Mexico’s largest
retailer) 63 stores (22 Sam’s Clubs,
11 Wal*Mart supercenters)
WALMARTDiversification
and International Expansion
61
South AmericaPlan to enter
in 1995Brazil &
Argentina
WALMARTDiversification
and International Expansion
WALMARTDiversification
and Five Force Analysis
Discount StoreKmartTargetCaldorWarehouse ClubsPrice ClubCostcoPaceSupercenterMeijerFred Meyer
CompetitorsHigh degree of
concentrationHigh industry growthHave excess capacityCost structure of firms:
sensitive to costBuyer’s switching cost is
lowFirm can adjust prices
quicklyPrice elasticity of demand
WALMARTDiversification
and Five Force Analysis
SupermarketKrogerSafeway Stores
Potential EntrantThey have distribution
channelsAccess to raw materialsAllocate favorable
locations
WALMARTDiversification
and Five Force Analysis
Key playersProcter & Gamble GEWrangler
SuppliersIndustry is concentratedMany suppliersNo-nonsense
WALMARTDiversification
and Five Force Analysis
Target Market??????
CustomersLow switching costTransportation cost