Group 11Rachit DM15244 |Sarvagya DM15250 |Keerthi DM15267 |Vaibhav DM15262 |Seerat DM15251

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%

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

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

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