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Walmart Case Walmart Case JOG JOG MBAM 619 MBAM 619 January 9 January 9 th th 2009 2009
Walmart CaseWalmart Case
JOGJOGMBAM 619MBAM 619
January 9January 9thth 2009 2009
Capitalize on technological improvements
Obsolescence, Cost of UPC tech
Just-In-Time Inventory alliance with vendors
Real-time communications/ better inventory management
Computerized inventory tracking & POS systems
Technological Change
Identify product/ market needs to serve the educated, price-sensitive consumer
Other low cost retailers may compete in the same market
New growth opportunities in discount retailing and in warehouse clubs
“self-service”, no-frills concept
More educated consumers, thrift shoppers
Social Change
Compete based on price supported by a better cost structure
Low barriers to entry in discount retailing
Retailing opportunities in smaller, rural cities
Diversify store locations into rural cities
Growth of consumer spending in small cities
Economic Change
Focus on efficiency of logistics and cutting admin expenses
Unpredictable transportation costs
Restructuring hub and spoke distribution system
Logistics cost increased
Gas crisis in the late 1970sPolitical Change
Strategic Response
ThreatsOpportunitiesImpact of Change
Nature of Change
PEST AnalysisPEST Analysis
Industry & Competitive AnalysisIndustry & Competitive Analysis
Industry & Competitive AnalysisIndustry & Competitive Analysis
General Merchandise Revenue For USA 1974-1985
0
50000
100000
150000
200000
1974
1976
1978
1980
1982
1984
Year
(Mil
lio
ns o
f D
oll
ars)
General MerchandiseRevenue
The overall market for retailing merchandise has been growing steadily.
Source of chart: U.S. Census Bureau
Rise in competitors in warehouse clubs and in the Sunbelt: Kroger, Zayre, W.R.Grace, Costco, Pace Membership Warehouse, Wholesale Club.
K-Mart is a main competitor in discount retailing.
Firm’s Strengths Firm’s Strengths
Bargaining PowerBargaining Power• Largest vendor accounts for less than 2.8% of company’s total Largest vendor accounts for less than 2.8% of company’s total
purchases.purchases.• Favorable credit terms (30 days to pay)Favorable credit terms (30 days to pay)
Logistics EfficiencyLogistics Efficiency• High-tech demand/supply forecastingHigh-tech demand/supply forecasting• Reduced inventory holding costReduced inventory holding cost
Low Capital Investment (Leasing)Low Capital Investment (Leasing)
Opened New MarketOpened New Market• General merchandise store for cities with populations of less General merchandise store for cities with populations of less
than 100,000.than 100,000.
Firm’s WeaknessesFirm’s Weaknesses
No hold in large citiesNo hold in large cities
No differentiationNo differentiation
Association with low quality Association with low quality merchandise and customersmerchandise and customers
Cost of maintaining technological edgeCost of maintaining technological edge
Firm’s Architecture Routines & CultureFirm’s Architecture Routines & Culture
CommunicationCommunication• StrategicStrategic• Sales & inventory dataSales & inventory data
AutonomyAutonomy• Delegated decision-making powerDelegated decision-making power
Frugal CultureFrugal Culture
ConclusionConclusion
In order to better align itself with market opportunities and threats, In order to better align itself with market opportunities and threats, Walmart should leverage logistics technology and economies of scale to Walmart should leverage logistics technology and economies of scale to deliver everyday low pricing to the widest possible discount market.deliver everyday low pricing to the widest possible discount market.
Walmart sustainable competitive advantage will be superior supply chain Walmart sustainable competitive advantage will be superior supply chain management which it will use to deliver the lowest possible cost.management which it will use to deliver the lowest possible cost.
Walmart maximized shareholder value by producing a Return on Equity of Walmart maximized shareholder value by producing a Return on Equity of 33% during 1974-1985 compared with an average of 15.7% for its chief 33% during 1974-1985 compared with an average of 15.7% for its chief competitors. competitors. • The keys to maintaining such a high ROE in the future will be:The keys to maintaining such a high ROE in the future will be:
No frills, self-service conceptNo frills, self-service concept Leasing facilities to reduce the need for capital investmentLeasing facilities to reduce the need for capital investment Utilizing innovative logistics techniques such as two-tiered Utilizing innovative logistics techniques such as two-tiered
distribution systems, computer-enhanced demand planning, and distribution systems, computer-enhanced demand planning, and operating of a private truck fleet.operating of a private truck fleet.
