Walmart

1. To what extent can Wal-Mart’s performance be explained in terms of industry structure, and to what extent in terms of its competitive position?

Wal-Mart’s performance is absolutely sensational and amazing.

• Growth in terms of company sales and market value

According to the paper, Wal-Mart had sales of $67 billion in 1993, with earnings nearly $2.3 billion. By end of 1993, Wal-Mart had a market value of $57.5 billion. (1)

• Growth in terms of company size

At the beginning of 1994, the company operated 1,953 Wal-Mart stores (including 68 supercenters), 419 warehouse clubs (Sam’s Clubs), 81 warehouse outlets (Bud’s), and four hypermarkets. (1)

• Growth compare to the competitor

Exhibit3 of the paper, Wal-Mart has the highest sales ($44900 millions) compared to the competitors in 1993.

In terms of five year average ROE, Exhibit 4 shows Wal-Mart has the highest ROE ($31.2 millions) compared to the competitors.

• Growth compare to the industry average

Wal-Mart sales per square foot were nearly $300 compared with the industry average of $210.

Table 1 shows Wal-Mart has highest sales by product category in 1993.

Wal-Mart has produced incredible profitability in terms of performance; Wal-Mart has achieved strong growth since first store opened in 1962.

Michael Porter’s five force industry analysis (2)

• Supplier power: Strong turns to Medium

Wal-Mart is a no-nonsense negotiator. It has set up standardised process and activities for suppliers to follow. In the beginning, some strong suppliers decided how much to sell and the price, such as P&G. Over time, Wal-Mart has turned relationships from supplier to partnership, by sharing information (EDI) to improve performance for both parties gaining profit.

• Customer power: Weak to Medium

Wal-Mart’s business is B2C, business to customer. The customers hold weak position against Wal-Mart, particularly in those small rural towns. However, customer has more freedom to choose when other competitors step into those locations to develop price war against Wal-Mart and the switching cost is low.

• Substitute: Strong

Retailing grocery shops are not high technology, product categories are easily replicated and also there are others shops could buy same or similar products.

• New entrants: Weak

It would not cost too much for a new local grocery shop to open. However, the cost leadership advantage could be barrier for new entrants.          

• Industry rivalry: strong

Obviously it has strong rivalry as other major competitors existing in the market, such as Costco and Kmart.

Competitive positioning

Wal-Mart applied needs based positioning and access based positioning to target small to medium size towns customers that competitors often ignored. The positioning has significantly differentiated themselves from other rivalry competitors.  Over time, Wal-Mart has extended business scale across entire US nations.

Above are some key forces as the root cause of the profitability, the integrated forces affected price and cost in overall retailing industry.

1.  Where does Wal-Mart’s competitive advantage come from – higher willingness-to-pay or lower cost?

It is obvious that Wal-Mart competitive advantage is coming from the lower cost.

• Wal-Mart’s slogan is “Always low prices—Always” and he pushed price below everyone else. The case highlighted by the early 1990s, typically, a 2%–4% pricing differential between Wal*Mart and its best competitors in most markets. (1)

• Higher ROE

Based on Exhibit 4, Wal-Mart has highest ROE compare to the competitors. (Wal-Mart ROE is 31.2, Venture is 28.7, Family Dollar is 21.5, ShopKo is 18.7, Dollar General is 16.1, Dayton Hudson is 15.8 and Kmart is 13.8. (1)

• Prices over Size

Exhibit 5 shows Wal-Mart is having low price over size compare to competitors.

• Operation Expense

Exhibit 6 shows Wal-Mart is having lowest operation expenses 18.1 compare to the competitors.

Wal-Mart’s low cost strategy along with other competitors to push the productivity frontier outward, it further lower the cost the improve value at the same time. (3)

1. What are the main sources of Wal-Mart’s competitive advantage – from what specific resources or organizational characteristics does its competitive advantage derive. What is the origin of these sources of competitive advantage?

Wal-Mart has created a competitive advantage from unique and valuable activities and resources management.

• Value chain Distribution/Operation integration activities

• About 80% of purchases for Wal-Mart stores were shipped from its own 27 distribution centers—as opposed to 50% for Kmart and the balance was delivered directly from suppliers.
• Wal-Mart has the control over scheduling to deliver the goods to the stores
• Innovative Cross decking technique was implemented.
• Authorize store manager for decision making, such as local price.
• High level of customer service experiences such as people greeter.

• Information Technology

Wal-Mart invested in IT such as UPS, EDI, and satellite communication to enhance information sharing both internally and externally and making accurate decision.

• Human Resources

• Wal-Mart’s organisation culture is motivation and co-operation.
• Empower local manager to make decision.
• Encourage store within store management.
• Provide trainings to promote internal committed staff.
• Salary and incentive compensation.

Above tangible, intangible and Human resources has developed organisation capability to form the sources of competitive advantage.

1. Is Wal-Mart’s competitive advantage sustainable?

Wal-Mart competitive advantage is sustainable. Wal-Mart developed unique activities to differentiate from other competitors and created value proposition, in other words, the competitors are not able to simply replicate Wal-Mart competitive advantage.