Walmart Case Study

Walmart Case

Walmart’s success is definitely not an occasion. It only took around 50 years to become a multi-billion profit company with multiply innovation and changes.  Sam Walton, who was the founder of Walmart didn’t start the Walmart in the beginning. He opened the first Ben Franklin store in 1945 and decided to focus more on the discount store “Walmart” in 1962. In 1987, Sam Walton named the new CEO - Mr. Glass to lead with a new innovation and strategy to keep the company continue growing with a heavy investment on the IT, efficient store efficient and great management for new ideas and diversity. During 1994, Walmart had a challenge of revenue growth and they decided to expand the international market and open more super center and get into the food industry.

Walmart’s Competitive Advantages

First, Walmart picked the right timing to enter the market. As one of the oldest player, the first Ben Franklin stored opened in 1945, and the number grew steadily until the Sam Walton himself decided to focus more on the discount store “Walmart” in 1962. As customer become better informed, they began to prefer better priced self-service retailer to the traditional stores. When The discount store business expanded from 2 billion to 19 billion between 1960 and 1970, Walmart business also saw organic growth in the same period. While lots of older merchandise eventually failed by 1990s, Walmart has successfully become the top player.

Second, the locations of Walmart were one of its advantage in its years of expansion. Unlike its competitors, Walmart preferred locating its stores in isolated rural areas and small towns, with 5000-25000 population. The idea was to encourage consumers to buy near home at low price and resulted in a higher return on equity and sales growth. However, some areas had accused Walmart for “forcing” local merchant out of business because of its low price strategy. And competitors usually followed Walmart into the same or near-by region.

Most importantly, Walmart had always believed that the key of winning the discount store war was the competitive pricing. The concept “always low price” by founder Walton was consistently carried on by the management during the expansion of Walmart. To maintain reasonable profit margin while offering competitive pricing, Walmart tried cutting cost in nearly all perspectives possible.

• Walmart store operation was efficient. Walmart was able to get a lower rental price while allow space for expansion in the future. Its stores were also able to generate higher sales per sq ft, at a lower operating expenses, while carrying less inventory.
• Distribution was also optimized to minimize the cost. Walmart ships 80% store purchases  within 48 hours or 24 hours (accelerated delivery) from its 27 distribution centers, which has lower inbound logistics than its competitors.
• Supplier relationship was also built to provide price benefits to Walmart. Given the massive buying power( which is even enforced by disallowed supplier to account for over 2.4% of its purchases) , Walmart was able to negotiate the price to the lowest possible level.
• Walmart invested heavily on information system to help increasing the operating efficiency, such as using UPC at point of sale are in all stores by 1988, and using satellite to collect and analyze sales data daily, and It using EDI system to help supplier reduce inventory cost and increase sales.

Walmart’s management style was also a factor of its success. Its executives routinely flew to visit stores and were informed about each regional market through weekly meetings,  therefore company could react quickly to new ideas, competitors, etc. The management was open to changes to new market ideas through diversification, such as opening warehouse stores like Sam’s Club, and expanding existing stores to supercenters. Acquisitions were also made to ensure the backend was properly constructed to support these new business ventures.

Walmart’s Sustainable Position for the Future

1994 is a key year for Walmart to figure out how to keep growing their revenue. Glass, as the new Walmart CEO,has led the company to grow their sales from 16 billion in 1987 to 67 billion in 1993, with earnings from $628  million to $2.3 billion. It was well known that Walmart spent heavily investment in the information technology. However, Walmart’s growth started to be saturated. In April 1993, company confirmed in a meeting with analysts that 1993 growth in comparable store sales would be below 10% since 1985 and investor started to sell Walmart’s stock because investor believes Walmart’s future position can no longer sustain a good growth rate as before.  At the beginning of 1994, the company operated 1,953 stores, with only  68 supercenters and 419 Sam’s Clubs. it’s time to change their strategy just by opening more stores in the U.S.