Walmart Initial

 What are elements of Walmart’s initial competitive position and how did these enable strong economic profits?

Competitive Position

• Discount retailing - challenged traditional department stores by offering lower prices.

• premium on imitation and adaptation; “borrowing” specific ideas from all over the world: self-service, greeters , calling employees “associates, SAM’s Club and Hypermart USA.

• frugality and a plain-folks manner. Emphasis on taking care of employees and tightly controlled compensation at all levels. pride in the idea tha Wal-Mart had its own way of doing things—and moments of shared fun.

• ROIC > rate of capital (since steady ROE ~21, RoA ~8 and rising NI; period: 1994-2003)

• Procurement bargained hard + tried to build partnerships with a widening circle of suppliers.

• sharing of information electronically. electronic data interchange (EDI) + Retail Link

• Distribution by building stores within a day’s drive of the distribution center.

• inventory turns as a key measure of the overall performance to 7.6 by 2003

• Innovation had helped keep its distribution costs the lowest in the industry. large-scale “cross-docking” to transfer merchandise directly from inbound trucks to store-bound trucks without ever storing the goods in its distribution centers.

• Merchandising and Marketing achieving very high sales per square foot by offering a broad assortment of merchandise at consistently low prices in cheap but cheerful stores.

• stocked a mix of nationally branded and private label products.

• “Volume Producing Item” contest between top managers to search for and champion items with high potential revenues

• capability to uniquely merchandise each store let Wal-Mart offer more variety than competitors as well as reduce stockouts.

• EDLP (everyday low prices) retailer; atleast 2-4% pricing differential b/w walmart and its competitors

• Do well by doing good : community involvement by contribution to local charities, scholarship funding and in-store charity events

• Stores: cheap but cheerful ambiance; the stores were ringed around Wal-Mart’s distribution centers, and the Discount Stores and Supercenters in particular remained relatively concentrated in small towns and rural areas

• -open ~24 hours a day

• Ultimate objective was always efficiency rather than decentralization

• tight