As the largest supermarket, Wal*Mart is facing the new challenges: it is the target for all of its competitors. Its competitors will study its business model. The management of Wal*Mart needs to find suitable solutions to sustain a stable growth rate. At the end of 1993, Wal*Mart had a market value of $57.5 billion, and its sales per square foot were nearly $300, compared with the industry average of $210. The supercenter format had produced impressive growth, with sales in 1993 increasing to $14.6 billion from $11.8 billion in 1992. Based on the data provided in the case, we can find that Wal*Mart’s discount store’s net income per square foot of $18 compared with Target’s ...view middle of the document...
So Wal*Mart should also extend its organic food sale to keep its competitive advantage.
Discount store, Sam’s Club, and Supercenter composed the whole business of Wal*Mart. Based on Generic Business Strategies, Wal*Mart Targets multiple market segments. I will analyze its Cost Leadership and Differentiation strategies.
Wal*Mart’s current business strategy had already brought lower costs than its rivals.
First of all, Wal*Mart leased about 70% of Wal*Mart stores and owned the rest. In 1993, Wal*Mart’s rental expense was 3% of discount store sales, compared to an average 3.3% for direct competitors. Wal*Mart did not build a discount store at a location where it could not be expanded at a later date. In early 1990, 45% of Wal*Mart stores were three years old or less, and only 15% were more than 8 years old, compared with 10% and 85% for Kmart, respectively. The newer store would not only reduce the maintenance expense, but also raise the customer satisfaction. Its sales per square foot of $300 compared with Target’s at $209 and Kmart’s at $147. A Wal*Mart store devoted 10% of its square footage to inventory, compared with an industry average of 25%. Its operating expenses were 18.1% of discount store sales in 1993, versus the industry average of 24.6%.
With “cross-docking” technology, Wal*Mart’s cost of inbound logistics, which was part of cost of goods sold, to be 3.7% of discount store sales, compared with 4.8% for its direct competitors in 1993. With vendor-managed inventory systems, both Wal*Mart and its vendors benefited from reduced inventory costs and increased sales.
Finally, the shrink incentive plan provided associates yearly bonuses if their store held shrinkage below the company’s goal. Shrinkage cost was estimated to be approximately 1.7% of Wal*Mart discount store sales in 1993, compared with an average 2% for direct competitors. These technologies helped Wal*Mart reduce cost, and they were Support Activities of Value Chain Elements for Low-Cost Leaders.
Wal*Mart also offered a lower price, and it gave its store managers more latitude in setting prices than did “centrally priced” chains. By the early 1990s, there was a 2%–4% pricing differential between Wal*Mart and its best competitors in most markets, such as Kmart, Target.
The most important ingredient in Wal*Mart’s success was the way it treated its associates. This culture make its associates provide good service to its customers. Customers walking into a Wal*Mart store were met by a “People Greeter,” an associate who welcomed them and handed out shopping carts. Customers can also choose different payment method.
The local store manager, using inventory and sales data, chose which products to display based on customer preferences, and allocated shelf space for a product category according to the demand at his or her store. Wal*Mart’s promotional strategy of “everyday-low-prices” meant offering customers brand name merchandise for...