Sam’s Clubs

GLOBAL INDUSTRY ANALYSIS - CASE STUDY

Wal*Mart Stores, Inc.
a presentation
p

1
Sam Walton
Founder of Wal*Mart Stores,,
Inc.
Performance of Wal*Mart
20-year average return on
equity of 33%
Compound average sales
growth of 35%
Market value = $
$57.5 billion
Wal*Mart Industry
average
Sales per $300 $210
square foot

WALMART
Background

2
Year 1988
CEO: David Glass
COO: Don Soderquist
How to sustain the company’s
phenomenal performance?
1987  1993
Net sales  15,959 67,345
Net Income 628 2,333
Number Of Stores
Number Of  Stores
Discount Stores 1,114 1,953
Sam’s Wholesale Clubs 84 419
Supercenters N.A. 68

WALMART
Background

3
Number of Stores (1994)

0 500 1000 1500 2000

Hypermarkets Warehouse Outlets
Warehouse Clubs Wal*Mart Stores

WALMART
Background

4
Where
g in the U.S.
Emerged CR5 (1986)
When 38%
Mid-1950s
Top 10 discounters in 1962 62%
Wal*Mart remained only
The industry became more
concentrated CR5 (1993)
Discount store companies
p 29%

operated 50 or more stores

accounted for 82%
71%

WALMART
Discount Retailing

5
 Discount Retailing Industry
30
wth

25%
ales Grow

20

10 9% 11.2%
7%
Sa

WALMART
Discount Retailing

6
Comparative Pricing Study, 1993

WALMART
Discount Retailing

7
Overall Performance of Discounters

WALMART
Discount Retailing

8
Year 1945
Ben Franklin franchise store
In 1950s
15 stores
Year 1962
Wal*Mart Discount City
store
Year 1969
18 Wal*Mart stores
15 Ben Franklin franchise
stores

WALMART
Wal*Mart’s Discount Stores
and History of Growth
9
Year 1970
30 discount stores in rural
states
South and Midwest
Cost of good sold
Build its own warehouse
− Buy in volume at
attractive prices
− Store the
merchandise
Year 1972
Took the company public
Raised $3.3
$3 3 million

WALMART
Wal*Mart’s Discount Stores
and History of Growth
10
Year 1993
West coast and
northeastern states
Year 1994
Operated in 47 states

WALMART
Wal*Mart’s Discount Stores
and History of Growth
11
Key strategies for growing
Locate store in isolated
rural areas and small towns
(population 5000~25000)
Pattern of expansion
Always push from inside
out
Mid-1980s
One third were located in
areas that were not served
by any of its competitors

WALMART
Wal*Mart’s Discount Stores
and History of Growth
13
Year 1993
55% of Wal*Mart faced
competition from Kmart
23% from Target
82% of Kmart faced
competition from Wal*Mart
85% of Target faced
competition from Wal*Mart

WALMART
Wal*Mart’s Discount Stores
and History of Growth
14
Philosophy
Keep prices below everybody else
Trip expenses can’t exceed 1% of the
purchases
Spent lots of time in his own store and
observe
b competitors
tit
Culture
Do not show off buying luxury goods
Success
The wayy it treated its associates

WALMART
Wal*Mart’s Discount Stores
and Sam’s Legacy
15
Management style
Maintain an open-door policy
Empowering associates
Maintain technology superiority
Build loyalty among associates,
customers,
t andd suppliers
li

WALMART
Wal*Mart’s Discount Stores
and Sam’s Legacy
16
Tailor to individual market or individual
store
Information system
A process which indexed product movements
in the store to over a thousand store and
market traits
Using inventory and sales data

WALMART
Wal*Mart’s Discount Stores
and Merchandising
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 Lower price

Promotional strategy
Everyday-low-prices Maximize sales
Minimize volume
Few promotions expenses and industry
turnover

13 major circulars per year

1993

Satisfaction guaranteed policy

WALMART
Wal*Mart’s Discount Stores
and Merchandising
20
Marketing slogan
Lower price
Store managers set up prices
2-4% pricing differential between Wal*Mart
and its best competitors in most markets in
early
l 1990s
1990

WALMART
Wal*Mart’s Discount Stores
and Merchandising
21
National brand strategy
Private label apparel
25% of apparel sales
Other private
Oth i t llabel
b l
26% price advantage
Also sold in Sam’s
Sam s Clubs and supercenters

“Buy American” program

WALMART
Wal*Mart’s Discount Stores
and Merchandising
22
 Strength Weakness
Costt advantage
C d t g Ignore store
Ig t d
decoration
ti
Low price & customer-oriented Since Wal-Mart sell products
Strong supply chain
Strong across manyy sectors ((such as
People are key to success clothing, food, or stationary), it
may not have the flexibility of
some of its more focused
competitors.
Opportunity
pp y Threat
Build its own brand Other competitors
Put efforts on social welfare Intense price competition
Æ better
b iimage
New locations and store types
Overseas markets

WALMART
Wal*Mart
and SWOT Analysis
 WALMART
Wal*Mart’s Discount Stores
and Store Operation
24
 WALMART
Wal*Mart’s Discount Stores
and Store Operation
25
Electronic scanning of
uniform product code
(UPC) at the POS
Ensure accurate pricing
Ensure
Improve efficiency
Reduce Shrinkage
Improve communications

WALMART
Wal*Mart’s Discount Stores
and Store Operation
26
Satellite system
Data collected and analyzed
Observing Merchandise
flow overstock,
flow, overstock discount
Video transmissions, credit
card authorizations, and
inventory control

WALMART
Wal*Mart’s Discount Stores
and Store Operation
27
Phenomenal
distribution
network
Two step p
hub-and-
spoke

WALMART
Wal*Mart’s Discount Stores
and Distribution
28
Phenomenal
distribution
network
Cross-
docking
technique

WALMART
Wal*Mart’s Discount Stores
and Distribution
29
Phenomenal
distribution
network
Distribution
center

Cost
advantage
Stable
price

WALMART
Wal*Mart’s Discount Stores
and Distribution
30
Phenomenal
distribution
network
p
Computeriz
ed pick to
light system

WALMART
Wal*Mart’s Discount Stores
and Distribution
31
 WALMART
Wal*Mart’s Discount Stores
and Distribution
32
Backward integration
No nonsense negotiator
Economies of scale
Maintain long term
relationship with supplier,
as powerful partner (RSP)

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
33
 WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
34
Backward integration
Electronic data interchange
(EDI)
CPFR
Forecasting
Planning
Replenishing
Shipping applications

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
35
 The CPFR Process Seller

Once
FRONT END AGREEMENT
Collaborative
Planning
Qtr. JOINT BUSINESS PLAN

CREATE SALES FORECAST

Collaborative
k, Mo

IDENTIFY EXCEPTIONS
Forecastingg
Wk

RESOLVE EXCEPTIONS

Collaborative
CREATE ORDER FORECAST
Replenishment
Wk, Mo

IDENTIFY EXCEPTIONS
W

RESOLVE EXCEPTIONS

GENERATE ORDER
Buyer 36
Backward integration
Vendor-managed inventory
(VMI) system
t
Wrangler
GE

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
37
Backward integration
From EDI to Retail link

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
38
Whole Supply chain
Economies of scale
C t lleadership
Cost d hi competitive
titi
advantage
JIT inventor
POS and retail link
CRS & VMI
EDI
CPFR

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
39
 Non-unionized
Decentralized: full autonomy
Profit sharing program
Y we can SSam
Yes
Store within store
Shrink incentive
Stock sharing
Administrative style
Frugality
No hierarchy in organization

WALMART
Wal*Mart’s Discount Stores
and Human Resource Management
41
 Firm Inferior fixtures standardization, Trucks, Average store size 84,000 

pport Activities
Infrastructure square feat  
Human Resource Non‐unionized, Full autonomy to associates, Decentralized, 
, y , ,
Management profit sharing program, Job rotation, Stock purchase plan
Technology UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite 
Development system, CPFR
Sup

Procurement Maintain long‐term relationship, No single supplier accounting for 
more than 2.4%, Selective suppliers ( P&G & GE), NO nonsense policy

VMI    Six days a  Two step  Everyday  ECR 

Margin
M
system week(9~21)  hub and  l
low price
i Satisfaction 
Retail link Monday spoke  Always low  guarantee 
price, 
EDI (12:30~17:30) distributing  policy
always
CPFR system Self service
Se se ce Quick 
Cash and  response 
carry (QR)
Save 
money, 
li b tt
live better
credit card, 
Layaway 
plan
Primaryy Inbound Outbound Marketing g After Sales
Activities Logistics O
Operations
ti Logistics & Sales Service

WALMART
Wal*Mart
and Value Chain
Historical Time Series
Wal*Mart opened
p the first
three Sam’s clubs in 1983
Sam’s sales surpassed Price
Club’s, making it the largest
wholesale club in 1987
In 1987,
1987 Wal
Wal*Mart
Mart
introduced its first
supercenter
p
In 1991, Wal*Mart acquired
“The Wholesale Club” with
28 outlets
l in the
h Midwest
d

WALMART
Diversification

43
In 1993,, Sales at Sam’s Club
rose 19.5% as the highest in
national warehouse club
chains, which Sam’s was
nearly twice the size of
Price Club
Sam’s Club acquired 99 of
Kmart’s 113 “Pace club” in
1993

WALMART
Diversification

44
Comparison

WALMART
Diversification

45
Backward Integration
Acquire “McLane
McLane Company
Company”
Texas retail grocery supplier
To service both Sam
Sam’ss Clubs
and supercenters

WALMART
Diversification

46
Warehouse clubs

WALMART
Diversification
and Sam’s Clubs
47
Operating philosophy
To offer a limited number
of SKUs in pallet-size
quantities in a no-frills,
warehouse-type building
Location
Often locate next to a
Wal*Mart
Sam’s chose to cannibalize
its own sales rather than
give competitors any
openings

WALMART
Diversification
and Sam’s Clubs
48
Payment
Discover card
Cash- and-carry
Membership Free
$ annually
$25
Business Hour
Seven days a week
Supply
Direct shipment
p from
supplier - 70%
Company’s distribution
centers - 30%

WALMART
Diversification
and Sam’s Clubs
49
Top Warehouse Clubs by 1993

WALMART
Diversification
and Sam’s Clubs
50
 Operating
Definition margins within the
industryy were extremelyy low-
 supermarkets was
A supercenter is a combination supermarket and 
a typical b k d
lucky to squeeze out a 2 %
discount store averaging 120,000 to 130,000 
profit square feet in size
margin f
margin.
 Industry trend
It contains bakeries, delis and convenience shops
Operating philosophy
Familiarity
Motivation
Low‐price image

WALMART
Diversification
and Supercenters
51
 ADefinition
supercenter is a combination
supermarket
p and discount
storeaveraging 120,000 to
A supercenter is a combination supermarket and 
b k d
130,000 square feet in size
discount store averaging 120,000 to 130,000 
 It contains bakeries
bakeries, delis and
square feet in size
f
convenience shops
It contains bakeries, delis and convenience shops
Operating philosophy
Familiarity
Definition
Low‐price image

WALMART
Diversification
and Supercenters
52
 Definition
Familiarity

A supercenter is a combination supermarket and 
b k d
Low-price image
discount store averaging 120,000 to 130,000 
square feet in size
f
It contains bakeries, delis and convenience shops
Operating philosophy
Familiarity Operating
Low‐price image Philosophy

WALMART
Diversification
and Supercenters
53
Definition
A supercenter is a combination supermarket and 
 b k d
discount store averaging 120,000 to 130,000 
square feet in size
f
It contains bakeries, delis and convenience shops
Operating philosophy
Familiarity
Layout
Low‐price image

WALMART
Diversification
and Supercenters
54
  450 associates
 Full-time
Staff - 70%
 Part-time
- 30%

WALMART
Diversification
and Supercenters
55
Business
Hours

 24 hours
 Seven days a
week

WALMART
Diversification
and Supercenters
56
Comparison

WALMART
Diversification
and Supercenters
57
  Year 1992
 Joint venture
 Cifra S.A.
S A (Mexico
(Mexico’ss largest
M i
Mexico retailer)
 63 stores (22 Sam’s Clubs, 11
Wal*Mart supercenters)

WALMART
Diversification
and International Expansion
58
 1994, March
 Acquire 122 Woolco
stores
p
 Woolworth Corp.

Canada

WALMART
Diversification
and International Expansion
59
South America
Plan to enter in
1995
Brazil &
Argentina

WALMART
Diversification
and International Expansion
60
Discount Store Competitors
Kmart High degree of concentration
Target High industry growth
Caldor Have excess capacity
Warehouse Clubs Cost structure of firms:
Price Club sensitive to cost
Costco B ’ switching
Buyer’s it hi g costt iis llow
Pace Firm can adjust prices quickly
Supercenter Price elasticity of demand
Meijer
Fred Meyer

WALMART
Wal*Mart
and Five Force Analysis
Supermarket Potential Entrant
Kroger They have distribution
Safeway Stores channels
Access to raw materials
Allocate favorable locations

WALMART
Wal*Mart
and Five Force Analysis
Key players Suppliers
Procter & Gamble Industry is concentrated
GE Many suppliers
Wrangler No-nonsense

WALMART
Wal*Mart
and Five Force Analysis
Discount Store Customers
Supercenter Low switching cost
General public Transportation cost
Warehouse clubs
Own business
Retailer

WALMART
Wal*Mart
and Five Force Analysis
c Please discuss the differences among discount stores,
superstores,
p , Supermarkets,
p , Sam’s club,, Hypermarket?
yp
Discount store
−grocery wholesale
k
Supermarkets
−fresh product wholesale
Superstores
−discount store + supermarkets
Sam’s club
−warehouse for ggroceryy and fresh p
product,, with
membership fees, the customers are business and
retailers
Hypermarket
−huge warehouse including clothing, grocery,
good, for one stop shop like a department store
run by one company
WALMART
Wal*Mart
and Case Discussion
d What pricing strategies that Wal-Mart discount stores
adopted
p to avoid p
price competition
p with other
discount stores? What actions that Wal-Mart had done
to cope with this pricing strategy?
Based on cost advantage
−Always low prices---Always
Stable price
−Stable
−Spent less on ad.
−Operating expenses are low
S
Store managers set up prices
i
Locate store in isolated rural areas and small towns
Buy its own warehouses
Buy at a best price (backward integration)

WALMART
Wal*Mart
and Case Discussion
e What the information system had helped Wal-Mart’s
business? Please list the ffunctions and how these
functions had helped Wal-Mart’s cost reduction?
Electronic scanning of uniform product code
(UPC) at the POS
−Ensure accurate pricing
p
−Improve efficiency
y
−Reduce Shrinkage
−Improve communications
Satellite system
−Data collected and analyzed
−Observing Merchandise flow, overstock, discount
Video transmissions
−Video transmissions, credit card authorizations
authorizations,
and inventory control
Electronic data interchange (EDI)
CPFR
WALMART
−CPFR
−Forecasting
−Planning Wal*Mart
−Replenishing and Case Discussion
−Shipping applications
 Q&A
Thank You for
Listening

68