Walmart Strategy

Introduction

Wal-Mart the world's largest retailer in 2006, next to only Exxon Mobil, with an 8.9% retail store market share in the US and a global turnover of $312 billion, is the most famous example of a successful retail strategy. However, Wal-Mart's international operations spread across 14 markets outside US, has been a mixed bag of experiences for the company. Despite Wal-Mart's impressive track record and strength, the question is, "How can it stay ahead?" given the rapidly changing retail landscape, newly emerging markets and aggressive global competitors.

Business Model

Wal-Mart operates under nine different retail formats through primarily three retailing subsidiaries: Wal-Mart Stores Division U.S., Sam's Club, and Wal-Mart International.

As per the Generic Strategies Framework of Michael Porter, Wal-Mart has adopted a strategy somewhere between "Focused Low-Cost" positioning and "Cost Leadership" where-in,

- Market scope-- Global operations cater to a diverse customer base. In the US price conscious low and middle income consumers with a focus on smaller towns.

- Source of competitive advantage--consistently low prices with high customer service and stringent cost control measures.

Global Strategic Intent:

- Dominate the retail space across the world

- Cash on the retail boom in emerging economies and capture market share

- Replicate the success achieved in the US markets and become the world's largest retailer

Financial Data For the last 5 years

Year Sales

(in $mn) Revenue Grth (YoY) NI

(in $mn) ROA ROE

2006 $312,427 9.538184 11,231 8.90% 22.50%

2005 285,222 11.27184 10,267 9.30% 22.60%

2004 256,329 11.63377 9,054 9.20% 21.30%

2003 229,616 12.55079 7,955 9.20% 20.90%

2002 204,011 12.84606 6,592 8.40% 19.40%

2001 $180,787 6,235 8.60% 21.30%

The United States Strategy

In the United States, Wal-Mart's chief competitors in low-end general merchandise include Home Depot, Sears Holdings Corporation's Kmart chain and Target. The following are its strategy highlights:

 Related Diversification:

 Wal-Mart's move into the grocery business has also positioned it against major grocery chains

 Subsection of some stores known as "Pennies-n-Cents" in response to the dollar store retailers.

 Venturing into web-based retailing through www.walmartstores.com

 Cost and Quality Emphasis

 Private Brand Labels which enjoy the average US consumer's mind share

 Focus on popular brands i.e. fast moving goods

 "Everyday Low Prices" strategy

 High labour productivity and low low labour costs

 Superiors bargaining power vis-Ðo-vis suppliers

 Recognizing Complementors

 Understanding that manufacturer / supplier is an economic partner

 Power brands like P&G working closely with Wal-Mart and reduce costs in its supply chain

Wal*Mart's Differentiated Peak: Competitive Advantage

Resource Commitments and Capabilities

Logistics and Supply Chain Management

Wal-Mart's Retail Link-system, the backbone of its sophisticated inventory management and logistics infrastructure, is the biggest civilian database in the world (second only to the Pentagon's, but holding three times more data than the US Internal Revenue Service's mainframes).

It is operating the world's biggest private satellite communications system, allowing it, amongst other things, to track sales, to replenish inventories and to process payments in real-time, and to regulate the temperature in individual stores.

IT Infrastructure

Wal-Mart's aggressive adoption of information technology to improve logistics and back-office efficiency has also been a major driver of productivity. Because of its heavy investment in information technology, Wal-Mart has worked hard to keep competitors from learning its secrets to success.

Each Wal-Mart store is electronically connected via a secure private network to Wal-Mart headquarters in Bentonville, Ark. It is able to track sales volume of each individual item rung up on cash registers at each store and automatically re-order and replenish inventory, across thousands of stores.

Corporate Culture

A strong emphasis on customer service, and highly motivated personnel (helped by a quasi-religious corporate culture) has been nurtured over the years. In doing so, Wal-Mart ratcheted up its own overall productivity -- and made it impossible for any competitor to survive without emulating its template. All the same its corporate culture has lent it a certain strategic complexity that makes it difficult to emulate.

Economies of Scale

The scale of Wal-Mart's operations has given it primarily two advantages:

- Learning