As of , J. Penney's global presence was minimal; only three of its 1, stores were located outside the United States - in Chile and in Mexico. In , Kmart was a wholly domestic company, deriving all of its sales revenues from its United States stores. Further, international sales as a percentage of Sears' total sales remained more or less constant from to Thus it is clear that Wal-Mart established a global presence at a far more rapid rate than did its three large United States competitors.
Carrefour's first international move outside France occurred in , when it entered Spain. In , Metro A. In , some 7 percent of its total sales were generated outside Germany compared with 4 percent in and 5 percent in As of that year, its degree of globalization was on a par with Wal-Mart's.
In , Metro took the major step of acquiring S. Makro of the Netherlands. Metro's consolidated sales revenues for are estimated at DM billion, out of which foreign sales would constitute 37 percent.
Wal-Mart succeeds in the United States simply by selling branded products at low cost. But that doesn't explain it all. Following is an analysis of Wal-Mart's competitive strategy.
Wal-Mart enjoyed scale economies in purchasing as a result of its more than 50 percent market share position in discount retailing. Though Wal-Mart may be the top customer for consumer product manufacturers, it deliberately did not become too dependent on any one vendor no single vendor constituted more than 4 percent of its overall purchase volume. Further, Wal-Mart had persuaded its nearly 3, vendors to have electronic "hook-ups" with stores to reduce overall order entry and processing costs for itself and its vendors.
In-bound logistics About 85 percent of all the merchandise that Wal-Mart sold was shipped through its distribution system to the stores competitors averaged less than 50 percent. Wal-Mart used a "saturation" strategy for store expansion. The standard was to be able to drive to a store within a day from a distribution center.
A distribution center was strategically placed so that it could eventually serve between and Wal-Mart stores within a day. Stores were first built as far away as possible but still within a day's drive of the distribution center; then the area was filled in back to the distribution center.
The distribution centers operated 24 hours a day using laser-guided conveyer belts and cross-docking techniques that received goods on one side while simultaneously filling orders on the other. The company owned a fleet of more than 3, trucks and 12, trailers most competitors outsourced trucking.
Wal-Mart had implemented a satellite network system that was used to share information between the company's network of stores, distribution centers and suppliers so orders could be consolidated, enabling the company to buy full truckloads without incurring excess inventory costs. Wal-Mart's distribution and logistics infrastructure saved transportation costs 2 percent to 3 percent cost advantage relative to competitors , increased flexibility, insured percent in-stock position and increased store selling space by reducing the space required for back-room inventory storage.
Store operations As a result of better management of stores, Wal-Mart enjoyed cost advantages and sales per square foot advantages versus competitors. These advantages were derived from several sources. Store location : In the early years, Wal-Mart's strategy was to build large discount stores in small rural towns.
The locations resulted in lower operating expenses, especially payroll and rent. Competitors, such as Kmart, which were focused on large towns with populations of more than 50,, ignored Wal-Mart. This built effective entry barriers as it became highly uneconomical for competitors to enter regions Wal-Mart had already saturated.
Human resource management : Wal-Mart created a dedicated work force - with higher labor productivity, lower turnover and excellent customer service - offering profit sharing, incentive bonuses and discount stock purchase plans; promotion from within; promotion and pay raises based on performance, not seniority, and an open door policy. Management information and control systems : Wal-Mart's management information and control systems helped the company manage its more than 3, stores in remote places thousands of miles away from headquarters.
Store-level data were collected, analyzed and transmitted electronically to see how a particular region, district, store, department within a store or item was performing.
This eliminated stock-outs, reduced the need for markdowns on slow-moving stock and maximized inventory turnover. The benchmark information across stores was also a valuable tool to help "problem" stores.
Shoplifting controls : Wal-Mart has cut its pilferage-related losses by instituting a policy in which 50 percent of the savings created by pilferage decreases in a particular store versus the industry standard is shared among store employees.
Marketing Wal-Mart's marketing strategy was to guarantee "everyday low prices" as a way to attract customers. The traditional discount retailer, which relies on "sales," not only has to do more advertising and promotions but also has to rely more on catalog mailing, buildup of inventory before a sale, markdowns on the unsold inventory, etc.
Due to the positioning of the distribution centres, Walmart has been able to carry out cross-docking at their warehouses. The products that have arrived from manufacturers are directly loaded onto a truck headed for a Walmart store without being offloaded and stored in the warehouse. This practice greatly reduces transportation costs, storage costs, and labour costs.
Conclusion: Profitworks agrees this was the right strategy for Walmart. Whether being an industry leader in supply chain management is the right strategic focus for your company depends on the business and industry you operate in.
Beginning in the 's, Walmart made the key strategy shift to deal directly with manufacturers. Many large manufacturers and suppliers rely on Walmart for a big portion of their revenue, some for more than 20 percent. Walmart as the leading retailer with its large network of stores around the world has tremendous bargaining power against its manufacturers and Walmart is very good at leveraging that bargaining power. This pressure from Walmart to lower prices has driven many manufacturing companies to lay off workers to enhance efficiency in their factories.
Countless American manufacturers had to outsource their production to countries where labour costs are lower just to be able to accept the prices that Walmart dictated to them and still stay afloat. Smaller companies that could not compete went bankrupt. In , Walmart said that 6 percent of its total merchandise was imported. A decade later, experts estimated that Walmart imported about 60 percent of its merchandise.
In addition, Walmart has consolidated all of its point-of-sales data, warehouse inventory levels, and real-time sales data and built a large and comprehensive database called Retail Link. It took many years to perfect and cost about 4 billion dollars. This is an industry-leading software that is able to perform analysis and deliver insight into customer behaviour.
Walmart shared this software with its manufacturers and suppliers at no cost so they would know exactly when to ship more products to Walmart stores and how many products need to be shipped. Walmart presented it as a way for suppliers to partner with Walmart to improve efficiency in inventory management and meeting customer needs. With the help of the information provided by Retail Link, the suppliers are held responsible for making sure that customer demands are consistently met and the shelves are always well-stocked with the exact mix of products that customers want at the price that the customers are willing to pay.
It is commonly heard that many small to mid-size businesses view getting their products onto the shelves of Walmart as winning an Olympic gold medal. It is reported that in , about 10, new suppliers applied to become Walmart vendors. Of those, only about , or 2 percent, were ultimately accepted. In fact, Walmart leverages its bargaining power by dictating the terms of its contracts with the suppliers on price, volume, delivery schedule, packaging, and quality.
These savings are in turn passed onto Walmart customers in form of lower prices. In short, Walmart used its giant market share and its information about consumer behaviour to force vendors to cut their costs and keep their profit margins low. As mentioned earlier in this article, this intense pressure to squeeze the margins of the manufacturers and suppliers has caused many smaller to mid-sized companies to falter and eventually go bankrupt, while forcing larger manufacturers to look for cheaper labour abroad to keep the prices low.
Conclusion: Profitworks agrees that for many businesses dealing directly with suppliers and building strong relationships with the source supplier will be beneficial. Customers begin to shop elsewhere, sales and profits decline, and Wal-Mart joins the list of retailers struggling to keep their heads above water. Running smooth and lean is the only option. If pennies matter to customers, they need to matter even more to Wal-Mart and its employees. Because Wal-Mart has a clearly defined purpose and a culture that supports that purpose, employees, job candidates, and customers all know what to expect when they arrive.
This expectation helps drive the right people to the business. However, if you want to save money or are passionate about helping others do so, Wal-Mart is a good fit. Creating genuine alignment in any business comes down to effective marketing to customers and job seekers alike. At Wal-Mart, for example, if new recruits are personally cost-conscious and frugal, they will stay focused on what is important to them and ultimately to Wal-Mart and its customers.
If they are not, they will quickly stray when the opportunity arises, execute on the wrong things, hold Wal-Mart back from its true potential, and experience less success than those who are properly aligned within the business.
Believing what the organization believes is key. This translates into honest and personal connections and a sincere interest in helping fulfill the intended purpose.
Walton changed the face of retail through his commitment to balancing purpose and execution in his business. For example, in September , Walmart bought Jet. More and more people are moving toward online shopping rather than leaving the house, and Walmart is making sure to keep up with this trend.
It also has an app, so customers are able to browse and buy when they are out and about and on the go. The company recently announced a 2-step wage increase for its workers in the US, which was a huge deal. It is constantly coming up with new innovative tools and products, and Walmart is doing its very best to catch up.
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