Wal-Mart
Abstract Sam Walton, a leader with an
innovative vision, started his own company
and made it into the leader in
discount retailing that it is today. Through his
savvy, and sometimes
unusual, business practices, he and his associates led the
company forward
for thirty years. Today, four years after his death, the company
is still
growing steadily. Wal-Mart executives continue to rely on many of
the
traditional goals and philosophies that Sam's legacy left behind,
while
simultaneously keeping one step ahead of the ever-changing technology
and
methods of today's fast-paced business environment. The organization has
faced,
and is still facing, a significant amount of controversy over several
different
issues; however, none of these have done much more than scrape the
exterior of
this gigantic operation. The future also looks bright for
Wal-Mart, especially
if it is able to strike a comfortable balance between
increasing its profits and
recognizing its social and ethical
responsibilities. Why is Wal-Mart so
Successful? Is it Good Strategy or
Good Strategy Implementation? -- In 1962,
when Sam Walton opened the first
Wal-Mart store in Rogers, Arkansas, no one
could have ever predicted the
enormous success this small-town merchant would
have. Sam Walton's talent for
discount retailing not only made Wal-Mart the
world's largest retailer, but
also the world's number one retailer in sales.
Indeed, Wal-Mart was named
"Retailer of the Decade" by Discount Store
News in 1989, and on several
occasions has been included in Fortune's list of
the "10 most admired
corporations." Even with Walton's death (after a
two-year battle with bone
cancer) in 1992, Wal-Mart's sales continue to grow
significantly. The
Wal-Mart Philosophy -- Wal-Mart is successful not only
because it makes sound
strategic management decisions, but also for its
innovative implementation of
those strategic decisions. Regarded by many as the
entrepreneur of the
century, Walton had a reputation for caring about his
customers, his
employees (or "associates" as he referred to them), and
the community. In
order to maintain its market position in the discount retail
business,
Wal-Mart executives continue to adhere to the management guidelines
Sam
developed. Walton was a man of simple tastes and took a keen interest
in
people. He believed in three guiding principles: 1. Customer value and
service;
2. Partnership with its associates; 3. Community involvement
(The Story of
Wal-Mart, 1995). The Customer -- The word "always" can be
seen in
virtually all of Wal-Mart's literature. One of Walton's deepest
beliefs was that
the customer is always right, and his stores are still
driven by this
philosophy. When questioned about Wal-Mart's secrets of
success, Walton has been
quoted as saying, "It has to do with our desire to
exceed our customers'
expectations every hour of every day" (Wal-Mart Annual
Report, 1994, p. 5).
The Associates -- Walton's greatest accomplishment
was his ability to empower,
enrich, and train his employees (Longo, 1994). He
believed in listening to
employees and challenging them to come up with ideas
and suggestions to make the
company better. At each of the Wal-Mart stores,
signs are displayed which read,
"Our People Make the Difference." Associates
regularly make
suggestions for cutting costs through their "Yes We Can Sam"
program.
The sum of the savings generated by the associates actually paid
for the
construction of a new store in Texas (The story of Wal-Mart, 1995).
One of
Wal-Mart's goals was to provide its employees with the appropriate
tools to do
their jobs efficiently. The technology was not used as a means of
replacing
existing employees, but to provide them with a means to succeed in
the retail
market (Thompson & Strickland, 1995). The Community --
Wal-Mart's popularity
can be linked to its hometown identity. Walton believed
that every customer
should be greeted upon entering a store, and that each
store should be a
reflection of the values of its customers and its
community. Wal-Mart is
involved in many community outreach programs and has
launched several national
efforts through industrial development grants. What
are the Key Features of
Wal-Mart's Approach to Implementing the Strategy
Put Together by Sam Walton --
The key features of Wal-Mart's approach to
implementing the strategy put
together by Sam Walton emphasizes building
solid working relationships with both
suppliers and employees, being aware
and taking notice of the most intricate
details in store layouts and
merchandising techniques, capitalizing on every
cost saving opportunity, and
creating a high performance spirit. This strategic
formula is used to provide
customers access to quality goods, to make these
goods available when and
where customers want them, to develop a cost structure
that enables
competitive pricing, and to build and maintain a reputation for
absolute
trustworthiness (Stalk, Evan, & Shulman, 1992). Wal-Mart stores
operate
according to their "Everyday Low Price" philosophy. Wal-Mart
has emerged as
the industry leader because it has been better at containing its
costs which
has allowed it to pass on the savings to its customers. Wal-Mart has
become a
capabilities competitor. It continues to improve upon its key
business
processes, managing them centrally and investing in them heavily for
the long
term payback. Wal-Mart has been regarded as an industry leader in
"testing,
adapting, and applying a wide range of cutting-edge
merchandising
approaches" (Thompson & Strickland, 1995, p. 860). Walton
proved to be
a visionary leader and was known for his ability to quickly
learn from his
competitors' successes and failures. In fact, the founder of
Kmart once claimed
that Walton "not only copied our concepts, he strengthened
them. Sam just
took the ball and ran with it" (Thompson & Strickland,
1995, p. 859).
Wal-Mart has invested heavily in its unique cross-docking
inventory system.
Cross docking has enabled Wal-Mart to achieve economies
of scale which reduces
its costs of sales. With this system, goods are
continuously delivered to stores
within 48 hours and often without having to
inventory them. Lower prices also
eliminate the expense of frequent sales
promotions and sales are more
predictable. Cross docking gives the individual
managers more control at the
store level. A company owned transportation
system also assists Wal-Mart in
shipping goods from warehouse to store in
less than 48 hours. This allows
Wal-Mart to replenish the shelves 4 times
faster than its competition. Wal-Mart
owns the largest and most sophisticated
computer system in the private sector.
It uses a MPP (massively parallel
processor) computer system to track stock and
movement which keeps it abreast
of fast changes in the market (Daugherty, 1993).
Information related to
sales and inventory is disseminated via its advanced
satellite communications
system. Wal-Mart has leveraged its volume buying power
with its suppliers. It
negotiates the best prices from its vendors and expects
commitments of
quality merchandise (Thompson & Strickland, 1995). The
purchasing agents
of Wal-Mart are very focused people. "Their highest
priority is making sure
everybody at all times in all cases knows who's in
charge, and it's Wal-Mart"
(Vance & Scott, 1995, p. 32). "Even
though Wal-Mart was tough in
negotiating for absolute rock-bottom prices, the
company worked closely with
suppliers to develop mutual respect and to forge
long-term partnerships that
benefited both parties" (Thompson &
Strickland, 1995, p. 866).
Wal-Mart built an automated reordering system linking
computers between
Procter & Gamble ("P&G") and its stores and
distribution centers. The
computer system sends a signal from a store to P&G
identifying an item
low in stock. It then sends a resupply order, via satellite,
to the nearest
P&G factory, which then ships the item to a Wal-Mart
distribution center
or directly to the store. This interaction between Wal-Mart
and P&G is a
win-win proposition because with better coordination, P&G
can lower its
costs and pass some of the savings on to Wal-Mart. Sam Walton
received
national attention through his "Buy America" policy. Through
this plan,
Wal-Mart encourages its buyers and merchandise managers to stock
stores with
American-made products. In a 1993 annual report management stated
the
"program demonstrates a long-standing Wal-Mart commitment to our
customers
that we will buy American-made products whenever we can if those
products
deliver the same quality and affordability as their
foreign-made
counterparts" (Thompson & Strickland, 1995, p. 868).
Environmental
concerns are important to Wal-Mart. A prototype store was
opened in Lawrence,
Kansas, which was designed to be environmentally
friendly. The store contains
environmental education and recycling centers
(Slezak, 1993). Wal-Mart has also
adopted the low cost theme for its
facilities. All offices, including the
corporate headquarters, are built
economically and furnished simply. To conserve
energy, temperature controls
are connected via computer to headquarters. Through
these programs, Wal-Mart
shows its concern for the community. Wal-Mart has been
led from the top but
run from the bottom, a strategy developed by Sam Walton and
carried on by a
small group of senior executives led by CEO David Glass.
Although recent
growth has led Wal-Mart to add more management layers, senior
executives
strive to maintain its unique culture. This culture, described as
"one part
Southern Baptist evangelism, one part University of Arkansas
Razorback
teamwork, and one part IBM hardware" has worked to Wal-Mart's
advantage
(Saporito, 1994, p. 62). Just how Successful is Wal-Mart? -- A
forecast (see
Appendix A) of Wal-Mart's income for the period 1995-2000,
considering
increases of 30.6% in Net Sales, 27.7% in Operating Expenses, and
52.3%
in Interest Debt (a level which is below Wal-Mart's historically
compounded
growth rate of 55.6%) indicates that the company should continue to
report
gains each year until 2000. Growth on Sales -- According to most analysts
and
company projections, sales should approximate $115 billion by
1996,
representing an increase of 30.6% as compared to 1995. If the company
continues
at this pace, sales should reach $334 billion by the year 2000. The
growth on
sales that Wal-Mart reported during the 1980s and the beginning of
the 1990s
will be difficult to repeat, especially considering the
ever-changing
marketplace in which it competes. In an interview, Bill Fields,
President of the
Stores Division, said "Wal-Mart is now seeing price
pressure from companies
that once assiduously avoided taking it on. These
include specialty retailers
such as Limited, category killers like Home Depot
and Circuit City, and catalog
companies like Spiegel. I think everybody
prices off of Wal-Mart. You've got
Limited reaching levels we'd thought
they'd never get to. The result is that
everyday low prices are getting
lower" (Saporito, 1994, p. 66). In
addition, the baby-boomers are reaching
their peak earnings years, when
financial and personal priorities change.
Thus, savings, not spending, will
likely take precedence because most
baby-boomers are approaching retirement.
Debt Position -- Based on
Wal-Mart's position in 1994, which was considered a
year of expansion for the
company, (Wal-Mart added 103 new discount stores, 38
"Supercenters", 163
warehouse clubs, and 94,000 new associates)
interest debt increased 52.3%.
The cost paid by Wal-Mart to finance property
plants and equipment forced the
company to increase long term debt by 4.6 times
during the period 1991-1995.
Long term debt for 1995 is $7.9 billion. If
Wal-Mart continues its
expansion plans based on more debt acquisition at 1994
levels, the company
may not attain forecasted gains by as early as 1998.
Operating Expenses
-- Operating expenses will be a key strategic issue for
Wal-Mart in order
to maintain its position in the market. The challenge is how
to run more
stores with less operating expenses. According to Bill Fields,
". . . the
goal is to increase sales per square foot and drive operating
costs down yet
another notch" (Saporito, 1994, p. 66). Trends indicate that
operating
expenses have been growing at a rate of 27.7% in recent years.
However,
Wal-Mart should reap the benefits of its investments in high
technology, and
be able to operate more stores without increasing its expenses.
Cost of
Sales -- Cost of sales historically has been equal to the level of
sales. If
the company continues to take advantage of its buying power, Wal-Mart
can
expect to lower its cost of sales. Wal-Mart's future will depend on how
well
the company manages its expansion plans. For the coming years, the
company will
need to justify its expansion plans with consistent growth in
sales, in order to
offset the increases in debt interest and operating
expenses. What Problems are
Ahead for Wal-Mart? What Risks? -- Throughout
the 1980s, Wal-Mart's strategic
intent was to unseat industry leaders Sears
and Kmart, and become the largest
retailer in the U.S. Wal-Mart accomplished
this goal in 1991. But Wal-Mart's
current strong competitive position and its
past rapid growth performance can't
guarantee that the company will remain as
the industry leader or maintain its
strong business position in the future.
Carol Farmer, a retail consultant, told
the Wall Street Journal that, "One
little bad thing can wipe out lots of
good things" (Trimble, 1990, p. 267).
Every move in its business operation
ought to be well thought-out and
executed. Wal-Mart needs to address two major
areas in order to maintain or
to capture an even stronger long term business
position: 1) Single-business
strategy -- Wal-Mart's success is mainly based on
its concentration of a
single-business strategy. This strategy has achieved
enviable success over
the last three decades without relying upon
diversification to sustain its
growth and competitive advantages. Given its
current position in the
industry, Wal-Mart may want to continue its
single-business strategy and to
push hard to maintain and increase market share.
However, there is risk
in this strategy, because concentration on a
single-business strategy is
similar to "putting all of a firm's eggs in one
industry basket" (Thompson
& Strickland, 1995, p. 187). In other words,
if the retail industry
stagnates due to an economic downturn, Wal-Mart might
have difficulty
achieving past profit performance. Also, if Wal-Mart continues
to follow Sam
Walton's vision of expansion, Wal-Mart will reach its peak in the
very near
future. When it does, its growth will start to slow down and the
company will
need to turn its strategic attention to diversification for future
growth. 2)
Social responsibility -- Retail stores can compete on several bases:
service,
price, exclusivity, quality, and fashion. Wal-Mart has been
extremely
successful in competing in the retail industry by combining
service, price, and
quality. However, other merchants may object to
Wal-Mart's entry into their
community. Because of its ability to out-price
smaller competitors, Wal-Mart's
stores threaten smaller neighborhood stores
which can only survive if they offer
merchandise or services unavailable
anywhere else. This makes it very hard for
small businesses, such as
"mom-and-pop" enterprises, to survive. They,
therefore, fight to keep
Wal-Mart from entering their locales. Numerous studies
conducted in different
states both support and criticize Wal-Mart (Verdisco,
1994).
Nevertheless, Wal-Mart did drive local merchants out of business when
it
opened up stores in the same neighborhood. As a result, more and more
rural
communities are waging war against Wal-Mart's entrance into their
market.
Besides protesting and signing petitions to attempt to stop
Wal-Mart's entry
into their community, the opposition's efforts can even be
found on The
Internet. Gig Harbor, a small town in Washington, recently
started a World Wide
Web page entitled "Us Against the Wal." The town's
neighborhood
association promised that they "will fight them [Wal-Mart] tooth
and
nail" (PNA/Island Aerie Internet Productions, 1995/1996). The
increasing
opposition indicates that the road ahead for Wal-Mart may not be
as smooth as
Wal-Mart's annual report would entail. This requires
Wal-Mart to rethink its
expansion strategy since it would not be profitable
to operate in an unfriendly
community. How Big Will Wal-Mart be in Five Years
if all Continues to go Well?
-- Before he died, Sam Walton expressed his
belief that by the year 2000
Wal-Mart should be able to double the number
of stores to about 3,000 and to
reach sales of $125 billion annually. Walton
predicted that the four biggest
sources of growth potential would be the
following: 1. expanding into states
where it had no stores; 2. continuing to
saturate its current markets with new
stores; 3. perfecting the Supercenter
format to expand Wal-Mart's retailing
reach into the grocery and supermarket
arena -- a market with annual sales of
about $375 billion; 4. moving into
international markets (Thompson &
Strickland, 1995). Wal-Mart
Supercenters represent leveraging on customer
loyalty and procurement muscle
in order to create a new domestic growth vehicle
for the company. With few
locations left in the U.S. to put a new Sam's Club or
traditional Wal-Mart,
the Supercenter division has emerged as the domestic
vehicle for taking
Wal-Mart to $100 billion in sales. Before the Supercenter,
Walton
experimented with a massive "Hypermart", encompassing more than
230,000
square feet in size. The idea failed. Customers complained that the
produce
was not fresh or well-presented and that it was difficult to find things
in a
store so big that inventory clerks had to wear roller skates. One
of
Walton's philosophies was that traveling on the road to success
required failing
at times. As a result of the unsuccessful experiment, Walton
launched a revised
concept: the Supercenter, a combination discount and
grocery store that was
smaller than the Hypermart. The Supercenter was
intended to give Wal-Mart
improved drawing power in its existing markets by
providing a one-stop shopping
destination. Supercenters would have the full
array of general merchandise found
in traditional Wal-Mart stores, as well as
a full-scale supermarket,
delicatessen, fresh bakery, and other specialty
shops like hair salons, portrait
studios, dry cleaners, and optical wear
departments. Supercenters would measure
125,000 to 150,000 square feet,
and target locations where sales per store of
$30 to $50 million annually
were feasible. Walton's prediction was right on
target. The Supercenter
division more than doubled in size during 1993, then
doubled again in 1994.
Supercenters, once thought of as risky because of slim
profit margins on the
food side, will most likely make Wal-Mart the nation's
largest grocery
retailer within the next five to seven years (Longo, 1994).
Expanding
overseas, Wal-Mart moved into the international market in 1991 through
a
joint-venture partnership with CIFRA S.A. de C.V., Mexico's leading
retailer.
Since then the company has entered Canada, Hong Kong, mainland
China, Puerto
Rico, Argentina, and Brazil. The Wal-Mart International
Division was officially
formed in 1994 to manage the company's international
growth. By the year 2000,
analysts expect Wal-Mart to be a huge international
retailer, with numerous
locations in South America, Europe, and Asia.
Conclusion -- The ever-changing
market presents continuing challenges to
retailers. First and foremost,
retailers must recognize the strong
implications of a "buyers' market"
(Lewison, 1994). Customers are being
offered a wide choice of shopping
experiences, but no one operation can
capture them all. Therefore, it is
incumbent upon management to define their
target market and direct their
energies toward solving that specific market's
problems. Technology,
demographics, consumer attitudes, and the advent of a
global economy are all
conspiring to rewrite the rules for success. Success
in the next decade will
depend upon the level of understanding retailers have
about the new values,
expectations, and needs of the customer. If Wal-Mart
continues its
customer-driven culture, it should remain a retail industry
leader well into the
next century.
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