Sam’s Clubs

GLOBAL INDUSTRY ANALYSIS - CASE STUDY

Wal*Mart Stores, Inc.
a presentation
Anthony, Crystal, Sandy From YZU university
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
Industry
Wal*Mart
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
Discount Stores 1,114 1,953
Sam’s Wholesale Clubs 84 419
Supercenters N.A. 68

WALMART
Background
3
Number of Stores (1994)

WALMART
Background
4
Where
Emerged in the U.S.
When
Mid-1950s
Top 10 discounters in 1962
Wal*Mart remained only
The industry became more
concentrated
Discount store companies
operated 5 or more stores
accounted for 62%

WALMART
Discount Retailing
5
WALMART
Discount Retailing
6
Comparative Pricing Study, 1993

WALMART
Discount Retailing
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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 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
Wal*Mart faced 55%
(Kmart), 23% (Target)
Kmart 82%, Target 85% 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 competitors
Culture
Do not show off buying luxury goods
Success
The way 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, and suppliers

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
18
Promotional strategy
Everyday-low-prices
Few promotions
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 1990s

WALMART
Wal*Mart’s Discount Stores
and Merchandising
21
• Transportation cost
圖

22
National brand strategy
Private label apparel
25% of apparel sales
Other private label
26% price advantage
Also sold in Sam’s Clubs and supercenters

“Buy American” program

WALMART
Wal*Mart’s Discount Stores
and Merchandising
23
 Strength
Cost advantage
Low price & customer-oriented
Strong supply chain
People are key to success
Opportunity
Build its own brand
Put efforts on social welfare
 better image
New locations and store types
Overseas markets
Weakness
Ignore store decoration
Since Wal-Mart sell products
across many sectors (such as
clothing, food, or stationary), it
may not have the flexibility of
some of its more focused
competitors.
Threat
Other competitors
Intense price competition
WALMART
Wal*Mart’s Discount Stores
and SWOT Analysis
 WALMART
Wal*Mart’s Discount Stores
and Store Operation
25
 WALMART
Wal*Mart’s Discount Stores
and Store Operation
26
Electronic scanning of
uniform product code
(UPC) at the POS
Ensure accurate pricing
Improve efficiency
Reduce Shrinkage
Improve communications

WALMART
Wal*Mart’s Discount Stores
and Store Operation
27
Satellite system
Data collected and analyzed
Observing Merchandise
flow, overstock, discount
Video transmissions, credit
card authorizations, and
inventory control

WALMART
Wal*Mart’s Discount Stores
and Store Operation
28
Phenomenal
distribution
network
Two step
hub-and-
spoke

WALMART
Wal*Mart’s Discount Stores
and Distribution
29
Phenomenal
distribution
network
Cross-
docking
technique

WALMART
Wal*Mart’s Discount Stores
and Distribution
30
Phenomenal
distribution
network
Distribution
center

Cost
advantage
Stable
price

WALMART
Wal*Mart’s Discount Stores
and Distribution
31
Phenomenal
distribution
network
Computeriz
ed pick to
light system

WALMART
Wal*Mart’s Discount Stores
and Distribution
32
 WALMART
Wal*Mart’s Discount Stores
and Distribution
33
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
34
 WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
35
Backward integration
Electronic data interchange
(EDI)
CPFR
Forecasting
Planning
Replenishing
Shipping applications

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
36
 The CPFR Process Seller

FRONT END AGREEMENT

Collaborative
JOINT BUSINESS PLAN Planning

CREATE SALES FORECAST

Collaborative
IDENTIFY EXCEPTIONS Forecasting
RESOLVE EXCEPTIONS

Collaborative
CREATE ORDER FORECAST
Replenishment
IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

GENERATE ORDER
Buyer 37
Backward integration
Vendor-managed inventory
(VMI) system
Wrangler
GE

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
38
Backward integration
From EDI to Retail link

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
39
Whole Supply chain
Economies of scale
Cost leadership competitive
advantage
JIT inventor
POS and retail link
CRS & VMI
EDI
CPFR

WALMART
Wal*Mart’s Discount Stores
and Vendor Relationships
40
 Non-unionized
Decentralized: full autonomy
Profit sharing program
Yes we can Sam
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
42
 Firm Inferior fixtures standardization, Trucks, Average store size 84,000
Infrastructure square feat
Human Resource Non-unionized, Full autonomy to associates, Decentralized,
Management
profit sharing program, Job rotation, Stock purchase plan
Technology UPC at POS, EDI, Information system, VMI ,Cross ducking , Satellite
Development system, CPFR
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
system week(9~21) hub and low price Satisfaction
Retail link spoke Always low guarantee
EDI Monday distributing price, policy
CPFR (12:30~17:30) system always Quick
Self service response
Cash and (QR)
carry
Save
money,
live better
credit card,
Primary Inbound Outbound Layaway
Marketing After Sales
Operations plan
Activities Logistics Logistics & Sales Service

WALMART
Wal*Mart’s Discount Stores
and Value Chain
Historical Time Series
Wal*Mart opened 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, Wal*Mart
introduced its first
supercenter
In 1991, Wal*Mart acquired
“The Wholesale Club” with
28 outlets in the Midwest

WALMART
Diversification
44
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
45
Comparison

WALMART
Diversification
46
Backward Integration
Acquire “McLane Company”
Texas retail grocery
supplier
To service both Sam’s Clubs
and supercenters

WALMART
Diversification
47
Warehouse clubs

WALMART
Diversification
and Sam’s Clubs
48
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
49
Payment
Discover card
Cash- and-carry
Membership Free
$25 annually
Business Hour
Seven days a week
Supply
Direct shipment from
supplier - 70%
Company’s distribution
centers - 30%

WALMART
Diversification
and Sam’s Clubs
50
Top Warehouse Clubs by 1993

WALMART
Diversification
and Sam’s Clubs
51
 Operating margins within the
industry were extremely low- a
typical supermarkets was lucky
to squeeze out a 2 % profit
margin.
 Industry trend

Motivation

WALMART
Diversification
and Supercenters
52
 A supercenter is a combination
supermarket and discount store
averaging 120,000 to 130,000
square feet in size
 It contains bakeries, delis and
convenience shops

Definition

WALMART
Diversification
and Supercenters
53
Familiarity
Low-price image

Operating
Philosophy

WALMART
Diversification
and Supercenters
54
 Layout

WALMART
Diversification
and Supercenters
55
  450 associates
 Full-time
- 70%
Staff  Part-time
- 30%

WALMART
Diversification
and Supercenters
56
  24 hours
 Seven days a
week

WALMART
Diversification
and Supercenters
57
WALMART
Diversification
and Supercenters
58
 1994, March
 Acquire 122 Woolco
stores
 Woolworth Corp.

WALMART
Diversification
and International Expansion
59
 Year 1992
 Joint venture
 Cifra S.A. (Mexico’s largest
retailer)
 63 stores (22 Sam’s Clubs, 11
Wal*Mart supercenters)

WALMART
Diversification
and International Expansion
60
South America
Plan to enter in
1995
Brazil &
Argentina

WALMART
Diversification
and International Expansion
61
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 Buyer’s switching cost is low
Pace Firm can adjust prices quickly
Supercenter Price elasticity of demand
Meijer
Fred Meyer

WALMART
Diversification
and Five Force Analysis
Supermarket Potential Entrant
Kroger They have distribution
Safeway Stores channels
Access to raw materials
Allocate favorable locations

WALMART
Diversification
and Five Force Analysis
Key players Suppliers
Procter & Gamble Industry is concentrated
GE Many suppliers
Wrangler No-nonsense

WALMART
Diversification
and Five Force Analysis
Target Market Customers
?????? Low switching cost
Transportation cost

WALMART
Diversification
and Five Force Analysis