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Competitive Advantage-Discount

Stores
Product & Marketing Low price-cost margins with 91% of products priced below market average
Low advertising expenses at 1.5% of sales compared to 2.1% of direct competitors
Merchandise tailored to individual markets
Strategies Always low prices---Always

Low Inventory turnover since store managers priced products to meet local demand and rental expense lower than
Operations direct competitors at 3% of sales
Only 10% inventory footage compared to industry average of 25% and operating expense were 18% of discount store
sales versus industry average of 24.6%
Strategies A hub and spoke distribution strategy with the Introduction of Cross Docking ensured Walmarts cost of inbound
logistics to be only 3.7% compared to 4.8% of competitors

Spent over $700 million to set up satellite communications network, computers and related network used for credit
card authorizations, video transmissions and inventory control
R&D Strategies Analysis of sales data collected through the satellite helped store managers avoid overstocking and deep discounting
Installation of UPC two years ahead of Kmart to ensure accurate pricing and improve efficiency

Employed 52800 full and part time staff consisting of 30% part time employees
Organization & Incentive Compensation based on store profits for store managers and rotation policy of assistant managers to meet
companys growth demand
Control Strategies Associate stock ownership plans
Glass emphasized on a frugality and since Walmart didnt have regional offices it saved the company 2% of its sales
Competitive Strategy
Analysis
Activity Analysis- Value Chain
Support Activities

Firm Infrastructure More geographic presence compared to competitors

Human Resources Incentives compensation, Profits sharing motivate the associates


Decentralised training

Technology Development Use of UPC, EDI lead to lower inventory costs and increased sales
despite higher expenses
Higher bargaining power over suppliers
Procurement Sharing expectations from suppliers & soliciting recommendations for better performance

Reduced Electronic Cross-docking Everyday low


inventory Scanning - led to lower price strategy
costs due to UPC costs.
electronic Few
data Lower % of Own two-step promotions
interchange store used for hub-and-spoke
and vendor inventory distribution Lower
managed network advertising
inventory costs
systems
Inbound Operations Outbound Marketing & Service
Logostics Logostics Sales
Primary Activities
Resources based Competitive
Advantage
Resource Based View
Competency Inimitability Durability Appropriability Substitutability Competitive
Superiority
Integrated Yes Yes Yes Yes Yes
Technology of Supply
chain
Ability to generate No Yes No Yes Yes
large sales volume
Logistics system Yes Yes Yes Yes Yes

Operational Yes Yes Yes No Yes


Decentralization
Employee Culture No Yes Yes Yes Yes

Human Resource No Yes Yes No Yes


Management
Resource Based View-Contd.
Test of Inimitability -Medium :Wal-Mart's model can be imitated but it is complex and highly path dependent. The value proposition of the company is
based on Always low prices Always and pushing from inside out. It offers very competitive pricing and good quality products. However, these
can be replicated by other discount store chains.

Test of durability- Medium: Wal-Mart possesses a strong and durable brand image with a robust IT system to support store operations and other
value chain processes.

Test of appropriability High: Wal-Mart has a centralised value system with decentralised operations. It maintained a strong attitude with vendors
and distributors, while providing information to them for performance improvements. Though suppliers, consumers, distributors etc. had minimal
control, strong strategic partnerships were established.

Test of Substitutability-Medium: Several discount store chains existed and could substitute Wal- Mart but their Operational Expenses were much
higher and Sales were quite low compared to Wal- Mart.

Test of competitive superiority -High:Wal- Mart has the lowest operating expenses and highest operating income in the industry. Apart from this, the
stores are large in number and spread out across geographies

By Analysing these factors It can be inferred that Wal-Mart's competitive advantage is sustainable
SuperCenter chain Industry analysis
Threat of
new entrants
Overall (3.15)
Attractiveness -2.8

Industry
Suppliers Rivalry Buyers
(2.6) (3.0) (2.35)

Substitutes
(3.1)
Challenges for SuperCenters
Numerous substitutes and Competitors - Supermarkets, Independent food stores, discount retailers and warehouse
clubs

Ability of supermarkets to undercut small markets was reduced by 1-2% margins on which the industry operated.

All the competitors from Discount retail industry are also expanding in Supercenter industry

Existing grocery-store chains were defending market share and expanding aggressively Ex. Krogers IT investment
of 300 million USD

Most chains had private label brands, which carried higher margins and also priced lower than name brands
Will Wal-Mart succeed in this format?
Limited scope of Value creation with already low Operating margins

May lead to cannibalization of Sams clubs as well as discount stores; Value added by supercenters should
compensate this loss

Walmart can leverage its technical expertise and distribution strategies to reduce operational inefficiencies to
become more profitable

Overall, Wal-mart may succeed in this format but would be difficult in current scenario to reach its scale and
profitability of discount retail industry.
Transferable benefits in
Leverage superior technology in running store processes
Internationalization
Implement easy-to-adopt IT technology methods
Technology

Easy to replicate store format; remerchandising and renovating


Expansion
strategy
Continue with policy of pushing from inside out geographically

Empowerment of associates within firm


Office
culture
Continue building on framework of loyalty

Offer additional programmes to meet local demand while complying to company


Cater to
local needs
standards

Focus on decentralized training for retraining staff members


HR Policies Hire extremely committed and motivated people