INTRODUCTION

When it comes to marketing your business, there are three generic strategies you can use

focus , differentiation and cost leadership. While the cost leadership strategy can be highly

successful, it can be can be difficult to employ. It involves marketing your company as the

cheapest source for a good or service. This means that you need to minimize your costs and

pass the savings on to your customers. By looking at examples of firms that have employed

this strategy successfully, you can see how it can benefit your own business.

Wal-Mart Stores Inc. has been successful using its strategy of everyday low prices to attract

customers. The idea of everyday low prices is to offer products at a cheaper rate than

competitors on a consistent basis, rather than relying on sales. Wal-Mart is able to achieve

this due to its large scale and efficient supply chain. They source products from cheap

domestic suppliers and from low-wage foreign markets. This allows the company to sell their

items at low prices and to profit off thin margins at a high volume.

Wal-Mart is incredibly successful in managing its supply chain. Wal-Mart applies the most

reliable supply chain management system which is very efficient because almost all product

data can be tracked to and from the manufacturer, warehouse, and the store shelf. Efficiency

in supply chain system may save Wal-Mart several million dollars as it can prevent losses

from faulty product management.

The Successful Cost Leadership Strategies of Wal-Mart

              

 When you walk into Wal-Mart, the first thing you will notice is that the prices of the Wal-

Mart are much lower than those of any other stores. Why does Wal-Mart offer lower prices?

What are its strategies in lowering the prices?

There are two activities that drive the strategy of Wal-Mart in lowering prices; primary

activities and secondary activities. Primary activities include all the activities such as supply

chain management, operations, distribution, sales and marketing and services etc.

Wal -Mart’s strategy in cost leadership

Efficiency in supply chain management:

Supply chain management is management of a network of interconnected

businesses involved in the provision of product and service packages required by the end

customers in a supply chain. Supply chain management spans all movement and storage

of raw materials, work-in-process inventory, and finished goods from point of origin to point

of consumption.

Wal-Mart is incredibly successful in managing its supply chain. Wal-Mart applies the most

reliable supply chain management system which is very efficient because almost all product

data can be tracked to and from the manufacturer, warehouse, and the store shelf. Efficiency

in supply chain system may save Wal-Mart several million dollars as it can prevent losses

from faulty product management.       

Efficiency in operations and distribution strategies:

Operations and distributions strategies have helped Wal-Mart achieve low prices- Wal-Mart

opens the stores outside of large cities and within 200 miles of existing stores.  By bunching

stores together in small areas, distribution costs are below average.  Furthermore, Wal-Mart

seeks to meet different customers’ needs with four main distinct retail options; these include

discount stores, supercenters, Sam’s Clubs, and neighborhood markets. In addition to that

Wal-Mart is trying to open Wal-Mart Express in urban cities where physical space is at a

premium.   

The secondary activities of the Wal-Mart stores include all activities and technologies that

indirectly contribute in achieving lower prices such as R&D, human resources management

especially employee training, etc.

Bargain power:

 Wal-Mart buys its products at rock-bottom prices, exchanges high purchase volumes for low

cost while passing the savings onto its customers. The bargaining power of suppliers is

weak.  Many suppliers even give in to Wal-Mart’s pressure because they depend on the

discount retailer for the majority of their sales. For most producers, Wal-Mart is their largest

account.  Obviously, they would do what Wal-Mart wanted them to do if they hoped to

maintain their sales. Furthermore, the bargaining power of buyers is also weak because there

is a very broad base of customers and a significant demand for low prices.   

Failure of potential entrants: 

Wal-Mart’s ability to continuously drive its costs lower while satisfying customers’ needs

makes it potential entrants very difficult to compete with Wal-Mart.

   

Therefore, those are the strategies that Wal-Mart uses to sustain cost leadership position in

the value chain market.

 Footnote: This is a general study using most updated references and cases study to uncover

the successful cost leadership strategies of Wal-Mart. Not all primary activities and

secondary activities are discussed. But special emphasis is put on efficiency in supply chain

management and efficiency in operation and distribution. In addition to that, this study

mentions about the role of Wal-Mart’s buying power among suppliers, producers,

competitors and the bargain power of buyers in order to illustrate the cost leadership of Wal-

Mart.

1. a. Corporate Strategy:

Before analyzing Wal-Mart’s corporate strategy, it is important to decide what business it is

in.  For example, if Wal-Mart is in the business of selling consumer goods such as TV’s,

sheets, clothes, etc then it is pursuing a concentric strategy by entering the food business.  

However, this changes depending on how you analyze what business Wal-Mart is in.  Wal-

Mart is in the business of selling everything customers need in their everyday lives.  This

includes the consumer goods listed above as well as food-service items.  Even still, Wal-Mart

pursues multiple strategies.  Concerning concentration, Wal-Mart continually finds more

consumer goods to sell at its stores which can take money from competitors.  Additionally,

when Wal-Mart entered into the food market, it quickly consolidated and held to good,

saleable products.  Wal-Mart never forays too far into a market and only sells what will make

it a profit.

           

Recently, Wal-Mart has pursued a conglomerate strategy by starting to sell used cars at some

of its stores in Buffalo, New York.  Selling cars is an entirely different industry than selling

consumer goods.  Additionally, it requires a whole new set of expertise that does not come

easily.  As far as future plans are concerned, Wal-Mart should abandon this strategy and stick

to what they do best.

          

  Lastly, an argument can be made that Wal-Mart is also pursuing a

vertical integration strategy.  Wal-Mart has developed its own name brand to sell products

called Sam’s Choice.  This puts Wal-Mart into the business of making things like soda,

cereal, and dog food.  While they still don’t grow their own crops or raise their own livestock,

it is still a form of vertical integration.  Also, Wal-Mart works heavily with its suppliers.  This

symbiotic relationship can be see as vertical integration due to the level at which Wal-Mart

analyzes its suppliers and improves their manufacturing processes, etc.

b. Business Strategy:

Wal-Mart definitely has the business strategy of Low Cost Leadership. They do nothing to

really differentiate themselves from competitors and provide no-frills self-service stores that

always provide the lowest prices.  Wal-Mart has built enough clout with suppliers that they

can dictate the prices and go in and change suppliers manufacturing processes in order to

wring out more and more savings for the consumer.  Everything that Wal-Mart does from

calling suppliers collect to having execs double up in hotel rooms, is to save the customer

money.  While they do try to provide good customer service on top of low prices, Wal-Mart’s

strength is low-prices.  No one has such a supplier and distribution network like Wal-Mart

that allows such low prices.

Human Resource Management

Wal-Mart’s success in Human Resource Management is keeping their workforce of 1.3

million from unionizing, while adding to it and pursuing other HR activities to further Wal-

Mart’s success.  Wal-Mart would not have been able to expand and have the same level of

success without hiring and taking care of quality employees. Some of Wal-Mart’s human

resource activities include employee advancement, employee recruitment on college

universities, and employee training and development.  Additionally, while most firms have

slowed down their hiring of new employees, Wal-Mart has sought out new ways to attract

employees to compensate for their further expansion over the next five years.

Looking at Wal-Mart’s Human Resource Management, one of the most important aspects is

Wal-Mart’s employee advancement program.  Currently, 65% of the company’s managers

began working hourly jobs, such as cashiers.  Wal-Mart has taken great efforts to ensure that

there are opportunities for their employees to rise up through the ranks so to speak.  This

availability of opportunities to advance past low-paying hourly wage jobs undoubtedly is part

of the reason that Wal-Mart was voted as one of Fortune magazine’s most admired

companies and was distinguished as one of the best companies to work for in the U.S.

In the realm of employee recruitment and employee training and development, Wal-Mart has

targeted college students to add to their workforce.  Wal-Mart achieves this recruitment by

fanning out over 80 college campuses.  While they are at these colleges, they are also able to

expand their demographics by looking at minority fraternities and sororities, which brings all

types of people from different backgrounds, races, and genders together in the Wal-Mart

family.  Having a wide variety demographic for a workforce, only serves to attract more

people to seek employment with Wal-Mart because they are able to show that they have a

very open hiring process.   Beyond this recruitment, Wal-Mart has taken an additional step

with college students by offering management training for college students while they are

still in school so they are more developed and prepared upon their graduation. This program

serves the purpose of making college students consider careers with Wal-Mart, and over the

last two years, the program has had immense success. 

The results of these Human Resource activities speak for themselves.  Wal-Mart has

achieved a very good retention rate for their employees, and the proof of this is their focus on

adding to their workforce over the next five years by hiring 800,000 new employees bringing

the total over two million.  Despite the reports that Wal-Mart’s employees are underpaid and

not given benefits, Wal-Mart has not wavered.  Employees, as much as 60%, have gone on

record saying that they stay with Wal-Mart because the benefits allow them to take care of

their families.  If employees were unhappy and leaving at a considerable rate, then the focus

would be on filling these open spaces rather than expanding their workforce.

ASPECTS:

One aspect of Wal-Mart that sets them apart from other corporations is how they manage

their relationship with their suppliers.  We have determined that Wal-Mart is such a dominant

force and has become such an important account for their suppliers that they have managed to

eliminate Supplier Power.  By eliminating Supplier Power, Wal-Mart can pursue achieving

their goals and concentrate purely on their Cost Leadership Strategy, which serves the

consumer with “Everyday low prices.”  However, the fact that Wal-Mart is able to disregard

Supplier Power begs the question of where exactly does Wal-Mart derive its power? 

Additionally, if Wal-Mart has nearly eliminated Supplier Power, then what kind of

relationship do they have with their suppliers?

Wal-Mart’s power is derived from their size and the influence that comes with it.  A quick

look at Wal-Mart’s numbers is the proof of Wal-Mart’s size and power.  Some of Wal-Mart’s

numbers include 23% of Clorox’s sales and 20% of Revlon and RJR Tobacco’s sales.  If

these companies choose to walk away from their supplier relationship with Wal-Mart, then

they would lose out on nearly a quarter of their revenue.  The fact of the matter is that this

same concept extends to all of Wal-Mart’s other suppliers like Kraft, Proctor & Gamble,

Gillette, Campbell’s Soup, and many more. The reality that these suppliers live in is one

where they know that their Wal-Mart account is one that they cannot afford to lose.   In fact,

suppliers are also faced to look at the predictions that, in an estimated five years, Wal-Mart

will double in size, which mean Wal-Mart’s account with only continue to grow. 

Since Wal-Mart has effectively eliminated Supplier Power, it is also important to consider

the state of their relationship with suppliers.  In many ways, Wal-Mart has changed the

dynamic of the supplier and buyer relationship.  Joe Galli,  Newell CEO, was quoted as

saying, “The days of price increase are over.” Often times, Wal-Mart will tell their suppliers

upfront what they will and will not pay for a good. However, despite the fact that Wal-Mart

has removed the possibility for supplier price increase, their suppliers generally feel one of

two ways about Wal-Mart.  The first supplier sentiment is serving a client like Wal-Mart

forces a company to become more efficient. Many suppliers feel that doing business with

Wal-Mart is the equivalent of entering a corporate basic training exercise.  Robin Prever, who

was CEO of Saratoga Beverage Group, was quoted as saying that this relationship with Wal-

Mart, “… wakes everybody up. And all our customers benefited. We changed our whole

approach to doing business."  

In this regard, if their suppliers feel cheated, does it really affect Wal-Mart in the end since

suppliers cannot afford to lose their business?  The answer is yes because, “suppliers can

affect manufacturing time, product quality, and inventory levels.”  All of these aspects of

supply can shape Wal-Mart’s ability to effectively restock their shelves for their inventory

turnover. In addition, if Wal-Mart pursued avenues that would seriously undercut their

suppliers, then they face a variety of possible repercussions.  For instance, if suppliers

became unable to take care of their workforces, then Wal-Mart could see significant drops in

their product inventories.  Therefore, even though suppliers do not have power in regards to

their relationship with Wal-Mart, it is still important for Wal-Mart to maintain relations with

their 21,000 suppliers because suppliers are the key to Wal-Mart achieving its goals and

strategy.

Growth Journey Of Wal-mart

During the 1970s

• Wal-Mart’s sales increased from $31 million to $1.2 billion, a signification growth rate of

287% & the number of Wal-Mart stores increased from 32 to 276.

During the 1980s

• Wal-Mart’s sales increasing at compounded annual rate of over 36%.

• Introduction of the Sam’s Wholesale Clubs in 1983, and the Hypermart (which was later

known as Super Center) in 1987. 

• Made heavy investments in IT. In 1987, Wal-Mart installed satellite communication

systems costing an estimated $700 million.

• In 1989, Wal-Mart stared building a huge database of customer information in its data

warehouse system.

During 1990s

• Introduced customer information kiosks in its stores in 1996.

During 2000

• Wal-Mart was registered as one of the world’s largest companies, with revenues of $165

billion in fiscal 2000, and

• Launched the ‘store of the community’ program,

• By 2003, Wal-Mart, was the world’s largest company, with revenues in fiscal 2002

amounting to $244.5 billion.

Strategy of Wal-mart

• Same goods for less( charges 2-5%lower price) & still earns profit.

• Very good operational efficiency

• Use of IT in all verticals of business

• Effective use of logistics management

• Global Expansion for new market opportunity

• Networked to HQ via private satellite in 1983

• Bargaining power over suppliers

• Data used to “profile” each market

• Predicts demand, optimizes stock

Operational Strategy:

• Wal-mart created significant advantage through the systems it developed to manage it’s

warehouses and stores

• Initially Wal-mart choose locations without direct competitions from large chains(rural

areas)

• Wal-mart created a culture of supporting values, skills, technologies, supplier –customer

relationship, HR and approaches to motivation that could not be easily copied by other

firms

Wal-mart’s future

 As Wal-Mart continues to grow and expand, they should continue looking into new product

markets. The next opportunity that Wal-Mart should seek to incorporate into their stores is

the sale of musical instruments.  Specifically, Wal-Mart should look into the sale of guitars

and other band equipment. This product market is a viable area for Wal-Mart to consider

because  they have already involved themselves in the music industry. 

Wal-Mart is responsible for 14% of music sales worldwide, and they have also jumped on the

online music bandwagon by selling MP3’s on their website for $.88 a song.  They can bring a

completely new aspect of music to their consumers by selling quality musical instruments,

such as Fender electric and acoustic guitars, amplifiers, drum equipment, etc.  Fender is one

of the biggest players in this industry being the largest supplier of solid body electric guitars. 

Last year, Fender made an estimated $256 million dollars of sales with a workforce of 1,800

employees. The musical instrument industry is one that is growing because of increased

consumer interest. Another company that has found a great deal of success is Yamaha, which

is the nation’s largest maker of musical instruments.  Yamaha made an estimated $822

million of sales last year.   These companies like Fender, Gibson, and Yamaha work mainly

through dealers.  Whether through online sites, such as guitarplayer.com or through actual

dealer stores like Sam Ash, these dealers specialize only in selling musical instruments. 

If Wal-Mart could come to an arrangement with a company like Yamaha or Fender, it would

add a whole other level for musical instrument sales.  Wal-Mart could offer a variety of

products with a variety or price ranges that will attract experienced musicians and beginners

alike.  People that have never previously thought about buying a nice beginner guitar could

now have the option to purchase a Fender or Yamaha guitar at a Wal-Mart everyday low

price.  One question that might come to mind is why wouldn’t a customer seek out a dealer if

they wanted to purchase a musical instrument?  One potential answer to this question is that

often times dealers are not nearly as accessible as a Wal-Mart.  Also, dealers can raise prices

and sell an overpriced product to an unsuspecting new musician.  Dealers have the luxury of

overpricing their products because it is the only source of revenue and there is very little

competition from other dealers in a single geographic area.  However, if a consumer were to

see musical instruments and equipment for sale in a Wal-Mart, they could feel comfortable

that those products meet Wal-Mart’s Cost-Leadership Strategy of “Everyday Low Prices.” 

The bottom line for Wal-Mart is that there is definite potential in this product market,

provided that they could find a way to enter the market effectively and stay true to their

values while supplying their 3,000 plus stores with musical instruments.

In addition to adding products to its stores like musical instruments, Wal-Mart needs to

carefully plan further expansion.  While most of the US market is already saturated with

regular and super Wal-Mart’s, there is still room to expand.  Wal-Mart still has a lot of room

to grow in both New England and in California.  However, they need to be careful about

doing this so as to not overextend themselves.  If they were to do so, it could send ripples

throughout the company, causing them to raise prices and destroy what they have built. 

Based on personal observations from having lived up there, New England is very sensitive

about outsiders coming in, especially when it is a large chain.  Most of the restaurants and

stores are either owned or operated locally, and are rather small.  Most convenience store

“chains” only have one or two stores.  Additionally, people like feeling close and maintaining

the “ambiance.” Therefore, Wal-Mart needs to expand slowly into New England so that

people can get used to it, just like they have gotten used to large-chain Dunkin’ Donuts.  

Also, they need to alter their store strategy and consider opening smaller stores that would fit

into the ubiquitous small New England town.  When expanding into California, they again

need to take it slow.  There have been a lot of complaints in California about zoning for Wal-

Marts.  Wal-Mart needs to penetrate the market slowly and do more to help the community in

order to prevent backlash.

Finally, Wal-Mart needs to expand further into international markets.  Once again the key

word is caution since not many countries operate like the United States and Wal-Mart will

have a steep learning curve.  Wal-Mart should consider pairing up with existing companies

when it is possible.  This is because they will receive built-in experience and an existing

structure.  They can then take these companies and Wal-Mart-ize them like they did in

Canada.  Additionally, they should build only a couple stores in a new country until their staff

has learned enough about the idiosyncrasies of the country they’re in.  Once they learn about

a new country, they’ll be able to leverage their strengths to deliver low prices everyday.

Wal-Mart’s Strategy through the World

Argentina:

Argentina hasn’t been a high priority market for Wal-Mart. They entered in 1995 by setting

up 100%-owned greenfield stores. They were pretty tiny: by 2007 they had only 13 stores.

Argentina is a small economy compared to Brazil and Mexico. In 2007, according to a

Citigroup report, Wal-Mart’s marketshare of organized retail was 4% and the combined

marketshare of the two biggest players was 22%. No 3 is not a desirable position in discount

retailing because it requires local scale and local marketshare

Mexico:

Wal-Mart, which is No 1 here, entered through a 50:50 joint venture with the leading

retailer. They soon acquired the partner completely. In their business, local marketshare is

critical. So what Wal-Mart sells in Canada, which is right next to the US, over 85% of it is

sourced from Canada. It is all about local economies of scale, local purchasing power and

local logistics. Discount retailing is a very “multi-local” business. 

When Company A competes with Company B, local scale and local market power determine

the cost structure, branding and retail presence in eyes of customer. Wherever Wal-Mart did

not pursue this logic they ran into trouble. In the 1990s when Wal-Mart opened its first store

in Mexico, they had a huge American-style parking lot. They found all the shopping carts

were piled at far end of parking lot – because customers came in via buses not cars and went

to one side which was closer to the bus stop. They made mistakes in terms of the product

mix. They were selling the same thing as in the US.

There was a story about them selling golf balls to customers whose income levels were low.

The mistakes they made in Mexico were relatively early and non-fatal. They recovered from

them very quickly. That was really the first non-US foray so they were learning on the fly.

Today Mexico is a fantastic story for Wal-Mart.

Brazil:

In Brazil it took them more time to become No 1 because they had tough competitors like

Ahold and Carrefour. As the competitors stumbled, they acquired the Ahold stores. Over time

Wal-Mart strengthened in Brazil. They made mistakes again with regard to localization of the

product mix.

Hong Kong:

Hong Kong was their first foray into Asia. It was a brief disaster. Wal-Mart knew nothing

about Asia. They entered Hong Kong through a joint venture with a Thai conglomerate. This

was unwise because instead of picking a Taiwanese or Hong Kong company as a local

partner, they picked a Thai partner. They opened three stores and shut them down very

quickly. Hong Kong is a very compact place and they didn’t factor in how customers would

get to the stores. There was nothing wrong with the product mix. 

They did not factor in the broader ecosystem – how customers will come and go. They chose

a very inconvenient location for customers. In 1995, they had 2,900 stores worldwide and if

three bombed, it didn’t matter so much. It shows that Wal-Mart from time to time, hasn’t

been the smartest company in terms of joint venture partners.

Korea: 

Wal-Mart entered Korea in 1999. They entered by acquiring four units from Macro (a Dutch

chain, now owned by Metro). Korea is fairly mature market and there was a local company

called Emart, which is the market leader. Emart warned Wal-Mart that this is a very local

industry and it doesn’t matter that you are the biggest retailer in the world – we are the

biggest retailer in Korea. Wal-Mart made an acquisition offer to Emart which Emart rejected.

Wal-Mart entered as a small player and could never become big. Seven years later they sold

their stores to Emart and got out.

China: 

Wal-Mart is still too early in the game in China. It’s a respected retailer in China. They do a

good job in terms of localization of the product mix and store format. There have been no big

mistakes. Carrefour entered at roughly same time as Wal-Mart – but it is growing faster, has

double of the number of stores and is much more profitable than Wal-Mart. Wal-Mart

appears to be looking at China as one big national market – the same way it views the US.

Carrefour looks at China as a portfolio of regional/local markets. Unlike Carefour Wal-Mart

has centralised sourcing and a centralised distribution centre. 

Carrefour gives greater autonomy to store managers. It is not even relying on local economies

of scale, forget global. China’s infrastructure is better than India’s but it is in the process of

being built up – when you have weak infrastructure for consumer goods, you have national

manufacturers and not local manufacturers. In terms of food products, Chinese like to buy

fresh meat so local sourcing is much smarter than centralised sourcing. Just like any

developing economy, heterogeneity across China in terms of what people want to buy is very

high.

Carrefour can open one store in the middle of the city and tell the local store manager you are

an independent profit manager – so you decide what you want to buy, from whom. Your

competitor is the small mom and pop store in the city. It’s a perfectly fine strategy. In

retailing, local government bureaus become very important so if you give store managers

high degree of autonomy it makes it easy for them to understand how to work with local

governments. Carrefour is looking at China as a portfolio of local markets.

Wal-mart’ Strategy in India

When you enter a new market, a lot depends on the kind of a partner you have. If you have a

partner that itself has ambitions to be a major retail powerhouse in India, there is a strategic

conflict. Sooner or later India will permit foreign retailers to have direct equity ownership in

India. Then what will Wal-Mart be left holding? Bharti has retail ambitions – it will want to

buy Wal-Mart’s shares then, rather than sell. 

If stores are branded BestPrice, what is Wal-Mart getting in this deal? One could argue that

Wal-Mart should have thought of India as a portfolio of regional markets and work with

smaller regional partners. It’s hard for them to have much bargaining power or have national

ambitions. They would have been happy to brand them as Wal-Mart and when regulations

change, Wal-Mart would be able to buy them out.

Wal-mart Entering India

1.Wal-Mart should focus on local customer preferences, strategic

locations, regionaldiversity. Given the compliance with

Regulatory norms and fast market penetration, Wal-Mart to gofor

strategic alliance – joint venture. Success depends on

implementation within time-limits.. Wal-Mart should apply its

‘Repeatable formula’ of Lowest price - supported with

efficientsupply chain and Information technology for Indian

markets as well.. Organized retail are expected to increase its

market share from 5.7% in 2011 to about 12%by 2016. Major

gainers are expected to be the new entrants like Wal-Mart and

Carrefour. Recommendations. Increasing per capita income and

changing consumption pattern are the key drivers of fastgrowing

Retail sector in India..With the opening up of Indian Retail sector

for FDI up to 51% in multi-brand retail, India isset to become

hub of Multinational Retailers from across the Globe.

2. The Corporate Level Decision: Entering India Should Wal-

Mart Enter India? No Yes More Downside Risk Growth

Opportunities Acquiring a local Player Joint Venture Organic

Start Growth Greenfield Operational & Cultural Issues - Not

Recommended Recommended Regulation Issues – Too risky –

Not Not Recommended Recommended Considering various

Regulatory & Risk vs. Return aspects, it is recommended that

Wal-Mart should enter India with a strategic Joint Venture, at

least to start with.

3. Indian Retail Market - Growth & Opportunities Indian Retail

Food Industry Market Value• Indian Retail Industry had total

Revenues (Billion USD)of $470 bn in 2011. 500 400 300• CACG

between 2007-11 stands at 10.7%. 200 100• Data Monitor

Research estimates a 0 2005 2006 2007 2008 2009 2010 2011

2012 2013 2014Industry size of $675 bn between 2010- Source

Datamonitor India – Food Retail Industry Retail report dated

June 20102014 with a CAGR of 14.7%. Indian Food Retail

Segmentation 2009 (% by Value)• Fast Urbanization & Young

demographics 1.3% 0.1% 0.3% Convenience Stores &are key

drivers. Gas Stations 32.9% Food and Drinks• Changing

preference will boost 65.4% Hypermart, Supermarhypermarket &

super markets in India. t & Discounters Cash & Carries &

Warehouse Clubs With rising per capita income & changing

consumption pattern, retail industry to become massive in next 5

years. Organized retail & hypermarkets to have a even higher

proportionate growth.

4. Profitability Analysis: Porter’s 5 Forces Threat of New

Entrants • Carrefour to enter market. • Wal-Mart has first mover

advantageBargaining Power of Suppliers Competitive Rivalry

Bargaining Power of Customers• With ‘high volume’ model of •

Large unorganized sector • Present Organized/ Wal-Mart,

suppliers have low • Moderate to high organized Unorganized

sector unable to bargaining power sector e.g. Big Bazaar give

low price deals Threat of substitute products • No immediate

substitutes possible to Retail With fast increasing demand &

proposed model of cost leadership, Indian Retail Industry looks

substantially PROFITABLE.

5. SWOT Analysis: Wal-Mart Strengths Weakness1. Deal with

Suppliers - Cost Leadership 1. Unable to adapt to different

cultures/2. Efficient Supply Chain countries e.g. Germany3.

Strategic Location/ Facilities at Stores 2. Heavily dependent on

‘bulk sales’4. Strong IT backup 3. Late entrants5. New

Technology Implementation 4. No success beyond Americas

Opportunities Threats1. New Economies - India/ China/ Brazil 1.

Restriction on FDI e.g. India2. Rising disposable incomes 2.

International law against dumping3. New channels – Marketing/

Internet 3. Regional competitors based models 4. Law against

‘Monopoly’– Anti-thrust4. J.V. with some leading players

policies Opportunities look impressive. The key to success lies in

how Wal-Mart tackles local laws/ regulations & makes its

‘repeatable formulas’ work in new markets.

6. Key Success: Factors for Indian Markets1. Cost Leadership –

Attracting Masses2. Strategic Retail Outlet Location3. Wide

Range of Goods/ Variety - keeping ethnic & economic diversity

in mind4. Sales Promotion/ Marketing Campaigns in Festive

SeasonsStrategic Gaps in Indian Retail Sector1. Limited mainly

to Metros, Tier-I cities. Huge potential lies in sub-urban, rural

markets, Tier-II & Tier-III cities2. Geographical Gaps – Markets

like North East are yet to be explored3. Truly Global Shopping

Experience missing in Indian Retail Stores Wal-Mart has to

incorporate Indian Values & preferences while designing the

business model. Focus on strategic gaps critical for its eventual

success.

7. Competitors in India: Name Category Target Segments

Comments Rating Big Bazaar Merchandize Diversified Middle

Class(Future Group) The main competitors Pantaloons Apparels,

Accessories Upper Middle Class +(Future Group) Lower Upper

Class Star Bazaar Merchandize Upper Middle Class + String

Backing by Tata, (Tata Group) (Diversified) Lower Upper Class

Limited Reach Spencer’s Smaller outlets, Limited More

Merchandize Middle/Upper Middle Growth D.Mart

ClassShopper’s Stop Apparels, Accessories Mostly Upper Class

Strong hold in Metros. Good (Corporate) presence in Target

Segment LifeStyleGiven bargaining power (with FMCG

companies) along with its Logistic& IT support, Wal-Mart is

expected to tackle its competitors. Key lies in capturing new

geographies & finding strategic locations

8. Wal-Mart Expansion: Past Track RecordCountry Mode

Strategy ResultsCanada Acquired a Weak Player • Operating in

markets which Very Successful required minimum adaptation •

High Brand Recognition Segment UK Acquired ASDA M&A

Synergies Successful- Competition from TescoGermany

Acquired a Big Player Leveraged Acquired Network Failed –

‘Werkauf’ cultural & operational issues China Greenfield

Operations Sourced from Chinese suppliers; Neutral- focused on

need gaps Labour Union and Law Suit issuesSuccess & Failure

mainly driven by adapting to local culture, consumer need gaps

and tackling Government issues.

9. Key Challenges in India:

1. FDI Restrictions - FDI Restrictions of 51% on Multi-brand

Retail. Proposal for increasing the cap to be discussed in winter

session, but chances are low

.2. Social & Political Resistance - A strong opposition from

certain political parties is certainly expected in some pockets of

society – local retailers, dealers would protest

3. Countering deep penetration of ‘Mom & Pop’ Stores -

Especially in Tier-II & III cities, the network of ‘ Kirana Stores’

is extensive. Also sales on credit facility is available which Wal-

Mart cannot do.

4. Poor Infrastructure will cause friction - Indian standards of

roads, ports & freight facilities are way below global benchmark.

It will lead to inefficiency in the value chain.

Wal-Mart’s Keys to Successful Supply Chain Management

As the following case study demonstrates, a successful supply chain management strategy

can lead to lower product costs and highly competitive pricing for the consumer. 

Over the past ten years, Wal-Mart has become the world’s largest and arguably most

powerful retailer with the highest sales per square foot, inventory turnover, and operating

profit of any discount retailer. Wal-Mart owes its transition from regional retailer to global

powerhouse largely to changes in and effective management of its supply chain.

Wal-Mart began with the goal to provide customers with the goods they wanted when and

where they wanted them. Wal-Mart then focused on developing cost structures that allowed it

to offer low everyday pricing. The key to achieving this goal was to make the way the

company replenishes inventory the enterprise of its strategy, which relied on a logistics

technique known as cross docking. Using cross docking, products are routed from suppliers

to Wal-Mart’s warehouses, where they are then shipped to stores without sitting for long

periods of time in inventory. This strategy reduced Wal-Mart’s costs significantly and they

passed those savings on to their customers with highly competitive pricing. Wal-Mart then

concentrated on developing a more highly structured and advanced supply chain

management strategy to exploit and enhance this competitive advantage.

Components of Supply Chain Management (SCM)

The main elements of a supply chain include purchasing, operations, distribution, and

integration. The supply chain begins with purchasing. Purchasing managers or buyers are

typically responsible for determining which products their company will sell, sourcing

product suppliers and vendors, and procuring products from vendors at prices and terms that

meets profitability goals.

Supply chain operations focus on demand planning, forecasting, and inventory management.

Forecasts estimate customer demand for a particular product during a specific period of time

based on historical data, external drivers such as upcoming sales and promotions, and any

changes in trends or competition. Using demand planning to develop accurate forecasts is

critical to effective inventory management. Forecasts are compared to inventory levels to

ensure that distribution centers have enough, but not too much, inventory to supply stores

with a sufficient amount of product to meet demand. This allows companies to reduce

inventory carrying costs while still meeting customer needs.

Moving the product from warehouses or manufacturing plants to stores and ultimately to

customers is the distribution function of the supply chain.

Supply chain integration refers to the practice of developing a collaborative workflow among

all departments and components involved in the supply chain to maximize efficiencies and

build a lean supply chain.

Wal-Mart’s Method of Managing the Supply Chain

Wal-Mart has been able to assume market leadership position primarily due to its efficient

integration of suppliers, manufacturing, warehousing, and distribution to stores. Its supply

chain strategy has four key components: vendor partnerships, cross docking and distribution

management, technology, and integration.

Wal-Mart’s supply chain begins with strategic sourcing to find products at the best price from

suppliers who are in a position to ensure they can meet demand. Wal-Mart establishes

strategic partnerships with most of their vendors, offering them the potential for long-term

and high volume purchases in exchange for the lowest possible prices.

Suppliers then ship product to Wal-Mart’s distribution centers where the product is cross

docked and then delivered to Wal-Mart stores. Cross docking, distribution management, and

transportation management keep inventory and transportation costs down, reducing

transportation time and eliminating inefficiencies.

Technology plays a key role in Wal-Mart’s supply chain, serving as the foundation of their

supply chain. Wal-Mart has the largest information technology infrastructure of any private

company in the world. Its state-of-the-art technology and network design allow Wal-Mart to

accurately forecast demand, track and predict inventory levels, create highly efficient

transportation routes, and manage customer relationships and service response logistics.

Benefits of Efficient Supply Chain Management

Wal-Mart’s supply chain management strategy has provided the company with several

sustainable competitive advantages, including lower product costs, reduced inventory

carrying costs, improved in-store variety and selection, and highly competitive pricing for the

consumer. This strategy has helped Wal-Mart become a dominant force in a competitive

global market. As technology evolves, Wal-Mart continues to focus on innovative processes

and systems to improve its supply chain and achieve greater efficiency.

Conclusion

• Wal-mart is the leader in the Low cost retailing industry

• With $404.16 billion in revenue, the company is bigger than 160 nations.

• Imbibing sustainable business practices in it’s business process

• Has strategic partnerships with P&G, China, several consulting firms which provide them

sustainable business consulting.

• Excel at attributes such as price, quality, on-time delivery, selection, availability, that

their competitors can’t match

• Non-commodity brand based on lower prices, which is a key differentiator and value

proposition to most of our society today.

• hange in tagline last year – from “Everyday Low Prices” to “Save Money. Live Better.”

proves it’s move toward sustainable products with low cost.

.

Awards & Recognition

• Ranked #1 Consumer Staples Company - Carbon Disclosure Project (CDP) 2008 report

and scored 89 out of a possible 100

• Corporate Energy Conservation, Energy and Environment Award

• 2009 Green Choice Award

• 2009 Sustainability Excellence Award

• Top 50 Companies for People with Disabilities

• Top Organizations for Multicultural Business

• Number One Most Admired Company in America

• Best Place to Work in the United Kingdom (ASDA)

• Top Organizations for Multicultural Business

Bibliography

• www.Wal-Martfacts.com

• www.gartner.com

• www.forrester.com

• www.hoovers.com

• www.wikipedia.com

• www.tsmg.com

• www.finance.yahoo.com